...The “social impact bond,” also known as a “pay for success” bond, is the latest — and most discussed — tool in a broader playbook philanthropists are using to blend business and charity to make a bigger difference. Sometimes known as impact investing, these approaches include providing low-interest loans to nonprofits, making equity investments in companies that tackle social problems and investing a portion of a foundation’s endowment in enterprises that produce measurable benefits to society and a financial return.“There’s a recognition that philanthropy and government can’t solve all the social problems,” says Judith Rodin, president of the Rockefeller Foundation, which has spent $40 million since 2009 to develop the field of impact investing. “And then you have investors who maybe didn’t want as bright a line between their charity and philanthropy on one side and their financial investments on another, and they began to look for blended opportunities.”

While many of these opportunities focus on microfinance, farming or other fields in which there is an obvious way to generate revenue, social impact bonds offer something new. They pay back investors through the savings a government could accrue if a preventive program succeeded in its goals of reducing recidivism or keeping children out of foster care, bringing an opportunity for financial returns to a new set of society’s knottiest problems.

The bond concept has drawn interest from many government officials and some nonprofits eager for new financial support. But it has also stirred concerns among people who say the idea is impractical, ignores political realities and risks putting profits ahead of what is best for society...

...The bonds work by bringing together investors, nonprofits and government to agree on a social program and how long it will take to produce savings. In New York City’s case, Goldman is lending $9.6 million to MDRC, a nonprofit group that oversees the work of two charities running the jail program. A fourth nonprofit evaluates the results of the four-year program...

Full Article