Social Impact Bonds Begin To Catch On

Social Impact Bonds are finally moving from idea to reality, in a few states. These “pay for results” government contracts are a new form of financing where payment only occurs if the agreed-upon social results are achieved. No results, no money. Financing comes from a private sector financing intermediary, which secures funds from private investors and selects a nonprofit service provider. Often payment is based on how much government saves if the program succeeds. If the project is successful, investors get their principal returned plus interest.

Currently only “evidence-based, proven” programs carried out by large, high-capacity nonprofits qualify, although this will probably change as more SIDs are released. So far, three states — New York, Minnesota and, believe or not, Utah — have announced or launched SIB transactions, and ten others (most notably California, Texas, Illinois, Ohio, Pennsylvania and Colorado) are in the process of exploring or developing them.

Here’s an excellent summary of the current SIB situation by state, and what kinds of nonprofit qualify, risks and challenges, from our colleagues at Social Impact Architects. Their newsletter is also the source for the graphic in this blog.

Quick update from that article:

“President Obama launched Pay-for-Success pilots in criminal justice and workforce development through the Departments of Justice and Labor, respectively. The Department of Labor awarded fund to Massachusetts and New York; awards from the Department of Justice have not yet been announced.”

Good luck!