An education program funded by a social impact bond saved a Utah county $281,550.

Social impact bonds — public-private partnerships that fund social services through a performance-based contract — have gained global traction since the first one was rolled out in 2010, the Social Finance Global Network reports in a new white paper.

So far, 60 social impact bonds have been introduced in 15 countries and have raised $216 million in investment, affecting some 90,000 lives, Social Finance reported.

The white paper examines the results of 22 bonds that have posted results, 21 of which had positive outcomes.

Twelve projects have made outcomes payments, and four bonds have repaid their investors in full with a return on their investment.

Besides the white paper, Social Finance also introduced a live global database of social impact bonds in development and already launched that can be sorted by country, issue area, investor, payer and service.

According to the white paper, social impact bonds enable federal, state and local governments to partner with high-performing service providers to fund intensive services tailored to complex and individual needs by using private investment to develop, coordinate or expand effective programs.

If the program achieves predetermined outcomes and performance metrics based on measurement and evaluation, the government entity repays the original investment. However, if the program does not achieve its expected results, it does not pay the service provider for unmet metrics and outcomes.

Consider two funds based in the U.S. that were part of the study.

The Utah High Quality Preschool Program, launched in 2013, sought to reduce special education utilization for 2,600 3- to 4-year-olds in Salt Lake County. In the first group of 595 4-year-olds, 110 tested as likely to need special education services. After the end of these students’ kindergarten year, only one out of the 110 required special education.

Total savings in the first year for this group were $281,550, based on a state resource special education add-on of $2,607 per child. Investors received a payment equal to 95% of these savings.

Rikers Island Recidivism, rolled out in 2013, aimed to reduce recidivism bed days by 10% in 1,470 young men aged 16 to 18 with a length of stay of more than four days (estimated at 3,000 per year) at New York City’s Rikers Island jail. In the program’s first year, 87% of adolescents that entered jail attended at least one ABLE (Adolescent Behavioral Learning Experience) session.

Program evaluation determined that participants demonstrated no significant difference from a matched historical comparison group in the number of days they returned to jail.

As a result, the program was discontinued in August 2015, meaning that no payments were made on Goldman Sachs’s $7.2 million investment. This, in turn, triggered Bloomberg Philanthropies’ $6 million guarantee.

The report notes, however, that even though this project had to be abandoned, the mechanism worked. When the evaluation showed that the services were not reducing recidivism, investors took a loss and government did not pay for the unsuccessful services.

According to the paper, several common characteristics required for social impact bonds have prompted many different communities to take them up:

  • A public sector committed to innovation
  • Data and evidence
  • A developed social sector with proven or promising interventions for social issues
  • Enthusiasm and sufficient appetite for risk from funders and impact investors

The paper acknowledges the most common complaint about social impact bonds, that they are complex, and that this will inhibit growth. The model needs to simplify so it can reach the desired impact and scale, it says.

On a positive note, the paper finds that standardization in the field is already taking place, with programs being replicated and adapted to multiple geographies.

“This is important: it will accelerate the development of existing social impact bond models, reduce the costs for government and allow for new social issues to come to the fore. Funders will gather data and be able to value specific outcomes with more confidence and new, non-governmental outcome payers will emerge.”

What happens when a social impact bond project reaches its conclusion?

If a project achieves positive outcomes, the paper says, it could be refinanced to serve a larger population or an expanded geography.

Another option would be for the government to directly expand services, without private capital, with a focus on outcomes.

— Check out 4 Ways Impact Investors Are Driving Change on ThinkAdvisor.