Time: Getting Rich Doing Good
As Ben Franklin noted, an ounce of prevention is worth a pound of cure — and that's true not only for health care but also for a host of social problems, including crime, homelessness and teen pregnancy. But governments aren't particularly good at funding preventive services. Spending tax dollars on programs whose outcomes are not immediately obvious — or guaranteed — is a hard sell for politicians, even though these investments may eventually save big bucks years down the road by, say, cutting crime and prison populations.
The market may overcome the prevention predicament with the social-impact bond (SIB), a new investment product created by Social Finance, a London private-equity firm that backs social entrepreneurs. Funded by private investors (including charities), SIBs — which are also gaining traction among U.S. investors and policymakers — aim to finance long-term preventive programs run by nonprofit groups to tackle tough social issues that cost taxpayers money. But investors can also gain a financial return. How? Governments pay for a program's success. If an SIB-funded program mitigates a problem by meeting measurable targets, that saves the government money, and a portion of the savings is used to repay the bondholders with interest. But the bonds are not government backed: if the social project fails to meet its targets, investors are out of pocket, and the government doesn't pay a penny. …
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