Blog » Impact Bonds 101
An impact bonds is an innovative, results-based, financial contract between an investor, an outcome funder and a service provider to deliver social or environmental services. Within a well-defined, measurable program, the investor (typically a private sector actor or NGO) provides upfront capital to a service provider to deliver high quality services to the population in need. Upon achievement of results, the outcome funder (typically a public-sector agency) repays the investor at a premium. By doing so, the investor is able to generate a return on its investment and the public sector only pays for successful results that achieved the targeted impact. In a Development Impact Bond (DIBs) the role of the outcome funder is played by external development agencies as opposed to Social Impact Bonds (SIBs) where the role is played by the government.
The impact bond encompasses seven key components which are illustrated below:
Why Impact bonds?
Impact bonds show the potential to improve results and overcome barriers to social innovation. They do this by ensuring that public funding goes only to those interventions that are clearly demonstrating their impact through rigorous outcome-based performance measures, transferring the risk of program implementation to the investor, and providing an effective way for state and local governments to maintain and scale up interventions that show success.
For Outcome Funders
Impact Bonds are an attractive investment vehicle for a broad spectrum of investors due to its flexible characteristics. To date Impact Bonds have leveraged upfront private capital of over $300 million globally, with capital commitment varying from as little as