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In August 2012, Goldman Sachs Bank’s Urban Investment Group (UIG) announced
the first social impact bond (SIB) in the United States, a $9.6 million loan it would
make to support the delivery of therapeutic services to 16- to 18-year-olds incarcer-
1
Financing the provision of therapeutic services to inmates at Rikers Island represented a unique opportunity to fulfill UIG’s commitment to double bottom line investing by making a real difference in the lives of the adolescents imprisoned at Rikers Island while earning a modest return in line with traditional community development financing products. In addi- tion to the social and financial returns associated with this transaction, UIG also saw it as an opportunity for Goldman Sachs to make a significant contribution to the development of a new financial instrument that has the potential to transform the way service providers, governments, and financial institutions collaborate to address pressing social issues with evidence-based interventions.
Several trends have made SIBs a topic of much interest. Local government budgets are increasingly strained, leaving governments unable or unwilling to finance preventative interventions. The social service sector is under increasing pressure to focus on evidence- based interventions that work. At the same time, nonprofit providers are looking for reliable sources of long-term funding. In this context, the Rikers Island transaction represents a first step in developing the potential of the SIB to harness these trends.
Transaction Structure
The Goldman Sachs loan is structured as a $9.6 million multiple-draw term loan to MDRC, an experienced intermediary known for bringing together public and private funders to test new policy ideas. MDRC will use the proceeds of the loan to provide funding to the service provider, the Osborne Association, which has extensive experience in providing services to incarcerated youth. MDRC, through a contract with New York City, will oversee the
1 The Rikers Island transaction is technically not a bond; it is a loan. But the expression social impact bond is in such regular use that for ease of recognition, we refer to the transaction as a social impact bond.
ated on Rikers Island. The loan will be repaid based on the actual and projected cost savings realized by the New York City Department of Correction as a result of the expected decrease in recidivism. This unique public-private partnership between the City of New York, MDRC, the Osborne Association, Bloomberg Philanthropies, and Goldman Sachs leverages high-quality nonprofit capacity, private-sector capital, and philanthropic support to address a pressing community challenge. |