Giving Compass' Take:

• In its first of five briefs, Brookings explores research on the scope and geographic location of the impact bond market.

• Why are impact bonds becoming more popular? How can you utilize the impact bond market during coronavirus?

• Read more about the impact bond market over the past decade.

Impact bonds arrived in the U.K. around 2010 as an innovative financing tool to address pressing social service delivery challenges. In an impact bond, a form of results-based financing, an investor provides upfront capital for social services programs, and this investment is repaid—often with interest—based on the program’s achievement of predetermined outcomes. In a social impact bond, the repayment is made by government, while in a development impact bond, the repayment is made by a third party, usually a donor organization or a foundation.

Given the social services financing gaps in many countries today, governments and other funders are increasingly looking toward impact bonds to use limited resources more effectively. This tool has attracted attention due in large part to the role of private capital investment in providing public or social services, but despite this attention, many key questions remain. After six years of Brookings research on the global impact bonds market, one of the key gaps in the evidence base is how to judge whether the tool is a success. To begin to answer this question, throughout the month of September, Brookings will publish a series of five policy briefs evaluating evidence across five dimensions of success, ranging from impact bond growth trajectory to considering the costs and benefits of impact bonds.

The first brief explores impact bonds’ growth trajectory since the launch of the first one in 2010, the current size of the market, and their geographic and sectoral spread. It also analyzes drivers of growth and barriers to scale and posits the potential for the future of impact bonds and outcome-based financing more broadly.

Read the full article about the impact bond market at Brookings.