Want To Invest In Your

August 03, 2012

Social impact investing provides a route to accountability and measurable success in community-building partnerships, says faith-based website, followme.org.

That statement came today as a multinational investment firm recently announced its intentions to partner with non-profits to reduce prison recidivism in New York City.

Multinational investment firm, Goldman Sachs, made waves last month when it announced a new investment: it would be donating $ 9.6 million to private organizations working to reduce recidivism at New York City?s Riker Island prison. According to a Business Week report from yesterday, Goldman Sachs is experimenting with a new brand of philanthropy called ?social impact investing.?

In social impact investing, non-profit organizations work out contracts with local governments to achieve measurable success in their communities; if the non-profit does not achieve the result, the government does not pay. Government contract in hand, the non-profit begins petitioning donors and investors to raise the amount of money needed to achieve its outcomes. If the organization reaches its goals, private investors see their return plus interest.

Laura Callanan is a researcher at McKinsey & Co., a global management firm that specializes in social impact bonds. Governments have an incentive to opt for non-profit preventative programs given the extreme costs of incarceration, she told Forbes Magazine in its article, "Making Your Tax Dollars More Effective: A New Model For Impact Investing," last month. This savings creates the funds needed to repay non-profits and investors, she said.

This week, Massachusetts also began a social impact investing campaign. According to a Reuters report from yesterday, the commonwealth this week awarded two contracts to non-profits committed to reducing homelessness and juvenile crime. Jay Gonzales, Massachusetts? Secretary of Administration and Finance called the contracts a ?true win-win for taxpayers,? in that the commonwealth only pays if the program achieves results.

So can social impact investing help non-profit organizations achieve their social goals? Pastor Jamie of faith-based website, followme.org, says that social impact bonds may go a long way toward uniting non-profits and community goals.

?For contracted organizations, these bonds provide necessary accountability and quantifiable goals for their programs; for investors, churches, non-profits, and businesses have an awesome opportunity to invest in worthwhile, community-building projects,? he said.

And that is a difference that many firms?in the US and abroad?are starting to get excited about.