Social impact bonds are a type of bond that is a type of investment that is taken on by private investors in order to attempt to improve a social cause. The idea behind the social impact bond is that by investing in specific public causes, and improving these situations, a government can save money in the long run. The bonds will be tied to a specific social project. If the social project is said to be a success, the investors in the bonds are paid a specific rate of return. These bonds are becoming more popular and have been used for several different projects. Here are a a few things to consider about social impact bonds and how they work.

Social Impact Bonds

Social impact bonds save tax payers money and help everyone in the area. Investors can put money into these social impact bonds in an attempt to improve the conditions around them. If the outcome of the project is not favorable, the investors will not be paid any rate of interest. If the outcome is achieved, the national government promises to pay the interest to the investors of the project.

Example

One of the most popular examples of this type of bond occurred in the UK. With this project, an organization known as Social Finance raised funds for a project that was designed to lower the occurrence of repeat offenses in the prison system. In order to do this, they set up a program that was designed to provide information and help to 3000 prisoners in a prison who were serving less than a year. If the program results in at least 7.5 percent less repeat offenders, the investors of the project will be paid a specific rate of return. If it does not work, they will be paid nothing. The bond project was set up to last six years.

Benefits

There are several benefits that come from utilizing social impact bonds. By using this type of bond, there will be more funds made available for social projects than if society simply relies on the government to take care of everything. There is only so much money that the government can allocate to these types of projects, with the use of social impact bonds, more projects can be implemented.

Another advantage of this type of bond is that it does not reward circumstances that do not bring effective results. With this type of project, the government only has to pay out money for projects that work. If the results are not achieved, the government does not lose anything. This tends to provide better results over the long-term.

Investors of the project have every incentive to do a good job. Many times, they have tiered interest rates that can be earned depending on the quality of the results that are brought about by the project. If they do very well, they can often earn more money. 

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