Goldman Sachs has signed on as the investor in the U.S.’s first social impact bond, a new public-private financing structure that asks investors to bear at least partial risk for the outcomes of government-funded social programs. While Goldman’s risk has been somewhat attenuated by Bloomberg Philanthropies, the investment suggests that a proper social impact bond market might not be too far away.
“I think most people thought this was going to attract philanthropic money in the very beginning, for proof-of-concept pilots,” says Kristin Giantris, who tries to promote social impact bonds through the Nonprofit Finance Fund (NFF), a New York–based organization that supports nonprofits via loans, consulting and other services. “Now we’re looking at proof-of-concept with a commercial investor, and I think that’s significant. I think this deal could leapfrog the market forward in terms of who the potential investors are in these transactions.”
Because the social impact bond is a brand-new concept to the U.S., it would follow that the industry undergirding it is a nascent one, too, and will need many years to concretize. But Giantris says not so, pointing out that an already-developed infrastructure — that which supports U.S. banks’ community reinvestment practices — could be easily adapted for a social impact bond market. If that is the case, a well-oiled social impact bond-making industry may not be as far-off in the U.S. as many predict.
The nation’s banks have long been beholden to the Community Reinvestment Act (CRA), a law passed by Congress in 1977 to encourage financial firms to provide credit assistance to their local communities.....