Using Pay for Success to Finance Affordable Housing
What is Pay for Success (PFS)? Pay for Success is a service contract through which governments purchase pre- ventive social services from non-governmental service providers. Instead of up-front capitalization, service providers use an operating loan, acquired from third-party investors, which buffers governments from financial risk. In the event of success, the government pays out the contract and interest to investors; in the event of failure, the government pays out nothing. Measures of success are pre-determined by the government and service provider and evaluated by an independent organization after the project is completed. 80 Table 2 below provides an overview of the PFS financing Mechanism. See Appendix A for a detailed explanation of the Pay for Success model. Pay for Success is ideal for projects that cannot be funded through tradi- tional mechanisms because of high up-front costs, risky or unsympathetic target populations, or success outcomes measured over a longer period of time. 81
TABLE 2 Pay for Success Project Mechanics
Investors provide upfront programmatic funding
Funding transferred for service delivery
1 7
Service Providers
Investors
Intermediary
2
Performance based load repayment
Payor provides success payments
Intervention delivered by service providers
3
6
Collection of outcome data by Program Evaluator
Evaluator determines achievement of outcomes
Outcome Payor
Program Evaluator
Target Population
5
4
Pay for Success & Affordable Housing | Stefano Rumi 31
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