Pay for success encourages private investors to invest in impact enterprises by providing a unique approach of financing. This approach helps reduce the risk of paying for poor or mediocre delivery of services and ensures that payments are only done when pre defined social outcomes are achieved.

Broadly the mechanics of the model is where- Investors/ Intermediary will provide upfront capital or guarantee against a loan and support service providers to reach the target outcomes. If the targets are met or exceeded, ‘outcome funders’ pays back the investors their principal plus a return. These outcome funders could be international foundations or government.

The independent evaluators play a key role. They measure the success of the program in reaching the target learning outcomes, triggering payments. The return to investors is a function of the rate of success.

These models are used to scale large interventions that have shown significant impact and/or smaller innovative interventions which maybe early in their operations but have a high chance of creating social impact. With an increasing interest in the innovative financing space, government and foundations can adopt this model to efficiently deliver public services and solve social as well as environmental problems using private capital.