A Social Impact Bond is a funding model where governments arrange for private investors to fund a service provider to solve a social problem. The government only repays the investors if the project is successful. Metrics for success are set out in the original contract. If successful, the government repays the investors’ upfront investment plus an additional premium. Examples of social impact bonds include:
In the US, Goldman Sachs bought a bond to reduce prisoner recidivism in New York, and will only receive a return if teenage recidivism is reduced by more than 10%.
In Australia, the NSW Government arranged for investors to invest in a program that seeks to prevent family breakdown by keeping children in their families, rather than out of home care. The higher the rate of children staying in their families, the more the government repays the investors.