Rayanne Hawkins
Urban Institute
Business Operations Manager

What role do intermediaries play in pay for success?

October 31, 2018 - 3:37pm

Intermediaries are one of the key stakeholders in a pay for success (PFS) project. Across current and developing PFS projects, two types of intermediaries exist: financial intermediaries and knowledge intermediaries.

Financial intermediaries—also known as transaction coordinators—are organizations that help governments set up and run PFS projects. They assist with the feasibility analysis, deal structuring, and project implementation phases of PFS project development. Their roles and responsibilities vary by project, but in general, they assist with designing the project, securing investors, selecting the service provider, coordinating stakeholders, negotiating the contract, and providing oversight and management.

Knowledge intermediaries help PFS partners understand the feasibility of PFS projects, examining the project design, costs, partner capacity, and research behind the intervention. Knowledge intermediaries can be outside parties or serve multiple roles within the same project.

Intermediary roles differ in each PFS project development phase. During the first phase, feasibility, intermediaries work with local governments and service providers to answer project-specific questions and explore whether PFS is a suitable financing solution. They also provide technical assistance to the project partners by reviewing local social services data to advise communities about which evidence-based intervention best address their needs. For example, intermediaries can use tools like our PFS project assessment tool to rate projects’ PFS feasibility based on the project’s definition of the problem to be solved, the strength of the program and the proposed service providers, the will of the local or state government, and other elements.

During PFS deal structuring, the second phase of PFS project development, intermediaries help governments and other stakeholders identify projects ready for PFS financing, sometimes through answering government requests for information. They also can create the project design documents, attract investors to the project, secure commitment from governments to become end payors, and draft data-use agreements and other contracts or memorandums of understanding.

During the last two phases, implementation and evaluation, the evaluators share project results with the intermediaries who use those results in project management or governance meetings. Finally, if the interim and/or final evaluation results demonstrate that the project met the agreed-upon outcomes, the intermediary facilitates the government repayment to investors.

Intermediaries take on an important role in building the PFS field. By leveraging their core strengths—whether in finance or knowledge—in one of the PFS domains like housing, education, or health, they build local capacities and create partnerships that are critical to the success of PFS.