⏱️ 2 min read
They sound similar, but they’re not!
Community bond: you finance an asset
A non-profit, charity, or co-operative needs capital to purchase an asset, like real estate or major equipment. Instead of going to a bank, they come to their community. Investors (mostly everyday people, but also businesses and other organizations) lend them money, earn interest, and get repaid from the organization’s own revenue – rent, fees, sales, whatever revenue they generate using the asset.
Similar to a traditional bond, it’s an interest-bearing loan with a set rate of return and a fixed term. The key difference: because the issuing organization is a non-profit, charity, or co-op, the investment generates a financial and a social return.
The idea is that organizations can offer investment opportunities and returns to their communities, not just to big commercial lenders. They can also set the interest rate and maturities that work best for their project, instead of accepting the bank’s terms.
Example: In 2024, the Ottawa Community Land Trust raised $3M from 132 investors – neighbours, small businesses, foundations – to buy and preserve affordable rental housing in Ottawa.
Social impact bond: you finance an outcome
A government agency identifies a social outcome it wants to achieve such as reducing youth incarceration rates or increasing post-secondary enrolment. A private funder (business, foundation, trust, accredited investor, etc.) agrees to finance the program required to get there. An external organization delivers the programming. If the outcome is achieved, government pays the funder a predetermined amount. If the outcome isn’t achieved, the funder gets nothing.
Despite the name, a social impact bond isn’t really a bond. It’s a pay-for-performance contract. In fact, they’re increasingly known as social outcomes contracts. The idea is that the government only pays for what works, which saves public money and incentivizes funders to back evidence-based programs with a real shot at success.
Example: The world’s first social impact bond launched in the UK in 2010. Social Finance UK raised £5M from 17 private investors to fund rehabilitation support for short-sentenced prisoners at HMP Peterborough. The program reduced reoffending by 9%, exceeding the 7.5% target, and investors were repaid with a return of just over 3% per year.
So… what’s the difference?
Community bond |
Social impact bond |
|
Who can invest |
Anyone (typically minimum $1,000) | Typically businesses, foundations, trusts, institutional investors |
Who repays you |
The issuing organization (non-profit, charity, co-operative) | The government |
Repayment is based on… |
The organization’s revenue | Outcomes achieved |
Best for |
Capital projects with real assets | Large-scale social programs |
Community bonds are for organizations with a revenue model and a community willing to invest directly. Social impact bonds are for governments with a specific social outcome in mind and funders willing to bet on it.
They’re different tools for solving different problems, both effective.
Interested in learning more about community bonds? Get in touch!