Social Bonds

A presentation by Citylife in September 2008 suggested that social bonds may be a useful source of finance for community facilities in Cambridgeshire.

A bond is an instrument to release money. A pot of money is collected from investors, who may be individuals or businesses wishing to realise a shared vision. They agree that their money is held in a bond for five years, at the end of which it is returned. Their investment is safeguarded by a third party trust and bank guarantee.

75% of the bond is lent at a rate of around 5-6% to any interested borrower. In the Sheffield social bond, the borrower was a Registered Social Landlord. The borrower repays the money after five years with interest, so that the total initial bond investment is at that point recovered. The 25% not lent is used to fund community projects, the interest on the 75% loan has already repaid 100% of the original bond, leaving this 25% to be put to work.

Investors in effect donate the potential interest their money could have earned elsewhere over the five-year period to the community. Businesses investing in social bonds will therefore gain corporate social responsibility recognition. Depending on the bond, individuals may see the benefits accrue to their own communities, and thus feel a greater sense of engagement.

Social bonds have potential application on the major development sites in Cambridgeshire. If developers invested in community bonds, social infrastructure could be provided at the start of development rather than at later date. This would help to generate a sense of place and community early on, offering benefits to house-builders looking to attract buyers as well as the new residents themselves.

In the current uncertain economic climate, social bonds could also offer an attractive option if robustly guaranteed. Incentives can be added to encourage investment, such a small return after five years (although this reduces the 25% grant portion) or a non-monetary advantage. If the bond was to fund a community centre, for example, investors could be offered reduced or free use of the facilities.

Discussions are taking place with developers to explore the potential of this concept.