What are the challenges of pay for success?
Developing an outcomes-based contract with a clear target population, specified intervention, data collection methods, and robust evaluation is difficult. Although this may represent best practice for government service delivery, it is not easy.
Most PFS projects thus far have required a substantial investment of time and energy from all partners. Projects typically take a year or more to launch. They require extensive data analysis, intervention and evaluation design, and contract negotiation. That said, this PFS structuring work can have benefits that reach far beyond the project, such as seeding systems changes within government.
Attracting private investors may be a challenge given the low risk-adjusted returns that these projects often offer. However, there are a number of tools and options that projects may use to offset some of this investor risk, including encouraging philanthropic investors to serve as junior lenders or provide other credit enhancements.