Federal Reserve Bank of San Francisco

Community Development

Pay for Success: Opportunities and Risks for Nonprofits

Author(s):

April 2013

Community Development Investment Review

Across the United States, a variety of social sector stakeholders are looking to “pay for success” (also known as pay for results or pay for outcomes) approaches to enhance the reach and impact of social programs. As a contribution to this national conversation, McKinsey & Company recently published a comprehensive study on the potential for social impact bonds (SIBs) in the U.S. In discussions of the study’s findings, stakeholders repeatedly stressed that nonprofits are likely to continue providing the majority of social services in the U.S. for some time, even if for-profit or hybrid social enterprises are growing in number and importance. In particular, nonprofits will continue to be the primary providers of programs for poor and vulnerable people, including homeless people, troubled youth and youth aging out of foster care, and low-income seniors. This is why it is critical to understand how Pay for Success (PFS) can strengthen nonprofits’ work and what risks it might create for them.

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