Fact Sheet: Social Impact Bonds
A Brief Introduction to a New Financing Tool for Social Programs
Jitinder Kohli, Douglas J. Besharov and Kristina Costa April 2012
What is a Social Impact Bond?
Social Impact Bonds turn government unding structures on their head. Normally, govern-ment agencies und tightly proscribed
. In a Social Impact Bond, however, a gov-ernment agency denes an
. Te agency contracts with an external organizationthat promises to achieve that outcome and only pays the organization i it is successul.
Who are the key players?
that denes the outcome
that promises to deliver the outcome
who receives services
who und the needed interventions upront
who perorm the interventions
What are the advantages of Social Impact Bonds?
1. Social Impact Bonds transer risk away rom government and taxpayers. Governmentisn’t on the hook or the payment i the outside organization ails to achieve the outcome. In a normalnancing arrangement, i the initiative ails the money is already spent.2. Social Impact Bonds can und preventive services that will save government money down the road.3. Social Impact Bonds can overcome the “silo” problem in government where agencies nd it dicult to poolresources or direct money toward efective programs.4. Social Impact Bonds can help to “scale up” efective interventions rom one city or state to other areas o the country.
There isn’t one. When theexternal organization needsoutside investors to und serviceproviders, “bond” can describethe relationship between theexternal organization and theinvestors. But the arrangementis not very bond-like. In act, it’smuch more risky than a normalbond arrangement. And in caseswhere there aren’t any outsideinvestors, it’s very difcult toidentiy any “bond” at all.It’s easiest to think o aSocial Impact Bond insteadas a relationship betweengovernment and an externalorganization.
Where’s the “bond”?