Friday, November 6, 2015
Adding Profit Incentives to Nonprofit Work
Impact investing—using private funds to achieve social benefits along with financial returns—has been growing over the past five years, and one recent technique in particular shows promise. It’s called Pay for Success, and it allows investors to fund experimental health and social programs by betting on their effectiveness—with no downside for taxpayers.
Here’s how it works: A government agency contracts with an intermediary—such as the nonprofit Social Finance US—which in turn contracts with the nonprofit groups that will deliver the planned services. The intermediary also recruits investors, who fund the program. If the program achieves its specified outcomes, the government agency pays back the investors, plus an agreed-upon return. If the program fails, the investors swallow the loss. An independent evaluator verifies the outcomes. . .
Pay for Success has attracted financial heavyweights such as Bank of America and Merrill Lynch, and philanthropies such as the Rockefeller Foundation. It is being applied to programs as diverse as the management of asthma patients, child welfare and education. . .