Friday, August 5, 2011

Rehabilitation Bonds

An interesting public/private partnership concept from Social Finance.

An excerpt.

“The Social Impact Bond (SIB), a public-private partnership pioneered by our UK-based sister organization, is at the heart of our work. SIBs are an innovative form of financing social outcomes that align the interests of government agencies, private investors, and nonprofit service organizations around specific social outcomes. SIBs leverage private investment capital to pay for early intervention programs delivered by nonprofit service providers. The government agencies pay financial returns to the investors if, when and only to the extent that improved social outcomes are achieved. If measured outcomes do not improve, then the investors do not recover their investment. But, if the outcomes are achieved, the government returns the investors’ principal plus interest equivalent to a specified return.

“The first SIB was offered in September 2010, by Social Finance, Ltd. and the British Ministry of Justice, with the goal of reducing prisoner recidivism at Her Majesty’s Prison Peterborough. Of the 40,200 adults on short term sentences in the UK, an estimated 60% will go on to re-offend within a year of release, at a significant cost to the taxpayer and society. Private investors and foundations invested £5 million (more than $8 million) in the bond to fund intensive counseling, employment, housing, and other support services for recently released prisoners. The program is also designed to reintegrate prisoners over the longer term in their communities. If this initiative reduces re-offending by 7.5%, or more, investors will receive payments from the government that reflect a share of the long-term savings that result from fewer incarcerations. To the extent that recidivism is reduced by more than 7.5%, investors have the potential of earning market-rate financial returns. However, if recidivism rates are not reduced by at least 7.5%, the Ministry would have no financial obligations and the investors would lose their investments.”