A new program for teens in New York City's Rikers Island jail aims at building personal responsibility and life skills, with the goal that fewer of them will re-offend, says the New York Times. The program is financed by an innovative mechanism called a social impact bond, one way that philanthropy is trying to tap new pools of funding to produce measurable social results. If the program succeeds in significantly reducing recidivism, the “investors” paying its upfront costs — in this case, Goldman Sachs, with backing from Bloomberg Philanthropies — will be repaid by the city with a modest return. If the program falls short, the investors lose their money, sparing taxpayers the costs of the program.
The “social impact bond,” also known as a “pay for success” bond, is the most discussed tool in a broader playbook philanthropists are using to blend business and charity to make a bigger difference. Sometimes known as impact investing, these approaches include providing low-interest loans to nonprofits, making equity investments in companies that tackle social problems and investing a portion of a foundation’s endowment in enterprises that produce measurable benefits to society and a financial return.“There’s a recognition that philanthropy and government can’t solve all the social problems,” says Judith Rodin, president of the Rockefeller Foundation, which has spent $40 million since 2009 to develop the field of impact investing. “And then you have investors who maybe didn’t want as bright a line between their charity and philanthropy on one side and their financial investments on another, and they began to look for blended opportunities.”