Impact finance

Impact Bond

Meaning statusEstablishedSource recordDirect document linkedWhy these are different

Definition

An impact bond is a financing mechanism in which investors provide upfront capital for an intervention and a government, donor, or other outcome funder repays them — with a return — only if independently verified outcomes are achieved. Despite the name, impact bonds are not tradable debt securities but contractual partnerships; social impact bonds address domestic social services, while development impact bonds apply the model in low- and middle-income countries. The first SIB was launched at Peterborough prison, UK, in 2010.

References

OECDUnderstanding Social Impact Bonds — SIB definition; investors fund service delivery, government pays on achieved outcomes; "not real bonds but future contracts on social outcomes"

definition and mechanism

OECDOutcomes-Based Financing in the New Financing for Development Architecture (2025) — impact bonds as investor-enabled OBF; Peterborough 2010; DIBs in development

typology and evidence

Overview

What it means

Impact bonds transfer performance risk from funders to investors: money follows verified results, not activities. This sharpens focus on outcomes and invites private capital into public goals, but the structures are complex, transaction costs high, and the evidence on whether they outperform traditional funding is mixed.

They sit within the broader family of outcomes-based financing alongside results-based contracts and outcomes funds.

How it is used

Used in employment, health, recidivism, education, and conservation programmes; tracked by OECD and the Brookings Global Impact Bonds Database.

Why it matters

Impact bonds are the most ambitious attempt yet to make public and development spending pay only for what works.