1. PUBLIC SECTOR INNOVATION
USING IMPACT BONDS ©
2013

2. SIBs enable public organizations to experiment with new welfare solutions
on challenges they choose using private investors’money as the risk-takers
while engaging civic organizations to implement the projects.

3. MEET US: SOCIALKONTRAKT
3
Competences and experiences in public
policy and administration,public
innovation,investment structuring,
welfare innovation,public private
partnerships,startup companies.
Collaboration with
SocialFinance and Center
for Economic and
Business Research (CBS)
Communities moving forward
Our goal is to strengthen the welfare state
by providing municipalities with the
network and resources to experiment with
innovative solutions
Team
Reach us:
info@socialkontrakt.com
Twitter: @socialkontrakt

4. GLOBAL COVERAGE OF SOCIAL IMPACT BONDS IN SELECTED MEDIA
4
Short articles about Social Impact Bonds
- Wikipedia article
- The New York Times (20.06.2012)
- The Economist (18.08.2012)
- The New York Times (02.08.2012)
- Center for American Progress (09.02.2011)
- McKinsey & Company (May 2012)
- Huffington Post (10.018.2012)
- Corporation for Enterprize Development
(03.09.2011)
- Non-profit quarterly (17.04.2013)
Studies about Social Impact Bonds
- Third Sector Capital Partners (2011)
- McKinsey & Company (May 2012)
- RAND corporation (2011)
- Social Finance: SIB in Essex (21.10.2012)
- Social Finance: SIB in Thames Valley
(31.10.2012)
- Social Finance: SIB in Peterborough
(2011)

5. SIB TO IMPROVE OUR WAY OF DEALING WITH COMPLEX SOCIAL ISSUES
reduce teenage overweightness?
find employment opportunities for the disabled population?
increase ratio of public transport (or bicycles)?
ensure hospitals are not crowded with unnecessary doctors visits?
reduce smoking (or alcohol use)?
Social issues are complex => that creates need to find new mechanisms to deal with them
integrate ex-prisoners to society and avoid high re-offending?
How do
we…

6. …public organizations could get money to try additional solutions without risk ?
What if…

7. …public organizations could involve their community in decision process?
What if…

8. …public organizations collaborate with innovative companies for welfare solutions?
What if…

9. INTRODUCING SOCIAL IMPACT BONDS
Repayment
guarantee based
on project success
Receive
services
Determine the
strategic public
goals
Investment
into the
providers
Return
based on
outcome
Pay for the
service
Service
delivery
commitment
Service
delivery
Program success
assessment by
independent auditors

10. THE BASIC IDEA: FOCUS ON OUTCOMES,NOT OUTPUT
Traditional public contracting
based on OUTPUTs
Social impact bonds enable contracting
based on OUTCOMEs
“Deliver the target group of overweighed
kids the following services:
> 100 hours of outdoor activities
> 100 hours of lectures on healthy diet”
Service provider focuses on delivering
services just as contracted –even
when they know it’s not working
Service provider measures its own
performance frequently and adjusts
project performance
example example
“Reduce the number of overweighed kids:
> Improve body mass index to less then 25
> Ensure that kids do not undergo social,
psychological or health problems”
vs
⇒

11. ALLOWING TO LEARN CONCURRENT WITH EXISTING ACTIVITIES
SIB projects don’t need to replace existing projects,but provide experiments alongside.
Family consultations
Special lectures at school
Example: How do we reduce the number of overweighed kids?
Kids in a
selected school
Outdoor sports
activities
New computer game
involving exercise
Heavy computer
users between 13-15
Existing
projects
New
projects
realized
with SIBs
All kids with the
problem

12. BRIDGING THE RISK THROUGH INNOVATION VALLEY OF DEATH
SIBs provide the necessary risk-taking capital in order to facilitate the learning process
time
Perceived
project
risk
Municipal
willingness
to invest
Project 1
Project 2

13. ROOM FOR ALIGNMENT BETWEEN PUBLIC GOALS AND CIVIC ORGANIZATIONS
Align public goals with private money and capacity of non-public organizations using SIBs
Service
delivery
Service
delivery
Pay for the
service
Service
delivery
commitment
?
Lack of
collaboration
Interested funds include:
• Obelske Familiefond
• Velux Fonden
• SociaKapitelFond

14. SIB FUND ENSURES APPROPRIATE LIQUIDITY FOR SIB REPAYMENT
• Public institutions make annual payments
to the SIB fund.
• The payments are sourced from savings
and/or from preventive or innovation
public budgets.
• In case the SIB project doesn’t achieve the
highest performance,some of the project
payments are saved in the SIB fund for
future SIBs,or paid back.
• The investors pay for service
providers during the course of
project.
• The impact bond fund
accumulates necessary money to
cover investors.
• Investors are paid at the end
based on project success level.
Payments
during
project
Payments
during
project
Repayment
upon impact
assessment

15. PROCESS OF ISSUING SOCIAL IMPACT BONDS –HOW TO GET STARTED
SIB projects start with the crucial step of defining the problem –by public organization
Projects worth 3-20m DKK per year
over 3-7 years period

16. PROGRESS WITH SEVERAL PUBLIC INSTITUTIONS
*Aalborg,focus on
elderly healthcare.
*København,focus on
preventative healthcare
*Probation services for
temporary inmates,
Odense Area.
*Ikast-Brande,
ongoing discussion
*Middelfart,
ongoing discussion
*Halsnæs,
ongoing discussion

17. PROCESS OF SOCIAL IMPACT BOND ISSUANCE
17
Problem with a price tag
and clear variable(s) of
success
Executing organizations
are matched with
investors
Projects are delivered on
pre-agreed budget and
timeline
Investors are funded
based on the Impact
assessment
Align public budgets with
public vision.
* What are crucial goals?
* How much are they worth?
* Which specific parameters
indicate success?
* Invite companies and NGOs
to submit projects.
* Prequalify projects with
public organization
* Open the projects for
funding by investors
* Monthly performance
reviews,and adjustments to
project methodology
* Investment is released to
service providers upon
milestones
* Project efficacy measured
by independent auditors
* Investors receive pay-back
based on projects’success
* Projects adopted by public
institutions

18. PROCESS OF SOCIAL IMPACT BOND ISSUANCE
Problem with a price tag
and clear variable(s) of
success
Align public budgets with
public vision.
* What are crucial goals?
* How much are they worth?
* Which specific parameters
indicate success?
EXAMPLE HYPOTHETICAL FIGURES AND STATEMENTS
Problem: “Too many overweighed kids between age 6 and 12 in the district”
Value to public sector:
• Highly overweighed persons cost the health system over 1m DKK over their lifetime as
they are more prone to diabetes,and require operations
• Overweighed kids are more likely to require study help and additional teaching
• Overweighed kids are less likely to find a job when they finish their education
⇒ Total current public value of reducing overweigh issue is 0.8m DKK per head as a
combination of the impacts in various public budgets
⇒ Municipality agrees to pay to projects 0.4m per person whose overweigh problem is
resolved with a cap of 14% in annual return
Success parameters:
• Number of persons in target group whose body mass ratios has reduced to from
“extremely high”to “normal”.
• Number of persons in target group whose body fat ratio has reduced to less then 30%.
• The normal weigh status needs to be sustained over 18 months.
• No increase in behavioral or health problems during treatment.

19. PROCESS OF SOCIAL IMPACT BOND ISSUANCE
EXAMPLE HYPOTHETICAL SCENARIO
Executing organizations
are matched with
investors
* Invite companies and NGOs
to submit projects.
* Prequalify projects with
public organization
* Open the projects for
funding by investors
1. Service providers are invited to make their bid to carry out projects concerning the
overweigh issue.
a. Red Cross Youth applies with a project to engage target group with outdoor
activities
b. Mobile app developer company Shape applies to develop a mobile app which
will get the kids to work out and earn badges
c. Therapists association apply to carry out a new child-centric therapy method
with the target group and their teachers,families and friends.
2. Municipality pre-approves all projects based on their ethical and political fit.
3. During a 3-month period,investors are invited to finance each of the projects
a. 80% of the money is raised from foundations and CSR funds with social
objectives.
b. 95% of the investors are private individuals who have some kind of experience
with or exposure to the overweighed kids.
c. Projects (a) and (b) receive adequate funding for pilot and start implementation

20. PROCESS OF SOCIAL IMPACT BOND ISSUANCE
EXAMPLE HYPOTHETICAL SCENARIO
• Red Cross project focuses on 1000 overweighed kids between 6-12 divided into
two cohorts based on their age.
• Red Cross Youth finds out that in order to move the overweighed kids to enjoy
and compete on outdoor sports such as kayaking,the kids need to have peers who
do not have the overweigh problem
• They also find out that finding appropriate equipment for the target group is
essentially a major part of the problem,and they make necessary arrangements to
procure the equipment.
• They receive project payments in 3 steps; initially (40%), upon reaching the
desired body-weight with the first cohort (30%) and upon sustaining the body-
weight for one year with the first cohort (30%).
• The interim impact assessment reports show encouraging results,but some delays
in the execution.
• By adjusting program activities and calendar,Red Cross manages to deliver above
the minimum impact threshold.
Projects are delivered on
pre-agreed budget and
timeline
* Monthly performance reviews,
and constant adjustments to
project methodology
* Investment is released to
service providers upon achieving
milestones

21. PROCESS OF SOCIAL IMPACT BOND ISSUANCE
EXAMPLE HYPOTHETICAL SCENARIO
• Final impact assessment shows success with 60% of the target group
• Red Cross project receives enough funding to cover project costs plus a return
which corresponds to 7% annual return on investment
• Funds and private persons who funded this project are encouraged to fund other
social impact bonds
• Project assessment studies show that the method employed creates 3 times more
value for society then its cost
• Municipality decides to implement the project with scale with all target group
• Red Cross leads implementation by training municipal employees that
implemented SIB,as well as others.
⇒ The public workers are convinced about the efficacy of the new approach proven
project carried out by civic sector –which they previously resisted
⇒ A new method/approach to help kids with overweigh problems considered risky
by municipality is implemented
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Investors are funded
based on the Impact
assessment
* Project efficacy measured by
independent auditors
* Investors receive pay-back
based on projects’success
* Projects adopted by public
institutions

22. BUILDING BLOCKS FOR SOCIAL IMPACT BONDS
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Robust outcome metric(s)
Clearly defined target
group
Issue area a priority for
public sector
Promising and innovative
interventions and service
providers exist
Issue area a priority for
investors
Cost of intervention is
small relative to potential
public sector value
Considered interventions
are currently not viable for
public sector to invest in

23. EXAMPLES OF BONDS –CASE UNDER DISCUSSION WITH AALBORG
23
Goal
Reduce unnecessary hospital visits by the recent elderly
hospital patients
Measurement Variables
y Reduction in the number of unnecessary doctor
visits
y Maintain health conditions
Elderly people with
recent hospitalization
record
Aalborg
Kommune
Social
Kontrakt
TBD
TBD
Budget and Period
~15m DKK
Stakeholders
2014 -2016
Contact SocialKontrakt for more information

24. EXAMPLES OF BONDS –CASE UNDER DISCUSSION WITH MIN.OF JUSTICE
24
Goal
Avoid traumatic experiences among the detainees
awaiting trial in detention prisons
Measurement Variables
y Reduction in the number of sick-days by prison
guards
y Improved health conditions and days necessary for
psychiatric of detainees.
Detainees in Fyn,Syd-
og Sønderjylland
Arresthuset I
Odense
Social
Kontrakt
TBD
TBD
Budget and Period
~20m DKK
Stakeholders
2014 -2017
Contact SocialKontrakt for more information

25. EXAMPLES OF BONDS –VULNERABLE YOUTH IN ESSEX,UK
25
Goal
Provide therapeutic support and improve outcomes for
vulnerable adolescents at risk of going into care
Measurement Variables
y Reduction in days spent in care by the adolescents
y Improved school outcomes
y Wellbeing (health)
y Reduced reoffending
380 vulnerable young
people between
11-16 & families
Essex County
Council
Social
Finance
Big Society Capital,
Bridges Ventures,&
others
Action for
Children
Commitment
£ 3.1 million
Stakeholders
2012 -2017
Contact SocialKontrakt for more information

26. EXAMPLES OF BONDS –DISADVANTAGED KIDS IN THAMES VALLEY,UK
26
Goal
Help the kids participate and succeed in education or
training and thereby improve their employability
Measurement Variables
y Improved behavior
y School attendance
y Educational qualifications
y Employment opportunities
2,500 vulnerable
young people
between 14-15
Department of Work
and Pensions
Social
Finance
Big Society Capital,
Bridges Ventures,
Barrow Cadburry Trust
and Impetus Trust
Adviza (Energize
Program)
Commitment
£ 7 million
Stakeholders
2013 -2016
Contact SocialKontrakt for more information

27. EXAMPLES OF BONDS –EX-PRISONERS IN PETERBOROUGH,UK
27
Goal
Reduce reoffending among the short-term ex-prisoners
after they leave the prison
Measurement Variables
y Reduction in re-offending rate
3,000 short-
sentenced male ex-
prisoners from
Peterborough jail
Department of work
and pension
Social
Finance
Blue Sky,RAPt,
St Giles Trust
YMCA,
St Giles Trust,
Ormission Trust
Commitment
£ 5 million
Stakeholders
2010 -2016
Contact SocialKontrakt for more information

28. EXAMPLES OF BONDS –HOMELESS PEOPLE IN GREATER LONDON,UK
28
Goal
Create sustainable solutions for the homeless in London
Measurement Variables
y Reduction of individuals bedded on the streets
y Confirmed tenancy
y Confirmed connection to a country with social connections
y Decrease in A&E episodes per person per year
830 homeless people
in London
Department of
Communities and
Local Government
(DCLG)
Social
Finance
Greater London
Authority
Two providers
(TBD)
Commitment
£ 5 million
Stakeholders
2012 -2014
Contact SocialKontrakt for more information

29. EXAMPLES OF BONDS –ADOPTING VULNERABLE CHILDREN,UK
29
Goal
Family finding for vulnerable children at adoptive families.
Measurement Variables
y Number of children adopted
300 vulnerable
minority children with
clinical conditions or
over 4 years of age
Department for
Work and Families
BakerTilly
& LSE
HNWIs
Consortium of
Voluntary Adoption
Agencies
Commitment
£ 5 million
Stakeholders
2012 -2014
Contact SocialKontrakt for more information

30. EXAMPLES OF BONDS –REDUCING YOUNG OFFENCES,AUSTRALIA
30
Goal
Reduce foster care and prevent young criminals from returning
to prison
Measurement Variables
y Number of days spent in foster care
y Reduction in young offenders
500 young adult
repeat offenders
Government of New
South Wales
Mission
Australia
(Ongoing)
Benevolent Society,
Westpac Corporation
and Uniting Care
Burnside
Commitment
$ 20 million
Stakeholders
2013 -2018
Contact SocialKontrakt for more information