Bonds for Social Innovation

Posted by Monica Snellings

Local government officials in the United States are now testing Social Impact Bonds (SIBs), a promising new financing mechanism for social service programs.

First implemented in the U.K. in 2010, SIBs allow government agencies and social-service providers to invest in innovative social models by raising capital from private investors. Investors are only repaid through any savings a government accrues. Governments don’t expend scarce resources until the model is proven. Ideally everyone wins, including populations being poorly served right now.

The launch of the first U.S. Social Impact Bonds occurred in 2012: Massachusetts is experimenting with SIBs in the area of homelessness, and in October the Department of Justice announced two planning and implementation grants, one of which will go toward a proposed social impact bond in Cuyahoga County, Ohio.

In New York City, Social Impact Bonds are being used address recidivism among juveniles jailed at Rikers Island. Young men of color—16- to 18-years-old at the time of admission—now have a one-year readmission rate close to 50 percent. The goal of the program is to reduce recidivism by 10%. Goldman Sachs has invested approximately $10 million. Bloomberg Philanthropies is providing grant support for the effort, and MDRC is overseeing project implementation.

Since SIBs are structured to test new service solutions with no risk to public budgets, they could potentially pave the way for innovative strategies to address pressing social issues.

Thumbnail image by Todd Ehlers used under Creative Commons license.