Social Impact Bonds: A Sharīʿah Point of View

Abstract

A new financing instrument for social projects has recently emerged that impacts directly or indirectly on the underprivileged segment of the society. It is known in the United Kingdom (UK) as ‘social impact bonds’ (SIBs); in Australia as ‘social benefit bonds’ (SBB); and in the United States (US) as ‘pay for success bonds’. These names were coined because of the nature of the bonds; they are used to finance projects that have social impact, and the commissioner of the project only pays if the outcome meets the agreed target; otherwise, investors will lose their investments, including the principal and profit. This paper will hereon use the term SIBs as it is the most popular designation as well as the original one.