Issuing Bonds to Invest in People
As part of Fixes—a New York Times column exploring solutions to social problems and why they work—Tina Rosenberg delves into numerous social impact bonds, also known as pay for sucess. This article features Connecticut's Family Stability Pay for Success Project, which combines in-home drug treatment and parenting support. Social Finance US and other investors put up $11.2 million to invest in the program. If the program is evaluated to be successful—leads to less drug use and fewer foster care placements—the government of Connecticut pays the investors back with interests.
The United States has 20 social impact bonds, leveraging $211 million in investment capital, and at least 50 more are on the way thanks to an allocation of nearly $100 million by Congross to provide competitively awarded outcomes-based financing to state and local governments. According to Tracy Palandjian, CEO & Co-Founder of Social Finance US, there are overwhelming demands for investment opportunities in social impact bonds from investors and no shortage of projects to fund. Challenges to overcome include complication in setting up a pay for sucess project, reluctance from government, and shortage of data to demonstrate program successes.
Social impact bonds or pay for sucess have the potential to foster public-private partnerships and bring capital to underserved communities.