Social-Impact-Bond-Model-of-International-Aid
The Social Impact Bond model of international aid is a relatively new way of helping foreign countries; many call it a “pay for success” model. Social Impact Bonds, or SIBs, are based on outcomes, rather than intentions. Despite the name, they do not fit the average definition of a “bond,” which would imply those receiving the investors’ money are obligated to return it no matter what happens. Rather, in a nutshell, the independent investors will only get their money back (plus interest) if the program succeeds. The social impact bond model of international aid is meant to be a preventative course of action to benefit society; only those programs that have the most chance of success will be funded.

Due to the existence of private investors, the social impact bond model of international aid does not threaten public funds or rely on the United States (or any other country’s) federal budget. SIBs could also provide a huge benefit to foreign aid if the right programs exist. Rather than merely expecting those wealthy enough to donate their cash to these causes, they are investing in them, and like any other investment, there is a chance of failure. Still, if they invest wisely, not only will they reap the rewards, but so will those who have received help from the various nonprofits.

Although there are certain flaws to SIBs, because not all programs will be able to gather funding (such as pilot programs, because they have not proved they can be successful), it certainly would help in some cases. Moreover, it will protect the U.S. budget and, if successful, will benefit a large number of people across the globe, including investors in the U.S.

Instiglio is an example of a nonprofit organization that deals primarily with social impact bonds.

– Corina Balsamo

Sources: McKinsey, US News
Photo: Tech