Piloting Pay-for-Success in Hong Kong

To facilitate public-private partnership which enables the government to leverage private investments for improved social outcomes

Pay-for-Success (PFS), also known as Social Impact Bond (SIB) and Social Benefit Bond, is an innovative financing model for social services which has been gaining widespread interest across the globe. According to Social Finance UK which launched the first ever SIB back in 2010, "a SIB is a contract with the public sector in which it commits to pay for improved social outcomes. On the basis of this contract, investment is raised from socially-motivated investors. This investment is used to pay for a range of interventions to improve social outcomes. If social outcomes improve, investor will receive payments from government.  These payments repay the initial investment plus a financial return. The financial return is dependent on the degree to which outcomes improve".

In a nutshell, PFS is a public-private partnership which funds effective social services through performance-based contractual arrangements and enables governments to partner with high-performing service providers by using private investments to develop, coordinate or expand effective programmes. It is a series of contractual arrangements, typically facilitated by an Intermediary, which involve Investor(s) paying up-front the costs of interventions to improve social outcomes, and the Commissioner/Outcome Payer (typically government agencies) repaying investor(s) such costs, possibly with financial returns, subject to and depending on the social outcomes achieved by the Service Provider(s) as assessed by an independent Evaluator.  It leverages on investors’ risk-sharing to enable funding of more innovative or preventive interventions which are currently not yet covered in the government budget. To understand more about the concept of PFS and the responsibilities of the major parties involved in a PFS, please refer to the report “Financial Innovation for Social Impacts – an Advocacy Report on Pay-for-Success” issued by Our Hong Kong Foundation in 2017 (Full Report; Presentation Slides).

SIE Fund as a Catalyst

The SIE Fund seeks to catalyse
the pilot development of PFS
in Hong Kong

The SIE Fund seeks to catalyse the pilot development of PFS in Hong Kong by linking up interested stakeholders, facilitating structuring of pilot PFS project(s) and assuming the role of Commissioner in worthwhile pilot PFS project(s). The aim is to:

  • test the effectiveness of PFS model in local context;
  • help all parties gain learnings;
  • foster cross-sector capacity building; and
  • use the pilot project(s) as a showcase for government bureaux and departments and inspire them to identify application to other social and poverty related issues.

To this end, the SIE Fund organised a sharing session on PFS in January 2018 with speakers from Our Hong Kong Foundation and Social Finance UK sharing the concept of PFS and global adoption of PFS (Please refer to the presentation materials [part 1part 2] and the video). About 70 participants attended the session, including interested stakeholders in the social innovation space and representatives from government bureaux / departments.

In June 2018, the SIE Fund further organised a stakeholder engagement workshop to gather interested and relevant parties to appraise the potential of the model in Hong Kong and to explore the feasibility and readiness for Hong Kong to pilot PFS project(s). About 50 interested stakeholders including investors, foundation/family offices, non-governmental organisations, social entrepreneurs, academia and government officials attended the workshop and the feedback was positive. Majority of the participants saw the merits of the PFS model and recognised the potential and readiness for Hong Kong to pilot PFS project(s) to test the model.  For more details about the workshop, please refer to the Executive Summary produced by PricewaterhouseCoopers Advisory Services Ltd, the project manager engaged by the SIE Fund for organising the workshop.

In October 2018, the SIE Fund organised a second sharing session with distinguished speakers from Our Hong Kong Foundation, Social Finance and Tri-Sector Associates (formerly known as Third Sector Asia) to introduce the concept, share examples of overseas PFS cases and provide insights on the key lessons learnt. For more details about the second sharing session, please refer to the presentation materials [part 1 (video) / part 2 (video) / part 3 (video)].

Proposals related to PFS

PFS proposals/grant applications
are welcome
To facilitate pilot development of the PFS model in Hong Kong, the SIE Fund welcomes proposals from the community in either of the following forms –
(a) Proposal to invite the SIE Fund to act as the Commissioner of a structured PFS project; or
(b)  Application for a grant from the SIE Fund to fund the structuring cost of a potential PFS project.

(Note: Approval of the grant under (b) does not commit the SIE Fund to fund subsequent proposals to invite the SIE Fund to act as the Commissioner under (a))

Assessment of the proposals will be made according to established mechanisms.