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Saskatchewan projects show how Social Impact Bonds investors can cherry pick

Both projects sponsored by the Saskatchewan government show how Social Impact Bonds can be structured to exclude those who are hard to help.

Ottawa (18 May 2018) — One of the concerns about Social Impact Bonds is that investors will cherry pick. Because investors don’t make money unless a project meets its targets, they will choose only projects where success is almost certain to attract investment. That means that when Social Impact Bonds are used to fund social services, those who need help the most will be excluded.

People most in need of help excluded

Both projects sponsored by the Saskatchewan government show how Social Impact Bonds can be structured to exclude those who are hard to help. The way participants in the 2 projects were chosen means that the people who participate are those who appeared likely to be able to meet the goals for project participants. Using this strategy increases the chance that the Social Impact Bond project will meet its targets, but leaves those who face the most challenges with no help at all.

Social Impact Bond for vulnerable children picks fee-paying school

A Social Impact Bond project that is intended to serve vulnerable children in Regina only assists children who attend a school that charges fees to attend and that can’t accommodate students with special needs.. The project provides supports for children at Mother Teresa Middle School. Mother Teresa Middle School draws students from economically disadvantaged families in Regina, but the school is intended to serve only “highly motivated” students. This project is meant to increase the number of vulnerable children staying in school, but picking a school that charges fees and is selective about who it admits means that many children with the greatest needs are likely to be excluded.

According to information on the school website, the school “does not have the supports to accommodate students with severe behavioural problems or special needs.” In addition, the information the school provides for parents states that “each family is asked to pay a monthly (11 months) participation fee of $50 to contribute to the educational process.” That's an annual cost of $550/year.

Motivational interview required for Sweet Dreams Social Impact Bond Project

The Sweet Dreams Social Impact Bond project is supposed to help single mothers at risk of having their children taken into care by the Ministry of Social Services. The executive director of the organization running the project told a Senate committee that admission was based on a “motivational interview.” The executive director also said that what was looked at was “willingness to be part of the plan” and what the mother “is willing to contribute.”

Programs like the one offered through the Sweet Dreams Social Impact Bond project are needed—but they are needed by all single mothers at risk of having their children taken into care, not just those who are highly motivated.

Risk of cherry picking increases when investors have more at stake

What makes the cherry picking by the Saskatchewan Social Impact Bond projects surprising is that investors don’t have a lot at stake. The returns are lower than for most social impact bond projects. Further, those fronting the money appear to view it as a contribution as much as an investment. So if cherry picking is taking place with these projects, one can only imagine it happening when investors expect to receive the higher profits that Social Impact Bonds usually offer.

Investor profits shouldn’t be the way to decide who gets helped

No one would argue that the people the 2 Saskatchewan Social Impact Bonds projects are assisting deserve all the help they are getting and more. The problem is that the people who aren’t getting help through Social Impact Bond projects are the ones who need it most, and that the decision about who gets help is based on what is most likely to make a profit for investors.

Because Social Impact Bonds push up the cost of delivering services, using Social Impact Bonds means there is less money available for broader social services. And unless investors think they can make money helping people, people won’t get the help they need.