Germany has seen the launch of its first social impact bond (SIB), with four small investors, including two foundations associated with carmaker BMW, financing a pilot project in the city of Augsburg in Bavaria aimed at employing delinquent and unskilled young adults.
It comes as Deutsche Bank has unveiled a SIB to support an Italian food bank project.
Beyond the BMW foundations Eberhard von Kühnheim and Herbert Quandt, the Augsburg project’s backers include foundations associated with German private bank BHF and social investment firm BonVenture. According to Juvat, the company tasked with employing the adults, these investors have provided a loan worth “several hundred thousands of euros” to finance the project. In May, BonVenture became the first registered manager of European Social Entrepreneurship Funds (EuSEF), the new regime to facilitate EU-wide investment in social ventures.
If the project is successful, the investors will get their principal back plus a return of 3% that will be paid by the government of Bavaria. “Success means that by the end of 2015 we have to have at least 20 people between the ages of 18 to 25 with a job or an apprenticeship that lasts at least nine months,” said Juvat Project Manager Niklas Ruf. Ruf was formerly a project manager at Eberhard von Kühnheim, but left the foundation named after the former BMW CEO last autumn to oversee implementation of what is Germany’s first SIB.The Quandt foundation is linked to the firm’s largest shareholders.
The young adults in Augsburg that Juvat is dealing with include those who have committed petty crimes or who lack employable skills. If Juvat does not reach the target of at least 20 employed adults, the four investors lose all their money. Ruf believes that if the project is successful, more SIBs will be launched in Germany.
Meanwhile, Deutsche Bank’s Italian arm this week launched a SIB that aims to support the Fondazione Banco Alimentare (FBA) food bank. Speaking from Milan, a Deutsche spokesman told RI that the SIB would be offered to private clients at the bank’s branches in Italy. He said the bank hoped to raise €20m from these private investors, adding that investors would be paid an interest rate of 1.25% per annum.
The first SIB ever was done in the UK four years ago, when £5m (€6.2m) was raised from private investors to help prevent former inmates of Peterborough’s prison from offending again – although the project was suspended recently.
Then in 2012, US investment bank Goldman Sachs invested $9.6m (€7m) in an SIB from the State of New York. Like the Peterborough bond, it was to finance efforts to reduce recidivism among former convicts, in this case those formerly incarcerated at Rikers Island.