In the UK, approximately 40,200 adults leave prison after serving less than 12 month sentences.  It costs taxpayers £213 million per year for the prisons yet 73% of these offenders reoffend within 2 years of release as they unsuccessfully resettle into the community.  As government spending is focused on expensive interventions that deal with the consequences of the issue rather than root causes, fewer resources are available for early intervention.  This leads to a cycle of poorer social outcomes and more money required on expensive interventions.  With this problem at hand, Social Finance started developing Social Impact Bonds to address deep-rooted social problems.

Social Impact Bonds that started in the UK raises funds from non-government investors to pay for the provision of services.  If social outcomes improve, investors receive returns, or success payments, generated from a proportion of the reduction in public spending on services.  The size of the payments depends on how successful the services are.  Investors carry the risk that interventions fail to improve outcomes. 

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Source: http://bx.businessweek.com