Financial institutions and banks keen to partner with non-government organisations will be targeted by the Government for its first social bond programme.
The Government is set to give private investors the opportunity to invest in and make money from social services, beginning with mental health services.
It has set aside $28.8m in this year's budget for paying out on social bonds which will first focus on getting people with mental health conditions into employment.
Social service providers will be asked to team up with investors to carry out the work. Later, that money is reimbursed to the investor by the Government, with interest, if the organisation meets specified performance targets.
Advocates say issuing social bonds for mental health services risks being an unfortunate experiment undertaken with society's most vulnerable.
Health Minister Jonathan Coleman told Morning Report this system should be more effective than the Government putting more funds into current services as it allowed the Government to pay out only on results.
"Because in the end the incentives aren't there and the guarantees for the contracted provider to produce the result.
"By saying to you, 'hey are you up for this challenge?', the provider saying 'yes we are' and we're saying 'but you won't get paid unless you actually deliver pre-agreed contracted results' we are guaranteeing the result."
Labour Party leader Andrew Little said the plan is a case of profiting out of social services.
He told Morning Report the state should be involved in mental health, or Child Youth and Family, because individuals cannot look after themselves.
"So there is state provision for that. The idea that we turn that into some sort of money-making venture, I think most people would be aghast at."
'Gambling with lives'
New Zealand is among the first countries to use social bonds. The scheme currently in its infancy in Britain, the United States and Australia and those bonds are yet to mature and pay out.
Green Party social development spokesperson Jan Logie said the Government was gambling with the lives of some of the most vulnerable people.
"This is a very new concept that's yet to be evaluated, either internationally or locally," she said.
Ms Logie said to be starting with mental health, where clients need certainty for recovery and management, it seemed risky.
New Zealand First's social development spokesperson Darroch Ball said the Government should not be driving social change through profit.
"The services that the organisations will provide are based on the profit they can make so it will be all about the dollar sign, not about the people," he said.
But Dr Coleman said the scheme protected taxpayers' interests.
"It's not a gamble, because in the end, if the results are delivered by the provider we are then able to look at some sort of alternative vehicle for getting those outcomes," he said.
Labour leader Andrew Little doubted that.
He said that in reality, even if the objectives of the programme were not achieved, investors would want at least their money back, regardless of the performance.
Details of how the mental health social bond will be structured and which organisations will be involved, are expected to be agreed by the Cabinet in the next two months.
The next social bond could focus on either lowering re-offending rates, or helping people manage long-term health conditions.