Big Australian banks have backed a "social benefit bond" for the first time, in an attempt to help develop a new multimillion-dollar market for funding social services.
Westpac and the Commonwealth Bank have signed up as investors in a $10 million bond from the NSW government, which will fund a new program designed to keep children out of foster care.
It is the first social bond in Australia arranged by big banks and has been structured in a way that is designed to make it appealing to superannuation funds and other big investors.
Social benefit bonds are intended to encourage private investment in not-for-profit initiatives.
Under the model, investors put money into a state government bond that is tied to a specific project - in this case, a program delivered by the Benevolent Society to cut the number of NSW family breakdowns and children in foster care.
Depending on whether the program meets its objectives, investors who choose to have their capital guaranteed can receive up to 10 per cent a year in interest. A tranche of the product that is not guaranteed can yield returns of up to 30 per cent.
The products are being trialled in NSW, with a $7 million social impact bond last month issued on behalf of UnitingCare Burnside. But the latest offering has been designed with big investors in mind, as well as philanthropists, with Perpetual providing pro-bono services as a trustee.
Westpac Institutional Bank's head of structured and asset finance, Craig Parker, said he expected the products to have broader appeal across the market.
"With the big banks and Perpetual involved, we are delivering a market discipline to this style of transaction," Mr Parker said.
In Britain, social impact bonds have also been used to fund projects to provide shelter for the homeless.