Presentation by Frank Lee, European Investment Bank, New Products and Special Transactions Department, at a FEANTSA seminar on "Funding strategies: Building the case for homelessness", hosted by the Committee of the Regions, June 201é

1. European Investment Bank
The Potential for Social Impact Bonds to
Attract Investors in the Delivery of Social
Services
New Products and Special Transactions Department
June 2012
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2. Background
• EIB currently manages 19 JESSICA funds across Europe, these are ERDF
funded, with investment predominantly focused on physical interventions
in urban areas
• JESSICA involves the use of ERDF and national match funding to provide
debt, equity and guarantee investments in urban development projects.
• The nature of the investment, should enable projects to repay investment,
creating revolving and financially sustainable regeneration funds.
• There is scope augment socio economic impact by combining and
integrating ESF in urban investment strategies
• This would also support the concept of integrated
urban development, where investment should be
functional urban area focused and holistic in terms
of physical, economic and social
investment.
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3. Potential Payment by Results Programmes
• Local level training and employability programmes linked to capital works
proposed
• Early pre-employment ready intervention programmes, that would benefit
from a localised approach and knowledge and locally dedicated service
providers, could include services to support:
• Drug Users
• Homeless
• Troubled Families
• Baseline and performance monitoring and measurement metrics are critical
to the overall payment by results model
• If the interventions are successful the payment received from
Government/Municipalities can be used to repay investors and/or be
recycled to be used again for further intervention
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4. Existing UK Housing Examples
• Broadway Property Fund – Broadway is a London based Homeless
charity which has recently launched a new fund, which:
• aims to address the shortage in available social housing for homeless
people by purchasing properties in bulk from developers and landlords
• is managed by a financial intermediary and comprises a range of private
investors with social objectives – envisaging a 5% return on investment
• The Social Enterprise arm of Broadway, guarantees rental income to the
Fund and provides management and maintenance support to tenants
• Impact Housing, Cumbria which:
• is using ERDF grant to undertake external wall insulation programmes
• alongside the Greenways to Work ESF programme which is:
• providing on site training and accreditation to construction workers
• providing full time college training courses for residents on external works,
timed so that residents will be trained in time for the next phase of the capital
programme
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5. Payment by results investment model
ESF Other investors
resources (public or private)
Fund of Funds
Government Make payment invest
for results
(national, regional
SIFIs SIFIs
or local)
Social enterprises
Deliver
results/impact - providing local training, job creation,
housing, care, etc
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6. Social Impact Bonds
• Social impact investment is still in its infancy, but nevertheless has
sparked huge interest in countries like the UK and US
• The social impact approach aims to improve social outcomes at
reduced tax payer’s expense, transfer performance-based risk from
governments to investors, and reward higher-performing non profit
social enterprises with long term growth capital to scale proven
innovations
• Social impact bonds raise private investment capital to fund
prevention and early intervention programs that reduce the need for
more expensive “crisis” responses
• These innovative financial instruments need public ‘’seed’’ funding to
prove concept, develop track record and eventually mainstream in
the capital markets.
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7. Existing UK examples
• The UK government (DWP) recently launched its ‘’work programme’’
which includes the use of ‘’payment-by-results’’ model
• Social Finance plc launched first social impact bond in 2010, targeting
repeat offenders in the UK criminal justice system.
• Allia has issued numerous bonds, investing to “guarantee” capital with
interest provided as grant to charities and other social enterprises
• Big Society Capital was recently created to grow a sustainable social
investment market in the UK. It does this by investing in social
investment finance intermediaries (SIFIs), developing their capacity to
provide social sector organisations with access to new, appropriate
and affordable sources of finance to increase their social impact
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8. Why combine with the affordable housing sector ?
• In old Member States at least, social housing sector represents a
regulated and well organised grouping. They are generally area
focused, with a primary interest in social impact.
• In New Member States, housing associations in various forms
are also being formed, and ESF/ERDF resources could be used to
accelerate the development of this sector.
• Social businesses are often local in their focus and the
involvement of an intermediary who has extensive knowledge
and experience of operating in a certain location, should enable
a more holistic approach to neighbourhood development
proposals.
• Allows for significant leverage of EIB and institutional
investment, particularly in complementary social infrastructure
– social enterprises often too small to attract significant
investment in isolation.
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9. Using ESF in Social Impact Bonds
• The draft regulations for the 2014-2020 structural funds programme,
place much greater focus on the use of financial instruments –
incentivised by 10% extra EU co-financing
• Potential to use ESF in social impact bond investment approaches and
as a new form of financial instrument
• ESF could be used to share or reduce the risk profile of potential
private sector investors – with the aim of increasing private
investment in the social impact market
• Targeting the policy areas and service providers that are not able to
access the required level of funding from commercial sources to add
maximum value
• Potential to combine physical investment by affordable housing
providers with investment in complementary social and community
enterprises through deploying both ERDF and ESF resources
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10. Social impact investment model
ESF Other investors ERDF
resources (public or private) resources
Larger
Fund of Funds institutional
investors
Government Make payment invest
for results
(national, regional
SIFIs Housing
or local)
providers
New housing as well as
Social enterprises improving energy efficiency
Deliver
results/impact - providing local of existing housing
training, job creation,
housing, care, etc
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11. In summary
• Potential to combine social enterprise investment with larger capital funding
used for the construction and renovation of affordable housing.
• ERDF and ESF funding can be used to pilot/catalyse this investment model, to
prove track record and attract institutional investors.
• ERDF can be used to incentivise the uptake of energy efficiency and
renewable energy interventions by affordable housing owners – either by
way of grant or preferential funding terms.
• Some or all of the interest yield on such investment can be ‘’put at risk’’ to
support social enterprises involved in payment-by-results programmes, either
directly related to the housing capital works or linked to wider community
strategies.
• ESF can be used to either:
• - support public authorities who need to make payments at the end of social
service contracts
• - co-invest in the ‘at risk’ investment made into social enterprise activities
• - top up/augment the yield paid to institutional investors
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12. Contact
New Products and Special Transactions
JESSICA and Investment Funds division
European Investment Bank
98-100 Bvd Konrad Adenauer, L-2950 Luxembourg
www.eib.org
Frank Lee
Head of Holding Funds and Advisory,
Northern Europe
Tel: +352 43 79 83062
Mob: + 352 621 459 249
lee@eib.org
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