NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Tuesday, February 13, 2018

It started with a simple premise: Private investors could help reduce the rate at which released British prisoners commit new crimes.

Seven years later, the recidivism project at Peterborough Prison stands as a success. Its intensive work with male prisoners who serve less than a year offered help with housing, training and employment, parenting, substance abuse, and mental health. It reduced recidivism by 9 percent among 2,000 prisoners, saving the British government enough money in prison and other costs that the investors who funded the experiment got a 3 percent annualized return over five years.

Since then, the mechanism behind this success story – known as pay for success or a social impact bond (SIB) – has spread to 24 countries, according to a report released this week by Social Finance, a nonprofit that sets up such bonds. So far, private investors have funded 108 projects aimed at saving governments money with innovative projects serving everyone from homeless youths in Australia to parents in need in Germany to blind people in Cameroon.

It’s a novel idea with big potential implications, but also relatively new, and its success depends on how one counts. The new report sheds light on the progress SIBs are making. The investors – typically institutions and wealthy individuals who want their money to have a social impact – have been paid back in 10 of the 27 projects that have wrapped up, according to the Social Finance report. Just one project failed (a New York City recidivism effort), and 16 others have not made their results public.

Photo courtesy of Martin Fisch.