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It takes three to tango

By doing modeling you are already answering the question about the Theory of Change: How a strong social welfare system can use the best of the private sector by articulating a successful Social Impact Bond (SIB) model.



I recently went to Finland to discover a very interesting case of when and how SIBs can be used to solve social problems. As a German Chancellor Fellow who is researching social impact investing initiatives in Germany and other parts of Europe, the first thing I learned was that SIB is not the solution to all social problems. Furthermore, the question of how to use SIBs can at times be very challenging.

The reason why Finland is developing SIBs so quickly is mainly because of Sitra´s role. Sitra is determined to accelerate SIBs in Finland, acting like a middle man in charge of the most difficult job, which is educating the public sector how to use SIB models to tackle specific issues.

The other differential for me is that Sitra knows exactly how to act in a new scenario of big government and municipality reforms and is pragmatically answering the questions of the Theory of Change in this new context. Here are some key considerations I would like to make of their model:

  • Together with partners, Sitra defines specific targets and incentives. All sectors (public sector, start-ups, big for-profit corporations, non-profit organizations) learn how to work together in a new collaborative way and share common goals.
  • Investors realize the key role they need to play and that is why they accept lower returns to keep the value of the impact purpose. There is a maximum cap return rate agreed with investors, and the surplus of the return goes to the government.
  • With the recent changes in Finland´s public administration, the customers will have more freedom of choice to choose services among more private enterprises. Consequently, the government will work diligently on measuring the impact of these service providers making sure the quality of services will be preserved.
  • Conflicts between long-term SIB investment and 12-month governmental budget cycles are addressed with long term contracts and commitments between service providers and government (municipalities), considering their tasks.
  • Finland is very data driven and has a recognized engineering culture. This is a competitive advantage because of the experience and knowledge to create complex mathematical models.

Finally, the fact that the government is leading this change is the most important guarantee that impact investing, and especially SIBs, is a priority for them. This makes me confident to say that Finland will have very good examples of impact models to show to the world in the future.

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