Social impact investing catches on in the U.S.

Thu Aug 2, 2012 3:30pm EDT
Email This Article |
Share This Article
  • Facebook
  • LinkedIn
  • Twitter
| Print This Article | Single Page
[-] Text [+]

By Manuela Badawy

NEW YORK (Reuters) - Kim Hartke, who served 14 months in jail for stealing a car to pay for her addiction, turned her life around in part because of financing provided to an Oregon social services program from an innovative type of bond.

Today, the 53-year-old Hartke is a professional painter, a skill she developed through a training program offered by Central City Concern. The Portland, Oregon non-profit that provides healthcare, counseling and housing to people affected by poverty, homelessness and addictions.

Some of the funding for Central City Concern came from a series of loans Calvert Social Investment Foundation has provided to the organization over the past several years. The $2.5 million in loans are packaged into bonds--really structured notes--that the foundation sells to individuals looking to invest in charitable causes.

The Calvert Foundation bonds are part of a new trend in social investing that is gaining some favor with cash-strapped states and communities that are looking to private investors to help pay for badly needed social services programs.

This new approach employs the sale of philanthropic bonds like the ones issued by the Calvert Foundation. It also involves local governments partnering with non-for-profits and private investors in deals that require a government only to payout if a social services group can meet a specified performance goal.

This new type of financing is being called "pay for success contracts."

On Wednesday, Massachusetts jumped into the fray by awarding two contracts to non-for-profits, which will look to raise money from private investors as part of the financing deal. The investors will get paid back with interest, if the not-for- profits meet their goals of reducing homelessness and juvenile crime.

The state of Massachusetts is set to finish negotiating the terms of the contracts within the nonprofits in the next couple of weeks.   Continued...