the Social Impact Bond (SIB)

A Social Impact Bond (SIB) is a financial arrangement where private investors fund social programs, such as reducing homelessness or improving education. If the program succeeds and achieves predefined outcomes, the government repays the investors with interest, often funded by cost savings generated from the program’s success. If the program doesn’t meet its goals, investors typically absorb the losses. SIBs align financial incentives with social goals, encouraging innovation and efficiency by transferring some risk from the government to private investors. Essentially, they use private capital to fund and incentivize social change with performance-based returns.