The Government has announced its first social bond pilot programme, aimed at getting 1700 beneficiaries in South Auckland with a mental health condition into work over five years.
The social service provider is APM Workcare which will be funded to the tune of about $1.5 million by four investors.
The level of return will depend on the level of success, Finance Minister Steven Joyce said today.
The rate of return was the Government bond rate plus a risk margin.
The target will be to get 43 per cent of the people they work with into work. The longer the person stayed in work, the higher the outcome payment by Government will be.
"It's not just a case of getting in the door and leave them. It is working with them to do so."
APM Workcare was one of the investors, as was a philanthropic investor, a pharmaceutical company and investment banking body.
Joyce made the announcement in a speech to the Institute of Public Administration, completing work undertaken by former Finance Minister Bill English.
Joyce said the field of work which was chosen for the pilot was an area in which the Ministry of Social development had struggled with.
He told reporters later that private investors brought a different discipline to the challenge.
"They have a financial incentive as well as a reputational incentive do that. In Government we tend to have more of a reputational incentive.
"It is different way of doing things but it has the potential to achieve some very good results and this is a group we have struggled to achieve with, going back decades. It has been a problem for a very long time."
The service will be available to job seekers on a qualifying benefit with a diagnosed mental health condition and living in Manukau, Manurewa, Clendon, Papakura, Pukekohe and Waiuku.
Joyce said that APM Workcare was an experienced and successful provider of vocational rehabilitation and disability services, with about 150 employees.
It had assisted more than 24,000 people across the country return to work after an injury or from unemployment.
Work is underway on a second bond issue - aimed at reducing youth re-offending rates.
Explaining the philosophy behind it, Joyce later compared it to a private investor in a Public Private Partnership.
"The simplest way of comparing it perhaps in infrastructure is we have people build infrastructure all the time but with PPPs we bring in people who actually invest in that infrastructure as well.
"The real gain out of that is the investors go 'hang on a second, we reckon it could be this way and that way. and will cost less and achieve better results,' because they have got their own money at risk and it is the same principle behind social bonds.
"It's just that ongoing absolute focus of somebody who has their own money at risk."
Besides APM Workcare, the other investors are the Wilberforce Foundation, Jansen (part of Johnson and Johnson) and, Prospect Investment Management.
Under the pilot social bond, there are two classes of capital: a less risky group in the maximum return is 9 per cent and a riskier group at which the maximum return is 17 per cent.