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Victoria’s first social impact bond to address drug and alcohol services

July 22nd, 2016

The Victorian government's first use of social impact bonds will ask investors to finance programs to get young people out of drug and alcohol addiction.

After weeks of consultations with the community sector, Treasurer Tim Pallas told The Australian Financial Review the government was looking to potential social service providers, partners and investors to fund and deliver the two projects, worth an estimated $10 million. Governments are looking to capital markets to ease pressure from strained budgets and increasing demand for social services.

Social impact bonds mean investors fund the project and bear the financial risk, with contracts requiring the delivery of specified social outcomes over an agreed period. If the outcomes are achieved, the government will make payments to the investors. Up until now the NSW government has led the charge in the use of social bonds. Its first social impact bond, developed in 2014, was a $7 million project to reduce the number of children in foster care. It has so far delivered a yield of 7.5 per cent.

State governments in Queensland and South Australia have also announced programs, and the Western Australian and federal government are also considering adopting the funding regime. Mr Pallas said after much discussion it was decided the two programs were best suited to social bonds. He said there were other sectors that could benefit too there was strong appetite from investors. 

"The government is working with the social services sector to explore the best way to get the right outcomes out of social impact bonds and tackle some significant areas of disadvantage in our communities," Mr Pallas said. "Social Impact Bonds can be an innovative way to deliver real and hopefully lasting improvements to what are unfortunately persistent social issues. The Government will be instituting robust systems to measure SIBs outcomes and evaluate results. The SIBs will complement current Victorian Government programs and services and will not replace existing services."

The Victorian projects are expected to be put to the market in the coming weeks. The government earlier this week announced its Green Bonds scheme, which was fully subscribed within 24 hours. Impact Investing Australia chief executive Daniel Madhavan said experiences in NSW and other countries showed social impact bonds were providing governments with an additional tool for tackling complex social issues that have persisted despite repeat interventions. 

Since the first social impact bond was launched in London 2010, over 60 projects have commenced in 15 countries, with over 21 of these already reporting positive social outcomes and 4 projects that have fully repaid investor capital. "Government has a critical role to play in growing the opportunities to harness private capital for positive social impact. We encourage a more active role for governments at all levels to enable and participate in impact investing," Mr Madhavan said.  

Australian Financial Review


Impact Investing Australia chief executive Daniel Madhavan is speaking at our 2016 National Conference.

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