Microfinance and Pay-for-Success Bonds

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by Richard Crews
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Microfinance, first developed by Mohammad Yunus in Bangladesh in the 1970s, has enabled millions of people around the world to raise themselves out of poverty. An investor-donor with only a few dollars to contribute can use the Web to participate in one of these programs (http://www.kiva.org/).

"Pay for Success Bonds" is another investment-donorship opportunity on the horizon. You can lend money to a good social program; if it meets its goals, you make 13% annual return; if it doesn't, you lose your investment.

Investment programs like this have gotten under way in the U.K. as "Social Impact Bonds." The Obama administration has set aside $100 million to test pilot programs in this country. Both New York City and Baltimore are interested, and the National Guard Youth Challenge overseen by the Defense Department which provides skills training under military discipline to disadvantaged youth may also try this funding approach.

("Pay for Success Bonds" are discussed in The Economist, Feb. 19, 2011, page 36)
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