As a grassroots agricultural lender pushing creative disruptions in countries like Bolivia and Burkina Faso, I don’t normally comment on domestic banking deals, yet now I feel compelled to do so. Goldman Sachs’ $9.6 million investment in a New York City program last month aimed at preventing re-incarceration of youth at Riker’s Island, caught my attention.

The innovative deal is structured as the nation’s first ever “social impact bond,” a new investment tool that raises private capital to fund government intervention programs through third-party organizations. Social impact bonds, which involve equity and are not bonds in the traditional sense, recently debuted in the UK to fund prison recidivism programs there.

It’s an ingenious financial innovation aimed at solving difficult social challenges—while offering investors a return—and all in the era of fiscal austerity.

But Goldman being Goldman, some raised eyebrows at the deal.

Business Insider called it “bizarre.”

The Economist said social impact bonds filled it with “a nameless dread.”

But before I respond to the critics, let’s talk about how the deal works:

Goldman money funds the intervention through a social services provider, MDRC, who designs and oversees the city-run counseling and personal responsibility program for imprisoned adolescents.

Bloomberg Philanthropies provides a $7.4 million loan guarantee of Goldman’s investment. If the program reduces recidivism by 10 percent, over four-years, New York City repays Goldman the full $9.6 million. If recidivism falls even more, Goldman makes a profit. If recidivism doesn’t drop by at least 10 percent, however, the City pays nothing and Goldman loses $2.4 million. Bloomberg Philanthropies, Mayor Bloomberg’s private charity, would bear the brunt of the loss...

To read a full story, visit the Forbes website.