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The Test Case Behind Goldman's Investment in Jail Inmates

Justice Secretary Kenneth Clarke (center) talks to prisoners at HMP Peterborough in Cambridgeshire ahead of the launch of the Social Impact Bonds.
Justice Secretary Kenneth Clarke (center) talks to prisoners at HMP Peterborough in Cambridgeshire ahead of the launch of the Social Impact Bonds.Photograph by Chris Radburn/PA Wire/AP Images

Goldman Sachs is offering $9.6 million in funding to help New York City keep Rikers Island jail inmates from ending up back behind bars after they’re released. This isn’t a regular donation, though—it’s a new type of investment called a “social impact bond,” designed to use market incentives to encourage private funding for public problems.

The Rikers project is the first social impact bond in the U.S., but the idea has origins in the U.K. In 2010 a British do-good investment bank called Social Finance issued the first social impact bond. The bank lined up 17 investors—mostly foundations and charitable trusts—to support an $8 million program to rehabilitate 3,000 men released from a prison in Peterborough, a London suburb. The program set the goal of reducing the recidivism rate for the men by at least 7.5 percent over six years as compared with a control group at other prisons.