Currently, about 441 million dollars have been raised for 138 Social Impact Bonds (SIBs) worldwide . The use of the term ‘bond’, which refers to a fixed income instrument in finance circles, is somewhat misleading because the investors’ return in a SIB is dependent on the success of achieving predefined outcomes . In fact, a SIB is more similar to a public-private partnership between private or impact investors, a service provider and an outcome payer (Fig. 1) . Most SIBs include an intermediary to convene all stakeholders and provide legal, financial and structural support. An independent evaluator typically measures the outcomes, which are key to determine the cost savings, success payments and social impact of a project. For a SIB to be successful, outcomes should be quantifiable and should lead to clear societal and government savings.|
The SIB model should not be confused with another upcoming finance model, which is called ‘venture philanthropy’. The venture philanthropy model is based on a partnership between a charity and a drug company and provides a mechanism for not-for-profit organisations to help finance the development of a treatment in return for a share in profits, which can later be reinvested in other new treatments . For example, the Cystic Fibrosis Foundation invested US$150 million in Vertex Pharmaceuticals for the development of ivacaftor, and had a return of US$3.3 billion in exchange for its royalty interests . Even though this model may lead to promising new treatments, ethical questions have been raised about the sustainability of a model that maximises profits using philanthropic funds .