Social Investment Bond Mechanics

With a recent estimate of some 108 social impact bonds globally worth US$400 million (A$537 million), including nine in Australia, Kyrn Stevens outlines how they work.

Social impact bonds (SIBs) are transactions where investors provide funds for an intervention that might save government money, where the government then uses those savings to repay the investor’s original investment and a dividend.

They are known as SIBs or Social Benefit Bonds in Australia and Pay-for-Success in the United States.

They differ from impact investing by directly involving government and are not bonds in traditional sense, which are a debt security, where the issuer owes the holders a debt and pays them interest and/or the principal at a later date (the maturity date).

SIBs are also characterised by finance being provided up front, impact bond returns tied to results/outcomes rather than outputs such as services delivered, and, a focus on social outcomes rather than physical infrastructure.

To view the full ProBono article, click here.

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