The current landscape of higher education institutions, especially those situated in the Small Island Developing States (SIDS), is characterised by complex and diverse challenges. 

These include financial constraints, decreasing enrolment rates, inadequate physical infrastructure, and various motivational barriers to both student and staff satisfaction. The COVID-19 pandemic has exacerbated existing challenges and has amplified the urgency for innovative and transformative solutions to be developed by Higher Education Institutions (HEIs) in their quest to remain both institutionally and economically competitive. 

One solution that can be explored by SIDs- based HEIs is Social Impact Bonds (SIBs). Social Impact Bonds are a relatively new and innovative approach to raising funds for social enterprises, non-government organisations, and, more recently, Higher Education Institutions (HEIs). The goal of SIBs is to generate revenue to support HIEs and address social problems. The University of Chicago, Purdue University, Oxford University, and Columbia University are among the global HEIs that have benefited from this financing solution or a modified form of SIBs.  

In practice, SIBs provide upfront capital from private sector interests to fund social programmes or projects that threaten their sustainability while representing a social challenge for governments. Similarly, HEIs can identify a threat or challenge that affects the profitability and sustainability of a company or a group of companies as well as pose a social challenge for government and engage stakeholders to undertake a SIB.

Under this arrangement, the private sector would fund the project through a broker or through a financial intermediary such as a bank. The funds would be immediately available to the HEI to undertake the project. The HEI would, in turn, charge 30 per cent to execute the project, and this money would help to finance the institution’s operational costs. Students, faculty, and staff would also be able to generate some income from the project, depending on the nature of the project.

The implementation and measurement of the progress of the SIB would be monitored by an external actor such as a non-governmental organization, a consultancy firm, an international organization, or the HEI itself. 

The monitoring process ensures that the project meets the goals and objectives of the bond. The entire project can be monitored with a number of project management applications. As return on their investment, the private sector company will be equipped with a solution to their problem in addition to other benefits such as tax breaks, grants and subsidies, low-interest loans, infrastructure support, regulatory support, workforce development, export promotions, or other value negotiated between the private sector, the HEI and the government. 

Overall, adopting the SIB approach can generate positive outcomes for all involved in the value chain. Universities are well-equipped to undertake large projects that can generate capital for financing operations. The government will obtain a sustainable solution to a social challenge and gain access to local experts. The private sector is also provided with solutions that mitigate threats to profitability and sustainability. 

Although the SIB approach to financing is relatively new, it currently represents a 300-million-dollar industry that is growing rapidly. 

These instruments can be used to undertake projects and programmes, including crime and corruption management, early childhood education, tertiary education, food security, renewables, environmental engineering, health management, climate resilience, creative industries, entrepreneurship, and disaster relief.  These are also general issues that represent challenges for the government and threaten the profitability of private sector entities. In the final analysis, SIBs can be a game-changer for HEIs and create value for society, industry, and investors, primarily in SIDs.

—This article was contributed by Lloyd Waller PhD, professor of digital transformation policy and governance at the University of the West Indies. Waller is also the executive director of the Global Tourism Resilience and Crisis Management Centre.