Social impact bonds are poorly named

1. An unfortunate misnomer
Social bonds are not the same thing as social impact bonds.
Social impact bonds are unfortunately and inaccurately named. They are
not a bond. They are not credit securities sold in a capital market.
Rather, they are future contracts with payment based on social
outcomes.
They work through multiparty contracts, typically between
governments, investors and organisations. The organisation tackles
some measurable social problem, such as decreasing the rate of
reoffence among ex-prisoners. The investor then provides the capital to
run the program and, if it is successful, the government repays the
investor with interest. If the program is not successful, the investor is
not repaid.

2. The theory is that social impact bonds reduce the need for
government services, and thereby there is a net saving to taxpayers.
The first ‘social impact bond’ was issued in 2010 in Peterborough,
UK.
“I think everyone probably has looked back and said, ‘We should
never have used the term “bond” because it is a misnomer.’ It’s not
based on the credit quality of the issuer of the bond because
payment under the bond is determined by whether or not you
delivered the outcome, which is by how many prisoners have you
helped reduce their return back to prison, for example,” Charlton
said.
By contrast, an impact bond is a credit security sold in capital
markets and, as stated earlier, the proceeds are used for an
environmental or social purpose.