AQF Views & Voices: Policy & Practice

AQF Views & Voices: Policy & Practice

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Funding Experiments in Education: Essential Considerations for Paying for Success

Holly Cook

 

Over the past few years, innovative out-come based funding models have been receiving increasing amounts of interest from governments, philanthropic organizations, and NGOs worldwide. One such model, Social Impact Bonds (SIBs), uses private capital to fund social services and promises both social benefits as well as financial returns.

This ‘pay-for-success’ model of social service delivery has emerged from a desire to increase efficiency and effectiveness of preventive interventions. It does this by utilizing private funding to develop and run social programs and public services that traditionally were provided by the state. If the service provider does not meet its promised terms (outcomes and financial returns on investment) then the funder (typically the government) is not required to repay the investors (private sector) the initial capital, plus interest, for the service. The government only pays for success. Sounds great, right? A true “win-win-win.” 1


However, SIBs are a relatively recent invention and have yet to prove their ability to bring about effective, innovative, and long-lasting solutions. 2 Their inherent design and usage in social service delivery, in the education sector in particular, has positioned them as an opportunity for the private sector to conduct large-scale pilots with minimal accountability and oversight while making money off of programs that serve those most in need. Despite this, 9% of SIBs, representing millions of dollars, were funding education initiatives 3 in 2017, and this number is sure to rise as governments worldwide increasingly turn to the private sector to supplement, or even provide, their educational services.

Proponents of SIBs believe they encourage innovation, expand the range and impact of proven interventions to help those most in need, and incentivize a wider range of stakeholders to contribute to the betterment of society. Critics of SIBs describe them as the most recent iteration of experimentation in alternative funding that is leading to increased private sector influence on social policy, which skews priorities and often leads to questionable (at best) intervention designs, misleading metrics, and wasteful redistribution of funding.

To put it bluntly, there is a concern SIBs are designed to produce short-term, measurable results, which could limit the scope of social impact, dilute findings, and pervert incentives.4 Formalizing the notion that social services should lead to a direct short-term return on investment for private companies and investors whose efforts are self-serving, if not managed correctly, could have far reaching unintended consequences.

Education is not solely a short-term intervention to societal issues, and the designs and evaluation methods of funding mechanisms should directly reflect the often not easily measured nuances and wider, long-term impacts these interventions have on society as a whole. A quality education has implications not only for the future success of students, but also for the future growth and stability of the state. Education is too important to be trusted to a funding fad that is not fully understood or even necessarily data-driven.

While this is a condensed and critical review of the currently observable impacts of alternative outcome-based funding mechanisms, these concerns are supported by an emerging body of literature, of which there needs to be more.5Ultimately, SIBs may seem like a promising, quick means to attract funding to support specific social issues through using ‘innovative’ strategies to maintain financial sustainability and dissipate risk. This may be true in theory, but there is a real need for policies, legal structures, needs assessments, and monitoring and evaluation frameworks to ensure such initiatives are not only sustainable and efficient, but also held accountable to benefiting those most in need.

To learn more about Social Impact Bonds, their appeal and use in different sectors around the world, and what governments should do to harness their potential benefits, check out the Al Qasimi Foundation’s open-access policy paper “A New Funding Mechanism: Social Implications for the Public Sector.” 

1 See “Social Impact Bonds” by the Rockefeller Foundation. Retrieved from https://assets.rockefellerfoundation.org/app/uploads/20140921195626/Rockefeller-Foundation- Social-Impact-Bonds.pdf

2 See “A New Funding Mechanism: Social Impact Bonds and the Implications for the Public Sector” by the Al Qasimi Foundation. Retrieved from http://www.alqasimifoundation.com/en/publication/82/a-new-funding-mechanism-social-impact-bonds-and-the-implications-for-the-public-sector

3 See “Social Impact Bonds” by Social Finance. Retrieved from http://www.socialfinance.org.uk/what-we- do/social-impact-bonds

4 See “A New Funding Mechanism: Social Impact Bonds and the implications for the public sector” by the Al Qasimi Foundation. Retrieved from http://www.alqasimifoundation.com/en/publication/82/a-new-funding-mechanism-social-impact-bonds-and-the-implications-for-the-public-sector

5 For an in depth review of the current literature, see “A New Funding Mechanism: Social Impact Bonds and the Implications for the Public Sector” by the Al Qasimi Foundation. Retrieved from http://www.alqasimifoundation.com/en/publication/82/a-new-funding-mechanism-social-impact-bonds-and-the-implications-for-the-public-sector