Evaluation of the integration between corporate and financial performance: The social impact bond financial instrument

Abstract

The social impact bond (SIB), at the present in Italy, is a financial instrument issued by a bank to support social initiatives in which the subscriber will receive a limited financial return on investment. As part of that performance, the social return for the community is considered as an integration of the financial performance that will replace a part of the interest rate. The first experience in Italy is represented by a bank that has issued 45 Social Bond for 472 million euros. The research analyses, on the basis of the character-ristics of the third sector in Italy, with particular reference to the financial weakness of the sector, the possible impact on the financial management process in the social enterprises by the use of SIB. Moreover, we would demonstrate that, with a well-conducted cost-benefit analysis, it is possible to construct a hypothesis of SIB in which the repayment is based on market rate. In particular, is proposed the development of a SIB with the objective of formulating hypotheses of response to the innovative following questions: Given certain cost drivers, what social outcomes would generate savings for the state budget able to fully repay the fixed costs of the SIB, to give a percentage of the benefit to the government and to ensure the repayment to investors? How to identify the timing of cash flows in order to structure a potential internal rate of return objective satisfactory for investors? Due to the lack of already developed case studies, with the technics of the business plan, we analyse the impact of SIB on social and financial performance, both from the point of view of the Public Administration and of the social enterprise, in a project of social housing introducing a remuneration rate at market level. The development of the project shows that, with the integration of the private and public perspective, it is possible to improve the social and financial performance offering an adequate interest rate and, moreover, without limit the hypothesis of SIB underwriting to the philanthropic institution.