Social Impact Bonds

"Social impact investing right now is, in three words:  hot, hot, hot," reports The NonProfit Times (September 1, 2011). The Times points out:

"Although the idea of social impact investing is not new and in fact has been the source of experimentation on a wide, if not deep, scale, structured social investments aimed at seemingly intractable problems are gaining a lot of attention. One of the most advanced versions is the social impact bond, a clever device that seeks to harness the different strengths of nonprofits, government entities, investors, and financial services organizations....

"The social impact bond is a four-way transaction between investors, a bond issuing company, the government, and nonprofit providers.  Payback in a social bond is conditional on success....  Investors' money goes to nonprofits with proven track records to carry out a targeted innovation under contract to a state government entity....  If the targeted intervention is successful, the government entity will save considerable money, some of which will pay off the original investors...

"... it is extremely important to note that the social impact bond and much of the social investment movement are still in their infancy.  The workshop floor of social change is littered with good ideas that should have worked a lot better than they actually did. It will take hard work and good faith among all four parties if this tool is to fulfill its promise."

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