NFPs recognise need to innovate as government funding is now much less reliable

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Over the first part of this week I was in Melbourne and Sydney attending and presenting at the CPA Australia Not-For-Profit Conference, which will be also held in Brisbane next Wednesday and Thursday. If you are involved in an NFP I would strongly recommend you attend, as you will learn important insights into how NFPs can thrive in an environment in which government funding is much less reliable. Key issues covered at the conference, which I will try to cover in more depth in the future included:

  • Shared services models for NFPs to achieve administrative cost savings,
  • Social enterprise business models, which I have previously referred to on this blog (see Impact Academy fostering local social enterprises), and
  • Social benefit (or impact) bonds, which are an innovative new way of financing social programs.

The presentation by Wendy Haigh from the Benevolent Society on the $10 million Resilient Families social benefit bond trial her organisation undertook in NSW with the support of the NSW Government, Westpac and CBA, was illuminating. As noted on the Benevolent Society’s website:

A Social Impact Bond, also known as Social Benefit Bond, is a form of finance designed to raise capital for programs that address areas of pressing social needs.

Private investors provide capital to a service provider to achieve improved social outcomes. If these outcomes are achieved, the cost savings to governments are then used to repay the upfront investment plus a dividend.

In the case of the Benevolent Society’s Resilient Family program assisting 400 NSW families at risk, the one-off cost of around $25,000 per family for early intervention 24/7 on-call assistance would be paid back many times over if the intervention would prevent a child from having to go into out-of-home (i.e. foster) care which can cost over $60,000 annually per child. The Resilient Family program has achieved some excellent outcomes over the last two years. For example, it has increased the percentage of families in the program experiencing only low levels of distress from 54% to 71% (i.e. it has reduced the percentage of families experiencing medium and high levels of distress) and increased the percentage of children in a normal emotional range from 66% to 86%.

While the money to fund the program ultimately comes from the government, out of future cost savings the theory goes, the involvement of private sector investors means some private sector money is at risk, because if the program does not achieve its outcomes they may not earn a return on their investment. The private sector investors are thus likely to pay close attention to the program and ensure the governance and monitoring and evaluation structures are in place to maximise the program’s chance of success.

The Queensland Government is currently investigating the potential application of social impact bonds in Queensland, which is an exciting development worth watching (See Social benefit bonds pilot program).

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2 Responses to NFPs recognise need to innovate as government funding is now much less reliable

  1. bjreconomics says:

    Good work Gene, you are looking sharp.
    Not sure there is great benefits in the social benefit bonds as it is just a recognition that the Government has not been contracting correctly. The Government could achieve the same outcomes at lower cost by just fixing the way it contracts and manages its assistance programs.

    Anyway good to see they are actually trying to help people.

    • Gene Tunny says:

      Many thanks, BJR. You’re absolutely right it’s a contract design issue. The SBB is possibly an over-engineered contract dressed up as a bond, which I’d hesitate to call it given it doesn’t pay a fixed coupon. Even though it might be a bit over-engineered, it’s probably a good thing it gets private sector investment dollars involved and puts the return at risk, as it motivates the investors to ensure the NFPs work hard to deliver. Many NFPs would probably be reluctant to risk their own capital in a performance-based contract with the government.

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