On the 4th of March, the 1st Belgian SIB ( Social Impact Bond) structured and financed by BNP...
When financial innovation works to support Social Entrepreneurship
From Social Impact Bonds (SIB) in Great Britain and Europe, to the new Social Impact Contracts in France: financial innovation is supporting social entrepreneurship, with positive results! Claudia Belli, Head of Social Entrepreneurship and Microfinance at BNP Paribas, explains.
Can you start by describing your role within the Group’s CSR Department?
As the Head of Social Entrepreneurship and Microfinance, I develop support strategies for microfinance and social entrepreneurship for the Group. In the long run, our ambition is to become the leading bank for social entrepreneurs across several territories.
BNP Paribas is starting to gain recognition in this area: we are already renowned in France and are becoming more widely regarded in other domestic markets (Italy, Belgium and Luxembourg).
Now, in order to maintain this status of a “bank for social entrepreneurs,” we need to continue to develop tools such as specific credit policies, integrate ourselves into the relevant echosystem, meet and connect with all actors involved, serve their financial needs, and go into the growing markets for social entrepreneurship, such as Morocco, Tunisia, Senegal, Poland, California and more.
“ At BNP Paribas, our CSR department, a powerful laboratory for social innovation, is designing new concrete solutions. ”
Head of Social Entrepreneurship and Microfinance at BNP Paribas
Can you tell us about Social Impact Bonds?
Social Impact Bonds are a way of financing social innovation that began in Great Britain. In 2010, Peterborough prison in England recorded a high rate of recidivism. Several organizations developed a specific rehabilitation program for the prison, as well as a new solution to finance the program: a "bond" that is paid back by the government upon maturity, as long as the social impact target is met. In this case, the target was to lower the rate of recidivism.
Today, all SIBs operate on this same basic principle to achieve a precise and measurable social impact goal, which serves as the condition for redemption. Achieving these targets, which pursue innovative social actions, saves the government much more than the capital paid out for each bond.
However, use of the model remains limited, with only around 40 SIB set up to date in the United Kingdom, Australia, the United States, Belgium and Portugal, for various amounts ranging between 400,000 euros and 20 million euros.
Can you tell us more about the role governments and the private sector play in Social Impact Bonds?
With SIB, a government transfers the risk of social innovation to the private sector—since implementing innovative social policies carries risks that it cannot support—and accepts an ex-ante system, agreed with all parties, for evaluating the effectiveness of planned actions.
As in the case of the very first SIB, taking into account the total amount spent by the government on each inmate in case of success all parties are winning, but in case of failure, investors could see a total or partial loss.
On the other hand, when the social impact is achieved, private investors are repaid and rewarded with a portion of the savings generated by the government in the form of interest. In this way, the government and civil society both benefit from concrete social improvements enabled by the SIB, at no additional cost to the government or NGOs.
What are the other forms of innovation currently emerging in the field of Social Investment?
Several innovations have been implemented, while Impact Investing stands as the most visible and is expanding rapidly. Investing savings in enterprises with a high social or environmental impact contributes both to the greater social good and financial profitability.
Today, an additional form of social innovation comes through the capacity to measure social performance since it promotes the concrete actions carried out by social enterprises for their beneficiaries.
Are social finance experiments currently underway in France or elsewhere in Europe?
Social finance has managed to generate a high level of activity. Everyone is looking for solutions: governments, investors, academia, etc.
Governments have fewer resources due to financial crises, and investors look for products where their money is invested in meaningful projects.
Finally, in the context of this search for purpose, investors and enterprises want to take action to promote local communities and protect the environment.
Social finance has managed to generate a high level of activity : investors look for products where their money is invested in meaningful projects.
How does BNP Paribas work to advance innovation in the area of social finance?
At BNP Paribas, our CSR department is also a powerful laboratory for social innovation, designing new concrete solutions. BNP Paribas has worked on SIB in the United States for the last years.
Currently, the bank is leading a SIB that aims to the state of Connecticut.
In France, Social Impact Bonds do not exist in the same form yet, but the government recently developed the Social Impact Contract (Contrat à Impact Social in French). Though it is not yet fully finalized, BNP Paribas is playing a key role in its development. A Social Impact Contract, as imagined by BNP Paribas in our responses to calls for bids, directs financing to serve local communities. For example, one Social Impact Contract project aims to support ADIE (the biggest microfinance institution in France) in its effort to serve rural departments. The unique characteristic of this Social Impact Contract is that all actors are motivated to reach social targets with bonuses distributed to ADIE and investors if the fund outperforms its objectives.
Though Social Impact Contracts are still in an advanced organizational phase, BNP Paribas is already offering French customers an opportunity to invest in 5 solidarity-based funds (with a label from Finansol), which devote from 100% to a minimum of 5% of funds to social enterprises—the 10% limit makes it possible to offer “non-quoted” investments, to retail customers.
The Group also innovated one year ago by creating a brochure presenting social performance to the general public (only in french). We are the only commercial bank that has developed an international strategy for supporting social enterprises, which in France can also be hosted in our We Are Innovation (WAI) locations.
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