“Pay for Success”Social Impact Bonds: Their Potential for the Growth of Jewish Education

By Jonathan Mirvis

In North America, we are experiencing a welcome sense of urgency to expand the Jewish education market among the non-Orthodox sectors. Jewish day schools, overnight Jewish camps and more recently the Jewish Teen Education and Engagement Funder Collaborative are all seeking to enroll and engage larger numbers of participants.

The driving forces of this urgency are predominantly:

  1. Existential. Quality Jewish education is a prerequisite for young people to make informed decision regarding their Jewish future.
  2. Financial. With the economy of scales, large organizations are much easier to sustain.

An emerging financial investment model that encourages the achievement of measurable outcomes in the social sector is the Pay for Success Social Impact Bond. This model was developed in the UK in 2010 and currently is being implemented in 15 countries including the United States, Canada and Israel. It is my contention that this model is worth testing in our quest to grow the field of Jewish education.

What are Pay for Success Social Impact Bonds (SIBs)?

Commercial bonds and SIBs are similar; they both promise the investor a financial return and both carry an element of risk. However, they differ in the following:

Commercial bonds are invested in financial endeavors with the goal of achieving financial gain while SIBs are invested in social endeavors with the goal of creating social value. In addition, the commercial company pays out the commercial bond while a third party pays out the SIB to the investors. This third party has a deep interest in the achievement of the social goal and is thus prepared to bear the full cost of the bond. However, payment is only made if the agreed upon outcomes are achieved. Thus, this model is also termed “pay for success.”

How does the Pay for success SIB model work?

This model comprises three partners:

  1. The Government or national foundation.
  2. The impact investor.
  3. The operator of the project.

The Government/national foundation identifies an important social cause and declares its intention to “issue” a SIB citing the problem that needs to be tackled, the expected outcomes and a timeline for achieving them and the finances it is willing to pay for the achievement of success.

Impact investors comprising private investors or local foundations evaluate the terms of the bond and if the terms are favorable and the goals feasible, commit themselves to investing in the social endeavor.

The parties that issue the bond and the impact investors then sign a contract, which specifies the financial terms, the expected outcomes and the evaluation process for verifying these outcomes.

Thereafter the impact investor invites potential project operators to submit proposals. S/he evaluates the proposals and capacities of the various operators. Multi-year financial commitments are made to those operators whose proposals are accepted.

Throughout the project, the impact investor is keen to ensure that the outcomes will be achieved and as such engages in regular formative evaluation. In the event that additional funding is warranted, the impact investor may invest additional sums since s/he realizes that missing the target will lead to his/her forfeiting the entire investment.

Once the project is complete, the evaluator determines if the outcomes have been achieved and if a pay out of the bond is warranted. If the targeted outcomes have not been achieved no payments are made to the impact investor.

How would the Pay for Success SIB model be implemented in the field of Jewish education?

In North America, the Israel Government, which is committed to investing in Diaspora education, the Jewish Agency or national foundations, would analyze the growth potential of the field. Thereafter they would set multi-year growth goals and determine what they would be willing to pay for achieving these goals. They would then “issue” a bond, which would specify the growth goals, the timetable and the resources they would be willing to allocate to achieve this growth.

Impact investors who identify with these goals would evaluate the terms of the SIB and decide upon its financial attractiveness and growth feasibility. These investors could include local federations, local foundations or even individuals who are interested in investing in the growth of quality Jewish education. If the terms are favorable and the growth goals are realistic, the impact investors would sign a contract with the parties who “issue” the bond.

Thereafter the impact investors would seek high performing educational organizations and invite them to submit plans of action for achieving the growth goals. The impact investors would analyze the potential of each proposal and if they believe that success is possible would make a multi-year investment in that organization. Hopefully the process would lead to an attainment of the growth goals and a payment of the SIB to the impact investors.

What are the strengths of the Pay for Success SIB model?

This model has the following strengths:

  • There is a strong focus on the achievement of successful outcomes. The operators are alleviated of the need to fundraise given the multi-year investment. This enables them to focus all their efforts in achieving success.
  • SIBs may attract new money to the field of Jewish education. Local foundations and investors who are seeking a double bottom line i.e., a social return as well as a financial return, may be motivated to come forward and become impact investors.
  • Impact investment funding can be re-cycled. If the outcomes are met and the investors are paid out, they may decide to make a new investment with the original dollars.
  • Impact investors bring wealth, work and wisdom to the project. Similar to strategic investors in commercial projects who take an active role in ensuring the success of their investment, impact investors will be inclined to be pro-active. In their quest to ensure a return on their investment, they will make every effort to ensure the success of the project.

In this age of innovation, it is important that we experiment with highly promising new funding models in order to achieve our ambitious Jewish education growth goals

Dr Jonathan Mirvis is a Senior Lecturer at The Hebrew University’s Melton Centre for Jewish Education. His specializes the field of Social Entrepreneurship. He is the author of It’s Our Challenge: A Social Entrepreneurship Approach to Jewish Education.