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The name’s Bond … social bond. A social bond is an instrument that could help the most vulnerable get through the pandemic. How? People who buy regular bonds want their money to earn interest over time and get their principal back at the end of the bond’s run. Social bonds yield three benefits instead of two: Investors get interest payments and are promised their original money back and their money is used to improve the world in some way. When the economy began to implode in the early weeks of pandemic, some big philanthropies used social bonds to borrow money from investors in order to give out more emergency grants to those in need.
I learned more about social bonds in conversation with Patrice Kunesh, the former director of the Center for Indian Country Development at the Minneapolis Fed, now at the Native American Rights Fund. Kunesh had many examples of social bonds’ potential, including using them to raise money to bring fast internet to Native American land. She said social bonds could also be used to help consolidate the ownership of tribal lands that are often divided between owners with conflicting interests — social bond money could be used to pay people for their smaller parcels. In this way, bigger swaths of land could be pulled together for the kind of economic development to bring more prosperity to tribal members and to pay back the lenders, the holders of the social bonds. That would be a kind of financial and social innovation in action.
Inside this week’s theme: Social or impact bonds
“Investors are willing to raise funds, put money on the table for projects with a positive social outcome and the real opportunity to provide an investment return to the investor, as well.”
The idea of impact bonds emerged about a decade ago, and has taken different forms in countries around the world. An impact bond is a private investment in a social program that pays returns to the investor if the program achieves certain outcomes — such as a measurable reduction in poverty or crime, or improvements in education or housing. Those returns are a way of assigning a dollar value to the impact of social services (something that’s often hard to do, as we learned in Chapter 11 of our economics textbook).
An early paper from the Young Foundation, one of the pioneering organizations behind social impact bonds, lays out the idea. And here’s a thorough primer on impact bonds from the University of Oxford’s school of government.
These programs have expanded in recent years. Researchers at the Brookings Institution and other groups are closely tracking how well impact bonds have worked and what can be improved.