For some reason there seems to be some confusion over the word “Bond” when people are discussing Social Impact Bonds.
Various pundits have said that a Social Impact Bond is not a bond, because bonds have a fixed interest rate and repay your capital. That’s that sort of bond that many individual investors commonly invest in.
But it’s not the only type of bond there is.
There are perpetual bonds which never repay your capital; floating-rate bonds, where your interest depends on a benchmark index; inflation-linked bonds, where interest and capital depend on the inflation rate; convertible bonds, issued by a company, where either the holder (or in some cases the company) can force the bond to be exchanged for shares; structured investment bonds, where interest and/or capital repayments are linked to the performance of the stock market. And so on.
So what then is a “bond”? The venerable Oxford Dictionaries gives several definitions, but the relevant one is “a deed by which a person is committed to make payment to another.”
Implicitly, the amount of the payment must be calculable and not discretionary. It is a type of debt.
So is a Social Impact Bond a bond? Absolutely. Is there a dangerous risk of confusion from the term? There certainly shouldn’t be – as with any investment product, if you don’t understand it you should seek assistance.
iforchange can deliver training, workshops, seminars, and consultancy on all aspects of social impact bonds and other forms of innovative impact finance.