How do you give to a good cause and make money at the same time?

Bank of America Merrill Lynch and Social Finance Inc. say it is through "social impact partnerships."

The new funding concept raises money for non-profits while investors have an opportunity to earn returns on their investments rather than make straight charitable donations. Social Finance is a nonprofit that arranges funding for social causes.

“Social impact partnerships can transform the way important social causes are funded,” says Liam O’Neil, head of markets group at Bank of America Merrill Lynch.

Merrill Lynch and Social Finance recently used the financing method to raise $13.5 million to fund a jobs program for recently released prison inmates in New York City and Rochester, N.Y. Money was raised from 40 individuals and foundations to pay for a work re-entry program. Investors had to meet the same qualifications as private equity investors, including having at least $10 million in investable assets.

The investments will pay for the Center for Employment Opportunities to fund a jobs program aimed at reducing inmate recidivism, which often reaches 75 percent.

The program is being conducted in two phases, with half of the investment funding the jobs program for 1,000 released inmates and th e other half for 1,000 to be released in two years. The success of the program will be measured by the decrease in the number of bed spaces for returning inmates.

The investment program is often mistakenly called social impact bonds. “These are absolutely not bonds,” O’Neil says. “We call them social impact partnerships because they closely resemble limited partnerships. The investors could lose their money but they also could earn money on their investment.

“But investors do not do it for the revenue first. They do it because it reflects their values. When they get their money back, they probably will invest again,” O’Neil adds. “We are trying to access private capital and individual investors to mobilize a pool of capital not previously engaged in this type of activity.”

A few other similar programs have been done with foundations. The New York State program also involves private investors. Projects in other states, including one in California that is designed to prevent asthma in children, are in the planning stages.

"We are excited by these early projects," says Caitlin Reimers, director of the capital market team at Social Finance. "There is a risk associated with trying new programs. Social impact partnerships remove that risk from the public sector and let private dollars bear the risk."

“Not all social causes are fundable in this way because not all can be measured for results,” O’Neil says. “You need a willing payer who is also a beneficiary (in this case NewYork State) and a proven service provider.”

In the inmate jobs program, the state pays the investors through the money it saves by reducing prisoner bed spaces. The savings go 100 percent to investors until their principal is repaid; after that, New York and the investors split the savings. Investors can reasonably expect returns in the mid-single digits based on past tests of the program, O’Neil says. There is a 12-percent cap on returns to the investors. For tax purposes, the returns on the partnerships are treated as normal income.

“With social impact partnerships, everybody wins,” says O’Neil. “The state gets the investment money and only pays if the program succeeds; society benefits by crime being lowered; the formerly incarcerated person benefits by having a job; and the investor benefits by getting a return on the investment and being able to invest again in something that reflects his values.”

Social impact partnerships may prove to be useful because government funds and philanthropic money are stretched thin, says Beth Bafford of the strategic initiatives team at Calvert Foundation, a not-for-profit organization that connects investors with community development. Calvert Foundation is not involved with any social impact partnerships.

"The initial thought was that private investors should be involved to prove the model works, scale proven preventative interventions, and to bring in a new source of capital," Bafford says. "If we can shift a portion of government funding from treating outcomes into preventative programs, it would make a huge impact on society and yield tremendous savings."

Bafford said another area that would lend itself to these types of programs would be in the health care field, which is in need of programs that emphasize prevention rather than treatment.