Lessons learned from global Pay for Success deals

By Megan Carolan, Associate Director for Policy Research

One lesson that was abundantly clear at our April Pay for Success conference was the oft-repeated mantra: if you’ve seen one Pay for Success deal, you’ve seen one Pay for Success deal. While PFS transactions follow the same general format, the nuances of local politics, funders, and interventions of interest mean that each deal must be tailored to the jurisdiction it serves.

This focus on local context is essential to constructing deals that work, but can sometimes make it difficult for those interested in the field to learn lessons from the experiences of others. A recent report from the Brookings Institution, “The Potential and Limitations of Impacts Bonds,” provides insight on all global PFS/SIB transactions as of March 2015. The report provides detailed profiles of each of the transactions as well as useful background information on the history and structure of the field as a whole.

It also makes a unique contribution to building knowledge in the PFS field. Through a series of survey questions administered to actors in 38 existing PFS projects, the report provides insight into motivations, difficulties, and preconditions for success in constructing deals. These findings are particularly useful to stakeholders who are interested in the potential of PFS deals but may fear finding more roadblocks than opportunities.

The image below shows how deal actors ranked their challenges in developing deals. No one factor was reported as “a big challenge” by even 20 percent of respondents, and only a handful of factors were reported by more than 10 percent of respondents as “big challenges.”

Figure 1: Challenges in developing SIBs

challenges to SIBs

Many of these challenges are notable because they are not unique to PFS deals; attempts to expand most social programs will encounter concerns regarding measurable outcomes, financing, and government buy-in. Seven of these factors were reported as “not a challenge” by more than half of respondents:

  • wait time to see measurable results;
  • availability of technical assistance;
  • election cycles;
  • presence of philanthropic actor willing to bear risk;
  • willingness of payors to repay investors;
  • willingness of government to support social service itself; and
  • willingness of government to support SIB transaction.

While PFS deals may require more complicated financing structures or a different set of partners than traditional government-backed social service expansions, stakeholders may be heartened by these findings. ICS has previously written about the challenges in deal construction based on the Rikers deal.

Actors were also asked to rate the importance of various factors as facilitating factors. The full results are displayed in the image below, but this excerpt from the report (p. 31) highlights the interplay of these facilitating factors:

Consistent with the challenges section, measurable and monetizable outcomes were very important or important for all actors surveyed….The evidence of the service providers’ ability to achieve the outcomes was also very important to actors, evidenced both in the robust evidence category and the existing capacity to provide the social service category. The credibility and capacity of the intermediary and the availability of technical advice were also facilitating factors, likely because these actors can help navigate the complex deal development process.

…[P]rivate investors’ interest in social return was more helpful for the process than their interest in financial return….Lastly, the figure shows that 97 percent of actors surveyed found the preventive nature of the programs to be a very important or important facilitating factor and that 86 percent found the potential to adapt the program based on data to be a very important or important facilitating factor.

Figure 2: Facilitating factors in developing SIBs

facilitating factors SIBs


No one report can serve as a “how to” guide for the complex, unique world of Pay for Success, but the Brookings report provides a useful education in what to expect when you are pursuing a deal. Four factors highlighted by the report as key across all deals – “measurable outcomes; evidence of intervention impact; government support; and dedication and collaboration of the stakeholders” – are being addressed in the technical assistance ICS and other organizations are providing as part of a federal Social Innovation Fund grant. At the end of the project year, we’ll share what we learned from coaching jurisdictions through feasibility studies and share tools that helped facilitate the process.

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