More on Goldmans’ move towards SIBs…

Goldman Sachs Weighs In On SIBs

Ever since the United Kingdom savvily matched private investments to social-problem solutions, the idea has been spreading like wildfire here in the U.S. Social impact bond (SIB) legislation has passed in fourteen states and the District of Columbia since 2012 — in fact, four of these states are already implementing projects financed by SIBs — and Harvard’s Kennedy School has set up a Social Impact Bond Technical Assistance Lab.

Social impact bonds are not bonds in the classic sense. Rather, SIBs are “better understood as a rigorous outcomes-based contract between multiple parties,” according to Kristina Costa and Sonal Shah, authors of a new paper on social finance. In other words, the government contracts with a private-sector intermediary to buy social services and pays the intermediary — but only if it meets performance targets. The payments are funded at least partially by the cost savings the project achieves.

Last year, the first SIB in the U.S. was signed: A $9.6 million loan to an evidence-based program for young adults in NY’s Rikers Island Correctional Facility. The program — the Adolescent Behavioral Learning Experience (ABLE) — teaches young inmates skills and counsels them on personal responsibility in an effort to reduce recidivism. Goldman Sachs provided the financing; Bloomberg Philanthropies put up money for an initial grant; and MDRC, a nonprofit agency, is overseeing its implementation. If recidivism among those in the program is reduced by 10 percent, the government saves enough money to pay back the investor’s principle. If the reductions are higher than 10 percent, investors start to make money.