The New South Wales Government plans to work with National Australia Bank (NAB) to reduce the rates of prisoners reoffending, in what is being described as an Australian first.

Key points: NAB will fund delivery of programs to reduce parolees reoffending

NAB will fund delivery of programs to reduce parolees reoffending Government has committed to a five per cent cut in parolee reoffending rates by 2019

Government has committed to a five per cent cut in parolee reoffending rates by 2019 NAB says financial gain not primary motivation

The state has championed such so-called "social impact investment" schemes before, in which investors receive a rate of return for achieving social outcomes.

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But questions have been raised over whether the Government is passing the buck.

The Government has committed to a five per cent cut in parolee reoffending rates by 2019, and for that to succeed that they turned to NAB.

The bank will make what is known as a social impact investment.

James Waddell, director of NAB's Capital Financing Solutions team, said their primary reason for going into the transaction was not about the financial return.

"In fact the financial return could be negative," he said.

"It's more about giving people a great start once they leave prison, making sure that they don't go back and that's a really key driver for us here."

How does it work?

The NAB will fund the delivery of programs to reduce parolees reoffending.

And then the State Government will pay the bank a rate of return, depending on the success of the program.

Mr Waddell said that for them to get a positive return, the reduction of reoffending parolees would need to be higher than the Government's target of five per cent.

The rate the bank will be paid is commercial in confidence, but the Government will cap it to ensure value for money.

NSW has two other social bonds that focused on out-of-home care of children, said Daniel Madhavan, the chief executive of Impact Investing Australia, a group trying to develop the social impact investing market in Australia.

"And if you look at the Uniting Care Burnside bond, that's returned just under eight per cent to investors," Mr Madhaven said.

"And based on the outcomes it's achieved of returning, I think it's around 70 children from the foster care back to a safe home environment."

Mr Madhaven said theoretically investors should never receive returns when they do not deserve them.

"If they're structured well, and I don't know of all the intricacies of every social impact bond globally, but if they're structured well the Government is only paying when the outcomes are achieved.

"And when those outcomes are achieved, they typically result in cost savings for government."

Government accused of passing the buck

Criminal justice reform groups are concerned that the Government is passing the buck.

Brett Collins, a coordinator with the group Justice Action, said it was "quite clear that the Government's failing".

"Instead of lessening recidivism, there's actually an increase in recidivism," he said.

"So for them now to pass out to private companies the responsibility of ensuring that they succeed is ridiculous.

"It's quite clear the government has to give direction to the way it's going to succeed, and the Government has got to roll it out correctly.

"It's got to do research and got to ensure that the international best methods are adopted.

"And to try to distance itself from its responsibility and to be seen to lay failure at someone else's feet is unacceptable."