Especially those portions of the article that discuss limitations of the SIB approach should NOT be glossed over !
- The fundamental idea behind Social Impact Bonds ("SIBs") is to offer a mechanism for incentivizing private investors to allocate funds for targeted public interest projects that have the ability to significantly improve a desirable social outcome. Experienced non-profit organizations obtain capital for addressing specific social matters from private investors, who in turn receive a risk-adjusted rate of return from the government involved. The return to private investors is contingent on achievement of pre-specified goals that create savings for the government and such return is pre-determined as a portion of the government savings. SIBs may be structured as traditional bonds, which are debt securities, although so far they have been structured as partnerships or contract.
- SIBs are neither for all non-profit organizations nor for all causes. They will allow proven programs to scale with private investor capital, while early-stage/riskier programs will continue to require grants, donations, or other forms of funding, as is the natural case for any organization intending to raise private capital.
- Additional instances where programs might not be eligible for SIBs occur when: results cannot be accurately or easily measured and/or are not acceptable to investors or the government involved; the net savings are not significant; the available intervention programs do not have a proven track record; or the specific social matter that is intended to be addressed does not have a political champion to steward the innovation through government.