"Early investors will have a high risk tolerance, and their return expectations will range from principal repayment to returns that keep pace with inflation," according to a May report by the consulting firm McKinsey & Co.

New York City is trying to reduce recidivism among young male convicts housed in the Rikers Island lockup with a four- year program run by nonprofits and financed by a $9.6 million loan from Goldman Sachs Group Inc.

Cutting Recidivism
Recidivism must drop at least 10 percent for Goldman Sachs to earn a profit. The most the New York-based bank can make is $2.1 million if recidivism drops 20 percent and saves more than $20 million in incarceration costs, according to city officials.

Failure would stick Goldman Sachs with a $2.4 million loss, with the rest borne by Bloomberg Philanthropies, Mayor Michael Bloomberg's private charity, which is backing some of the Goldman Sachs loan. The mayor is the founder and majority owner of Bloomberg News parent Bloomberg LP.

By comparison, debt sold by New York state and its municipalities, including New York City, has returned 10.6 percent in the 12 months through Aug. 17. That beat the 8.97 percent gain for the broader municipal-bond market, a Bank of America Merrill Lynch index shows.

Both Democrats and Republicans have praised social-impact bonds for their potential to cure social ills caused by poverty and crime while allowing governments to remain fiscally prudent.

Bipartisan Support
In a January opinion article in the Washington Post, James Q. Wilson, the late Ronald Reagan professor of public policy at Pepperdine University in California, cited social-impact financing as a better way to reduce income inequality than taxing the wealthy. Massachusetts Governor Deval Patrick, a Democrat, is also a proponent, and President Barack Obama proposed $100 million in support in his last two budgets.

"Any time something's run more efficiently, if it could be done to relieve some of the operating burden and expenses on a city or state budget, then you can't help but look at it favorably," said Howard Cure, head of research at New York- based Evercore Wealth Management LLC, which oversees about $3.5 billion.

In Massachusetts, three quarters of males outgrowing the juvenile justice system are convicted of a new crime within seven years of release. Care for the chronically homeless, who spend an average of five years on the street, costs the state an annual $33,000 per person, for a projected total of $40 million next year.

Societal Benefits
If those populations can "achieve more stable, positive, and productive lifestyles and avoid all of these outcomes, it's much better for them and society as a whole, and it's much cheaper for us," Massachusetts Secretary of Administration and Finance Jay Gonzalez said.