A few pioneers of local governments have utilized social impact bonds(SIBs) as an innovative financing tool for achieving their social policy objectives including education, care, social integration, or employment. In this financial scheme, three sectors commonly collaborate to solve the social agenda of the local society, who are the public sector as commissioners(reward payers), private sector as investors, and SSE organizations as a designer or service provider.
{SIBs in Korea]
In the Republic of Korea, the introduction of SIBs was led by the Seoul Metropolitan Government’s first SIB for educational achievement of children with learning difficulties in 2016. After the successful implementation of the project, so far 5 SIB projects have been launched, and attracts many local governments’ interest in spite of this outcome-based financing tools’ complex structure and various needs of stakeholders. Starting from Seoul City’s adoption of the “Social Performance Reward Project Operation Ordinance” in 2014, more than 11 provincial or municipal governments in Korea established the legal base of SIBs.
Korea Social Value and Solidarity Foundation(SVS) invested forefront to SIB projects and supported the spread of this innovative financing model nationwide.
[SVS’ Investment]
As a leading investor, SVS participated in the second SIB of Seoul City, “Social Impact Bond for Youth Employment in Seoul”. The investment returns of the program fluctuated depending on the degree of achievement of job-hunting performance targets. It was targeted to 500 young adults aged 19 to 34 residing in Seoul City, and integrated job searching services were provided.
SVS’s participation catalyzed other private investors’ investment decisions. The Community Chest Fund, B-Plus, KB Insurance, Return Value, and Daekyo Cultural Foundation participated as private investors, and the management organization, Pan Impact Korea, selected Korea Productivity Headquarters and a social enterprise, Percent as implementing organizations to provide the SIB program to young adults. The Seoul Metropolitan Government was the reward payer.
The total size of the fund was 2.9 billion KRW, and SVS invested 1.1 bil. KRW(100 mil. USD). During the project period of 2020~2023, The 332 young job seekers out of targeted 500 employed or started their own business as the result, and the reward ratio of the investment was 13%.
[Challenges]
Although the result of early SIB projects in Korea were quite successful as the one SVS invested in, the model has not been widely adopted yet and is facing various challenges. The issues lay in the institutional limitations regarding governments’ budget system or contract procedures, lack of understanding or specialties of government officials. Also continuing political support seems to be hard to achieve in many cases. By nurturing the entire ecosystem surrounding the policy through capacity building, enhancing data governance, or political awareness, it would be possible for this innovative tool can be scale and widespread.