MaRS Library Pioneering pay-for-success in Canada: A new way to pay for social progress
No matter how good our intentions or how much money we spend, we continue to struggle with many of the same problems. Solutions to deep social ills—chronic disease, homelessness, children in government care—seem distant despite constant effort. Tying social spending to outcomes attempts to make our efforts more effective. Outcome funding pays social programs based on results rather than on activities or budgets. Pay-for-success (PFS), the most prominent outcome-funding tool, gives governments the chance to fix every dollar to social change.
Under a PFS arrangement (also known as a social impact bond), a nonprofit service provider asks private investors to lend money to finance a social program. The government repays the investors with interest if the program meets its outcome targets. PFS hypothesizes that attaching payment to outcomes will drive better program design and execution. Structuring a PFS contract forces the government, service providers and investors to precisely define and measure what they believe matters.