Social Investment Fund Ties Financial Returns to Reductions in Recidivism Rates

As I have explored before on this blog, one of the big problems with unlocking the capital markets for social enterprise is the difficulty of providing adequate financial returns to reward investments with social aims.

I've also written about how reducing recidivism can provide big savings to the government by reducing the cost of incarceration.

In Great Britain, Big Society Capital has creatively married these two issues in a Social Investment Bond it has formed as part of its social investment bank, Social Finance. As the project reduces recidivism among its target of 3000 prisoners, the investment delivers corresponding increasing returns.

This is a fascinating approach which you can learn more about in the latest Stanford Social Innovation Review available free online until the end of the month:

The target population of the first SiB-funded program comprises 3,000 prisoners due to leave Peterborough prison over six years. In the United Kingdom, around 60 percent of short-sentenced prisoners are convicted of at least one offense in the year after release. Each short-sentenced prisoner who re-offended after release in 2007 was convicted, on average, of five further offenses within the year. We determined that a 7.5 percent reduction in re-offending over the life of the SiB-funded program—measured against a representative control group—would trigger a recoupment of capital and a 2.5 percent return to potential social investors. A sustained 10 percent reduction over the life of the program would result in an annualized return of 7.5 percent. Higher reductions of re-offending would deliver higher returns, subject to a maximum return of 13.3 percent. But if the measured improvement were to be less than 7.5 percent, the investors would lose their capital. Stanford Social Innovation Review, Summer 2012.

Read it all here.