As part of the “Tackling Disadvantage at a time of Limited Resources” project, the OECD LEED Programme organised an expert seminar in collaboration with the Development Centre’s Global Network of Foundations Working for Development (netFWD) on 15 April 2015 in Paris. The title of this seminar was “Social Impact Bonds: Promises and Pitfalls”.

Social impact bonds are a results-based form of social impact investment. Private investors provide capital to launch or expand innovative social services that provide a public good. If the expected social benefits are achieved at the end of a given period, investors receive back their capital plus a rate of return negotiated with public authorities and varying with the level of results achieved). Social impact bonds are increasingly common in the United Kingdom, as well as in the United States and Australia, and have begun to be used in a number of other EU Member States.

The Social Europe guide is a bi-annual publication aimed at providing audience with a concise overview of specific areas of EU policy in the field of employment, social affairs and inclusion.

The single market needs new, inclusive growth, focused on employment for all, underpinning the growing desire of Europeans for their work, consumption, savings and investments to be more closely attuned to and aligned with 'ethical' and 'social' principles.

Social finance is fast becoming a mainstream source of funding for goods and services that target poor people across the globe. With social finance, impact investors put their capital behind enterprises that profitably cater to underserved populations by expanding access to critical goods and services, such as healthcare, affordable housing, credit, and quality employment. Social finance is hybrid in that it is driven by both social and commercial imperatives: Impact investors and social businesses want to generate financial returns alongside a positive social impact.

The Single Market Act II states that “the Commission will develop a methodology to measure the socio-economic benefits created by social enterprises. The development of rigorous and systematic measurements of social enterprises’ impact on the community ... is essential to demonstrate that the money invested in social enterprises yields high savings and income”.

In November 2009, EIF issued a working paper on the European microfinance market. In this study, we found that there are wide spectra of final beneficiaries and intermediaries and concluded that here is no common microfinance business model in Europe. While our findings suggested that the microfinance market is immature and fragmented, they also pointed to its growing importance as a market segment with a potential to counter poverty and unemployment while fostering financial and social inclusion.

This policy brief will present the fundamental issues and ongoing debates surrounding social impact measurement. It will also provide concrete examples of measurement methods, underline challenges related to social enterprises and conclude with a number of issues relevant to policymaking.

New sets of finance products have emerged in the market that can serve the needs of disadvantaged entrepreneurs. This policy brief focuses on these new tools, which offer a more sustainable approach than traditional grants to finance inclusive entrepreneurship.