Social Impact Bonds - ELI5

Before anything, one should know:

  • there is no single agreed definition of social impact bonds
  • most definitions understand them as a partnership aimed at improving the social outcomes for a specific group of citizens
  • Social Impact Bonds have nothing to do with “traditional bonds” - they do not have a fixed return, nor are they tradeable

Governmental organisations make a deal with private investors that says “we’ll use your money to improve such social service, we’ll regularly measure the outcome of the service provided & if targets are met (savings done) then we’ll regularly pay you back some of your bond”. At best the investor gets all of his money back with some profit.


Social Impact Bonds are also known as:

  • pay-for-success funding
  • pay-for-success bond
  • social benefit bond
  • social bond

More about Impact Bonds in this thread Social Impact Bonds - in depth explanation


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ELI5 is short for “Explain Like I’m 5”. It was made popular on Reddit, it is a request for a simple explanation to a complicated question or problem.