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Social Finance US

Social Finance, Inc. is a Boston, United States, based nonprofit impact investing organization that works to connect the social sector with the capital markets and finance effective nonprofit organizations driving social change. It is a vertically integrated Social Impact Bond (SIB) intermediary largely credited for bringing the SIB model to the United States. Independently funded and managed, Social Finance leverages the work of its U.K.-based sister firm, Social Finance, Ltd. which pioneered the concept of the Social Impact Bond and offered the first one in September 2010 with the goal of reducing prison recidivism.

Social Impact Bond
The Social Impact Bond, also known as a Pay-for-Success Bond, is a new financial instrument that seeks to align the interests of private investors, nonprofit service providers, and governments in an effort to improve the lives of individuals and communities in need. SIBs raise private capital to fund nonprofit prevention programs aimed at achieving improved social outcomes that generate government savings. If an independent evaluator determines that the pre-defined outcomes have been achieved, the government repays investors their principal and a rate of return that account for a share of the savings. If the pre defined outcomes have not been met, the government owes nothing.

History
Social Finance, Inc. was founded in Boston in January 2011 by Tracy Palandjian, Sir Ronald Cohen and David Blood. Social Finance, Inc.'s sister organization in the United Kingdom, Social Finance, Ltd., was founded in 2007.

The world’s first Social Impact Bond was launched by Social Finance, Ltd. in the fall of 2010. It aims to reduce re-offending among short-term male prisoners leaving Peterborough Prison by financing the activities of experienced social sector organizations, including St Giles Trust, The Ormiston Children and Families Trust, SOVA, and YMCA. These organizations provide intensive support to 3,000 short-term prisoners over a six-year period, both inside prison and after release, to help them resettle into the community. If this initiative reduces re-offending by 7.5% or more, the government will repay investors from a share of the cost savings. If it delivers a drop in re-offending beyond 7.5%, investors will receive an increasing return the greater the success at achieving the social outcome. Returns will range between 2.5 percent and 13 percent.

Since the first Social Impact Bond was launched, interest is growing around the globe. Australia released a Request for Proposals on SIBs (which they refer to as “Social Benefit Bonds”) in September 2011, while governments and nonprofits in other countries, including Ireland and Canada, are actively exploring the concept.

Current Activity
In the United States, President Obama proposed funding of $100 million for SIBs in his FY2012 budget, and Massachusetts became the first state to formally indicate its interest when it released a Request for Information on the instrument in May 2011. In January 2012, Massachusetts issued a Request for Response (RFR), asking intermediaries and nonprofits how SIBs might be used to provide stable housing for chronically homeless individuals and support youth exiting juvenile corrections and probation systems. Numerous other states and local governments across the U.S. are actively exploring SIBs.

Potential SIB applications span a range of issue areas and geographic locations. Vulnerable populations that could potentially benefit include the chronically homeless population, juvenile and adult offenders and low-income senior citizens.

Funding and Partners
The Boston Foundation, the Omidyar Network, the Pershing Square Foundation and The Rockefeller Foundation have all provided operating grants for Social Finance, Inc. Other partners include The Parthenon Group, who have supported Social Finance, Inc. with office space, and WilmerHale, who have provided pro bono legal counsel for corporate and tax matters.

Publications
A New Tool For Scaling Impact: How Social Impact Bonds Can Mobilize Private Capital To Advance Social Good, Social Finance, Inc.

From Potential To Action: Bringing Social Impact Bonds to the U.S., McKinsey & Company Social Sector Office

[http://hbr.org/product/social-finance-inc/an/212055-PDF-ENG Harvard Business School Case Study, by Shawn Cole, Rawia Abdel Samad, Matt Berner, Raluca Dragusanu. December 5th, 2011.]