Putting The Profit Motive Behind Social Work

[Valin]

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12/31/13

 

Merrill Lynch has just announced a partnership with New York State on a social impact bond aimed at decreasing recidivism for inmates released New Yorks prisons. As Social Finance, the nonprofit associated with this venture writes in its press release announcing the project, Merrill Lynch and a group of other investors have pledged to invest in the Center for Employment Opportunities to cover the upfront costs of preparing 2,000 inmates for work outside prison:

 

This transaction provides CEO with a flexible, predictable source of funding to expand their program, provide investors with an opportunity to align their investment portfolio and social values, and ensure that government only pays for positive results. Most importantly, 2,000 individuals will receive the help they need to have a shot at a better life.

 

Under this pay-for-success partnership, the public, private and social sectors have come together to achieve a common goal increasing employment and improving public safety in New York in a structure and distribution model that we believe represents a significant step toward building a more robust, sustainable SIB marketplace.

Essentially, these social impact bonds work by allowing governments and financial institutions to split the risk of funding innovative social programs. First, investors put up the money for these programs to get started. If they can demonstrate their effectiveness, the government steps in and reimburses the investors for their commitments. If they dont, the investors take a loss, and taxpayers will not be left on the hook for a failed program.

 

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