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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
activities
. In a Social Impact Bond, however, a gov-ernment agency denes an
outcome
. Te agency contracts with an external organizationthat promises to achieve that outcome and only pays the organization i it is successul.
Who are the key players?
Required:
•
 A 
 government agency
that denes the outcome
•
 An
external organization
that promises to deliver the outcome
•
 A 
benefciary population
who receives services
Optional:
•
 Investors
who und the needed interventions upront
•
Service providers
who perorm the interventions
What are the advantages of Social Impact Bonds?
1. Social Impact Bonds transer 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 normalnancing 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 dicult 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 toidentiy any “bond” at all.It’s easiest to think o aSocial Impact Bond insteadas a relationship betweengovernment and an externalorganization.
Where’s the “bond”?
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