What does a social impact bond (SIB) typically finance?

A social impact bond (SIB) primarily finances social programs through public-private partnerships. SIBs are innovative financial instruments designed to fund initiatives that aim to address social issues, such as homelessness, education, or healthcare. The key characteristic of a SIB is that it leverages private capital to fund services, with the expectation that the government or another outcome payer will only repay the investment if specific social outcomes are achieved.

These bonds facilitate a collaborative approach where public entities can implement programs without upfront costs, relying on the expertise and efficiency of private organizations to deliver social impact. If the desired outcomes are successfully met, the investors receive a return on their investment, which is typically tied to the savings generated for the public sector by the successful program. This structure encourages innovation and accountability in the management of social programs.

In contrast, the other options represent different financing goals that do not align with the objectives of a social impact bond. Infrastructure development projects and private sector business expansions focus on economic growth rather than social improvement, while international trade agreements are political and economic arrangements between countries rather than financing mechanisms for social programs.