Relapse Rate

The relapse rate is the rate of re-offense or re-conviction in a target group. The relapse rate is of significance for social impact bonds (SIBs), which seek to achieve better social outcomes and pass on a significant among of the savings to investors. The relapse rate may be applicable when referring to SIBs in areas such as criminal justice or drug rehabilitation but may not be wholly accurate when referring to SIBs in other areas such as child protection or adolescent intervention.

SIBs are not the same as government bonds that are traded on an exchange. A better way to describe them is pay-for-success contracts. A government might start an initiative to raise capital and cut costs for a cause such as providing foster care. The government would partner with an outside funder or service provider, such as a bank, to raise money for the initiative.

If the service provider meets the terms of the contract over time in terms of raising money, the investor gets paid a return. SIBs are designed to have dual benefits: positively affecting social outcomes and saving governments money while investors get recompensed for their capital.

Currently, Connecticut has an SIB to help children whose parents are addicted to opioids, and a group of banks and institution are funding a healthcare development impact bond in Rajasthan, India that aims to reduce infant mortality.

The relapse rate is one way to measure the impact of SIBs, which can be difficult to quantify. The relapse rate can be best understood by studying one of the first SIBs to be issued, which was an SIB issued by Peterborough Prison in the United Kingdom in 2011.

In this SIB, the relapse or re-conviction rate of prisoners released from Peterborough was compared with the relapse rates of a control group of prisoners over six years. The bond raised 5 million pounds from 17 social investors. If Peterborough's relapse rate were found to be below the relapse rate of the control group by a certain defined percentage, the SIB investors would receive an increasing rate of return directly proportional to the difference in relapse rates between the two groups.

The higher return to the investors is made possible by Peterborough Prison's willingness to pass on to the SIB investors a portion of the considerable cost savings achieved through a significantly lower relapse rate of its prisoners.

In 2017, Social Finance, the creator of the bond, announced that investors would be repaid in full with a 3% per annum return. The organization said that SIB had succeeded in reducing re-offending by 9% against a target of 7.5%.