SIB Presentation G7

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Financial innovation as a potential 
force for a positive social change: 
The challenging future of social 
impact bonds
By Christophe Schinckus
PhD Paris Sorbonne
Group 7
Sections
1) Introduction
2) Financial innovation as source and
solution for the financial crisis
3) The emergence of social impact bonds
4) Towards a contractualist and
consequentialist ethics
5) Discussion of crises and the evolution
of finance
6) Conclusion
1. Introduction
Social Impact bonds 
(SIBs)
This article discusses SIB as example of a financial
innovation that could contribute to a significant
improvement of society.
➢ These assets are innovative way of funding
welfare issues.
➢ They are used to fund social programs such
as helping homeless people or supporting
early interventions with underprivileged
people.
It is made by redesigning social programs through
market-based solutions. Moreover, SIBs improves
transparency of expenditures made by
government.
Finally, they can help to stabilize economic activity
and they can contribute to the self-realization of
disadvantaged people.
2. Finance 
innovation as 
source and 
solution for the 
financial crisis
Over the past years, it has happened a sharp and 
astonishing increase in the complexity of the financial 
reality due to some changes:
➢ Financial liberatization
➢ Computeralization of financial market
➢ Excessive liquity
It was a result from the easy monetary policy in US and 
Japan.
It led to an emergence of many financial products more 
sophisticated as a result of growing complexity of the 
investors needs. 
It means an increase in personalized products, maybe 
influenced by multiplicity of factors such as:
➢ Changes of financial regulation; 
➢ Macro-economic factors;
➢ Changes in the taxation system.
Example: Global 
crisis in 2008
Financial innovation led to a 
democratization to the access to capital
Assumptions:
➢ The implicit assumption behind the securitization 
of mortgages was that the price of house will 
never fall. 
➢ By diversification, they will dilute the real economic 
risks associated with the worst contracts. 
In this perspective, borrowers and lenders could benefit 
from this appreciation of house prices – since the first 
would finally be able to finance and refinance their homes 
thanks to the capital gains resulting from the house price 
appreciation.
Securitization 
of mortgage
3. The emergence 
of social impact 
bonds
Contextualization
After financial crisis, financial capitalism is being
called into question.
In this context, financial Innovation seeked for a way
to reduce the gap between financial and economic
spheres.
As a result, the solution was the Social Impact Bond
(SIB).
3.1 Definition and 
context
The Social Impact Bond
“A Social Impact Bond is a new financial 
asset whose objective is to invite 
investors to fund social programs by 
providing them an incentive if the project 
meets its predetermined target.”
Furthermore, SIBs are contracts between the
government, the public sector, and a lead agency or
intermediary.
After the last financial crisis, there was a favorable
ideological context for the development of SIBs.
SIBs presented as a win-win because it helps the
government reduce welfare costs and it helps the
people who partake in the programs.
3.1 Definition and 
context
The First Social Impact Bond
➢ UK reconviction program
➢ Return to investors dependent on % decrease in 
reconviction rate.
SIBs have been utilized in other countries recently 
as well. 
They are seen as “public opportunity costs”.
3.2 Debates and 
Challenges
Public and Private Spheres
Distinction between public and private spheres of 
society does raise questions about the role and 
responsibility of public authorities.
➢ Considered by some to be an outsourcing 
of the general welfare.
➢ “A direct erosion of public and 
democratic accountability for welfare 
entitlements.”
An overreliance on SIBs could eventually lead to a 
de facto privatization of the welfare industry.
“The premise of SIBs fails to understand that 
social inclusion policies are not mechanical 
levers but much more organic processes […]” 
(McHugh et al., 2013)
3.2 Debates and 
Challenges
Managing Social Impact Bond
SIBs can also be good from a managerial point of 
view:
➢ If added to an investors portfolio, no 
systematic risk would be added.
➢ Underlying value depends on 
performance of social actors, not of a 
financial market.
However, SIBs are not without their own inherent 
risks.
➢ Execution Risk
➢ Estimation/Proof of Impact Risk
➢ Financial Risk of Repayment
“Social impact bonds imply a very different contractual framework than usual financial assets, in which 
ownership determines imposed return on other stakeholders.”
Contractually, SIBs utilise special purpose 
vehicles to contract with various parties.
4.1 Contractual framework of social impact bonds
4.1 Contractual 
framework of 
social impact 
bonds
Features of SIBs
Investors are considered owners of SIBs.
Actions and governance by committee.
➢ However, no role granted to the users 
of the services.
Leads to an alignment of interests between the 
stakeholders.
➢ The phenomenon of communicative 
action.
4.2 Ethical 
perspectives on 
social impact 
bonds
Perspectives of SIB
There are some that see ethical dilemmas with 
SIBs such as:
➢ “ SIBs are a part of a process which de-
moralizes social policies.”
➢ “ [SIBs] objective is to impose capitalist 
thinking on the social fabric.”
While others view SIBs more positively:
➢ Belief that SIBs lead to social activism and 
empowers the individual while allows 
society to promote an ethic of care.
➢ Consequentialist viewpoints
5 . Discussion of 
crisis and the 
evolution of 
Finance
Main Discussions
➢ Issues of the financial innovation, past 
lesson, and future
➢ Valorisation of the SIB and the new 
alternatives, growing social problems
➢ How we can find value with those new 
way of investments?
➢ A necessary regulation
➢ A complementary alternative : social 
impact bond
5 . Discussion of 
crisis and the 
evolution of 
Finance
Main Discussions
➢ Need support from institutions and 
governments
➢ A compromise : Capitalism and Social 
labor
➢ How SIBs can be valuable for States ?
➢ A way of stabilization
6. Conclusion Main Conclusions
➢ A good alternative, new kind of 
bonds and SIBs
➢ Are SIBs solving problems ?
➢ Author criticism
Thank 
you!