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).