Meet the Social Impact Bond, a win-win solution to problems

IS there always a hard choice between doing good and doing well?

Around the world, a new tool called the "Social Impact Bond" (SIB) is gaining popularity. This is an innovative way for the public, private and people sectors to collaborate in achieving social outcomes.

Here's how it works:

First, the government specifies a social-issue area where it would like to see an impact. Second, a group of private investors find and fund a non-profit group to deliver that social impact. Third, an independent evaluator rigorously measures the social impact of the non-profit. Finally, the government repays the private investors - if and only if the specified social impact is achieved.

For example, in Boston, where I have been working on SIBs for several years, the government wanted to solve the problem of youth ex-offenders returning to jail. To solve this problem, Goldman Sachs and a coalition of philanthropists made a six-year investment in a non-profit organisation called Roca.

Roca used the investment to provide data-driven engagement, intensive cognitive therapy and employment services to 900 young ex-offenders. At the end of six years, an independent evaluator will measure the number of days spent in jail by ex-offenders on Roca's programme, and compared this number to a randomised group that received "services as usual", just as in a medical trial.

If there is a net reduction in jail days, the government uses the funds that would have been spent on jail to repay the upfront investors their principal, and perhaps even a small return.

Each player stands to benefit: The government maximises the outcomes per taxpayer dollar by only paying for results. The non-profit, Roca, receives a long-term source of funding that enables it to experiment with what works best. The investors stand to get their money back, which enables them to re-deploy the capital in future projects. And most importantly, those in need see their lives measurably improved.

In Singapore, there are unique reasons to use SIBs, and unique areas where SIBs would work best.

In many countries, governments first adopted SIBs because of budget constraints and the need to "spend now and pay later". In my opinion, this is not the best use of the SIB tool. In Singapore, we are blessed with a consistent budget surplus. We can, instead, repurpose the SIB tool to accomplish three goals.

THREE GOALS

We Singaporeans are well known for our pragmatism. We will fund what shows the best results without fear or favour, while our kiasu mentality drives us to try to get the most bang for our buck.

The more I work on these projects around the world, the more I am convinced that if any country can use SIBs for the right reasons, it is us.

SIBs have been used to tackle a diversity of difficult problems. We can learn from existing examples, and break new ground ourselves. A classic application is reducing youth recidivism; the UK, US, and Australia have deployed SIBs in this area.

In Singapore, an average of 1,540 youths were arrested each year between 2009 and 2015. We could help these young people who are released to reintegrate into society, and in doing so, we could lower the cost of jail and the cost of crime to society, and increase the number of productive tax-paying individuals.

A more recent application is diabetes prevention. Israel and Japan have pioneered SIBs in this area. In Singapore, the Saw Swee Hock School of Public Health at the National University of Singapore estimates that the country will have a million diabetics by 2050, which will cost society S$2.5 billion a year - 21/2 times the cost in 2010. By tackling diabetes, a SIB could reduce medical costs and workplace absences.

There are many more areas where this tool could be valuable. What about using a SIB to incentivise new solutions for elderly frailty? Improve workforce productivity? Bring in the world's best early-childhood programmes? By fostering genuine tri-sector collaboration, SIBs could help us make headway on our next generation of problems.

There are challenges too, of course. SIBs are time-consuming to structure. The impact evaluation must be designed carefully to ensure the right incentives. Not every issue is suitable for a SIB, but these are not deal-breakers. There are now more than 60 launched SIBs around the world, with hundreds more in development.

In the future, the best way to do good may be to do well.