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Past Issue • Jul-Sep 2014

Social Impact Bonds: Capital for Social Entrepreneurs

Social Impact Bonds are pay for success contracts between the private and public sectors (government) for the financing of social programmes. The contracts incentivise the providers of social services to deliver their programmes in a cost effective manner with a greater focus on outcomes. Professor Karan Bhanot examines how social entrepreneurs can draw some lessons from recent pilot programmes in the United Kingdom and United States that have proved successful in drawing the interest of market participants. Introduction India spends more on social programmes than most developing countries (Timmons, 2011). Social programmes such as efforts to reduce homelessness or to bring juvenile offenders into the mainstream are financed by specified governmental agencies or philanthropic organisations. The idea behind such remediation programmes is that the cost to society from not providing a social programme far exceeds the costs of the programme. For example Economist (2013) reports that 65% of young offenders who are incarcerated commit another crime within the next three years. However a remediation programme costs far less than the long term facility to house these juveniles. Private capital for social programmes is not generally feasible because the benefit of the programme accrues to the government and tax-payers at large or to the individuals in the programmes, and there is no obvious way to get a return commensurate with the risk of the investment. Social Impact Bonds are financial contracts that facilitate the financing of social programmes via the private sector.


  • karanbhanot

    Karan Bhanot

    Professor in the Department of Finance, College of Business Administration, The University of Texas at San Antonio
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