New Zealand next to try social benefit bonds

New Zealand's Ministry of Health has been assessing the viability of social benefit bonds over the last financial year. During this time, two successful social benefit bond issues have been completed in New South Wales.

The Ministry of Health is well aware of the success achieved in New South Wales and also in the UK and US with similar programs. Canada is also investigating the use of social benefit bonds.

In New Zealand, the financial instruments used to finance social benefit programs provided by private agencies will be referred to as Social Bonds. The work of the Ministry of Health in this area is being supported by NZ$300,000 of public funding.

The ministry has commissioned and received a report from KPMG on the project, and will hold briefings for interested parties in Auckland, Wellington and Christchurch next month. Under consideration are initiatives that will provide housing for vulnerable families, reduce alcohol and drug abuse among youth, and reduce teenage pregnancies.

The risks for investors must also be real. Of the two social benefit bonds issues undertaken in NSW, one allows for a capital loss of 50 per cent if the project's objectives are not achieved, and the other allows for a complete loss of capital for a specific group of investors.

On the other hand, investors in the first project can earn up to 15 per cent per annum, and the totally exposed investors in the other project can earn twice as much.

The Ministry of Health expects to release registration of interest forms for potential project arrangers towards the end of the year, and these should be submitted by the end of February 2014. The first pilot project should get underway by June.