What is Pay for Success?
Pay for Success is a creative approach to funding social services, with potential to bring new, significant, and reliable resources to proven preventative programs. In a Pay for Success deal, private investors pay for preventative or interventional social services up front. Should these services deliver their intended results, governments then reimburse the investors with a return on their investment, while saving money on what they otherwise would have spent. It is a model designed to both improve outcomes and reduce costs.
For more information, please see PFS 101.
NFF's Work in Pay for Success:
Nonprofit Finance Fund (NFF) serves mission-driven organizations with tailored investments, strategic advice and accessible insights. As a Community Development Financial Institution (CDFI) intermediary and trusted advisor in the social sector for 35 years, NFF has partnered with a wide range of public and private providers of capital to develop and implement innovative and effective ways to increase the flow of capital to a chronically undercapitalized social sector. Throughout this time, we have also worked closely with the providers of services to empower them with the skills and capacity necessary to convert capital into meaningful, positive outcomes for the individuals, families and communities that they serve.
With the arrival of Pay for Success (PFS) in the United States in 2010, we at NFF, along with many others in the sector, recognized its potential to catalyze improved delivery of and investment in better social outcomes. Equally as important was the recognition that PFS also had the potential to motivate a needed discourse among service providers, traditional and new social sector investors, governments and other stakeholders in the sector on how to align their efforts to improve our society's capacity to deliver better outcomes more cost effectively for the beneficiaries of social programs.
NFF continues to provide capital to the U.S. social sector through facility, working capital and bridge loans from our $80 million loan fund and New Markets Tax Credit transactions and to deliver strategic financial management advice and capacity building programs to service providers and providers of capital. We have also made a strong commitment to supporting an investigation of PFS's potential and to systematically preparing the sector for outcomes-based financing of social services more broadly.
Within this framework, the portion of NFF's work devoted to the PFS space has focused from the outset on helping service providers, investors, and governments understand and build readiness for productive participation in a U.S. social sector where providing and accessing capital is increasingly tied to the achievement of meaningful and measurable outcomes. During this time, NFF has led sector-wide PFS education, outreach and convening efforts in close collaboration with multiple stakeholders, including the Rockefeller Foundation, the White House Office of Social Innovation and Civic Participation, William and Flora Hewlett Foundation, Joyce Foundation, DoL, DoJ, OMB and numerous other service providers, state and local government entities, intermediaries and researchers. Through these efforts and our Pay for Success Learning Hub (payforsuccess.org), which has attracted more than 31,000 unique visitors, we aim to facilitate a balanced, objective and transparent dialogue on the opportunities and challenges PFS presents for all of us in the social sector.
Throughout this period, our PFS work has also focused on capacity building initiatives to better prepare service providers, investors, and governments for collaborative participation in an outcomes-based funding world. With support from the Rockefeller Foundation in 2013, NFF designed and led readiness incubators and accelerators for cohorts of service providers in five geographies across the country. Governments, funders and high performing service providers in each of these targeted locations are advancing outcomes-based finance strategies such as PFS to test the potential of these approaches to deliver better outcomes and provide a supplemental, cost-effective source of capital for vital social service programs.
As NFF begins its 35th year serving the capital, capacity building and thought partnership needs of the social sector, we are very excited about our growing diverse and integrated portfolio of capital access and capacity building work. Most recently, in partnership with the Corporation for National and Community Service (CNCS) Social Innovation Fund, and the Laura and John Arnold Foundation, NFF has launched an initiative that will award a total of $2.88 million, through an open, competitive grant competition, over two years to support Pay for Success transaction structuring efforts across the U.S. Additionally, with the support and partnership of Irvine Foundation, NFF continues to oversee a statewide initiative in California designed to catalyze Pay for Success transactions by sharing expertise, building leadership and aligning the efforts of a diverse set of stakeholders, such as service providers, investors, intermediaries and government. Furthermore, in 2013 NFF received an award of $1.347 million from the Community Development Financial Institutions Fund Program Award to attract additional capital to invest in Pay for Success transactions. Our first deployment of this capital came in the form of an investment in the first county-level Pay for Success transaction: the Cuyahoga Partnering for Family Success Program in Cuyahoga County, OH.
As we embark on what promises to be an exciting and busy year, we look forward to continuing to work collaboratively in the sector, using all of the tools at our disposal and developing new, innovative ones to build a more just and vibrant society.
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To learn more about NFF, visit our website at nff.org.