Social Impact Bonds as a Financial Innovation – an Evolutionary Economic Approach

Abstract

Social Impact Bonds (SIB) – also called “pay‐for‐success” financing – offer a new, innovative way to finance preventive measures in the social sector with the help of private investors. The repayment of the capital investment depends on the success of social action (also called impact investing). The term “Bond” is misleading in this context. In fact, it is not to be a bond, but an intersectoral cooperation, so‐called multi‐stakeholder partnerships. Involved in a SIB are usually at least one or more social service providers, private investors and the state. The aim of this cooperation is to alleviate a specific social problem through preventive measures (also known as intervention) or to prevent this problem (Weber and Petrick 2013).

The aim of this article is on the one hand to depict the structures, market development and also chances and risks of this financial innovation. On the other hand, an evolutionary economic analysis of this financial instrument is made, with a focus on the terms “social entrepreneur”, “knowledge” and “emergence of new infrastructures”.