Social Impact Bonds - Dragons’ Den in Welfare to Work

I have been giving a lot of thought to Social Impact Bonds. I think they have the potential to overall deliver better outcomes at lower cost however I also think there is a risk they will backfire. If the government pushes too much risk on the investor they won't get funded and if the returns are too low only dead-cert projects will happen.

In my view the following are key:

* The government should only use this funding model where providers can specify a measurable outcome that will be the payment trigger.

* The investors’ risk should be their profit margin and at most only a small part of their capital. This will encourage them to work for the upside without charging a huge premium for downside risk.

* The government should be wary of philanthropic investors. The key to success is an investor breathing down the neck of the provider, focused on achieving the outcome targets and thus the investment return. A philanthropic investor may not attach the same importance as a traditional investor to attainment of the outcome targets and consequent payment of the success fee.

I have written more on this at http://blog.alberg.co.uk/2011/08/30/dragons-den-in-welfare-to-work/ and I'd like to see what others think.