Social Impact Bonds have emerged as a promising way to scale proven social service interventions.

Social Finance recently released “Foundations for Social Impact Bonds: How and Why Philanthropy is Catalyzing the Development of a New Market”, a white paper on the role of foundations in catalyzing the development of Pay for Success (PFS) and the US Social Impact Bond (SIB) market. This paper is based on research and interviews with some of the foundations at all stages of engagement in this market – from observers to the actively involved. It is a valuable resource for any philanthropic institution thinking about this nascent field, providing insights into why and how to engage.

The paper identified many challenges that may surface as foundations think about entering the SIB market. As I read the list of challenges and obstacles sited, I was reminded about why Living Cities is committed to this work—To overcome them and to demonstrate the potential of this model. Not usually one to view myself as an optimist, I was pleased to see myself in Winston Churchill’s famous quote “A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty.”

There are two challenges that are particularly resonant to the work of Living Cities and part of the reason Living Cities has entered the SIB market: making collaboration work across sectors and addressing silos in the public sector. Rather than view these as barriers to keep foundations from entering the SIB market, perhaps SIBs can be a catalyst to increase our learning about what it takes to collaborate across sectors and smash silos in the government to make progress toward positive social outcomes.

At Living Cities, we believe that cross-sector partnerships are essential to tackling some of the toughest challenges our country faces today. Cross-sector partnerships are at the core of innovative work we support that is transforming urban systems and producing better results for low-income people, like our signature Integration Initiative and Strive. But, as these initiatives and others have continued to evolve, we’ve realized there was a need for greater understanding of cross-sector partnerships so that practitioners, participants, and funders can have a systematic way and shared language to reflect on whether these vehicles are structured to achieve their intended goals. Our work in Pay for Success is providing additional insight into our understanding of this work.

And, tackling today’s challenges requires cutting across traditional programmatic boundaries. The public sector, with its unique combination of resources, authority and leadership, can play critical roles in supporting these integrative efforts. But too often specialized and poorly coordinated bureaucratic structures – “silos” – mean that different parts of government work at cross purposes. Structuring a SIB requires the busting of these programmatic and budgetary silos. Learning what it takes for government to work across agencies or across levels of government to structure a PFS contract will provide insight into what it would take to systematize those silo-busting behaviors.

It is too soon to know if Social Impact Bonds and other Pay for Success financing will prove to move the dial on our social problems, but the potential is too big to ignore and worth the hard work. SIBs have emerged as a promising way to scale proven social service interventions and foundations’ traditional role as an “idea shop” where new innovations are tested and concepts are proven is a role that is greatly needed to allow the potential of SIBs and PFS to be realized.