Pay for Success (PFS) can be an innovative new funding mechanism that’s used to finance social-benefit projects with high-quality impact metrics. PFS projects are popping up in most sector from homelessness, to healthcare, to education. New models prove that PFS projects can be utilized to stimulate investment in commodities, in addition to workforce development. What impact will this have on the private sector? Will your company Pay for Success?
The Common Fund for Commodities unveiled a Development Impact Bond (DIB) to modernize cocoa and coffee production in Peru’s Amazon region, the Ashaninka. This first standing commodity-sector DIB breaks in to a new frontier of Pay for Success (PFS) possibility.
DIBs follow the key principles of PFS projects, but they include a third-party end payer, rather than a government. In this case Responsible Investing, the Common Fund for Commodities has consented to repay the investor, the Schmidt Family Foundation, once pre-determined target outcomes are successfully achieved.
Rainforest Foundation UK could be the company for the project, and the business has already started experimenting with leaf-rust resilient coffee strains. A year ago, the leaf rust disease plagued almost 70% of coffee production areas in the Ashaninka.
As a result of global recognition as a top-notch commodity, Peruvian cocoa has experienced an amazing demand increase among foreign consumers. Driving supply to generally meet demand, higher-efficiency cocoa production methods are now being implemented directly on time.
This Peruvian coffee and cocoa project raises the question of whether DIBs can be utilized to modernize other kinds of commodity production. Could a DIB be used to supplement exports of quinoa, corn, and salt from the Peruvian Andes?
Sustainable Tech and Water:
Through the Social Entrepreneurship at UVA Pay for Success Conference, one participant raised the question of if PFS projects could be used to fund sustainable technologies and water conservation. The possibility exists. On the basis of the Peruvian model, a fund for California commodities could pay an investor whenever a non-profit produces wide-spread adoption of sustainable planting methods. Can you purchase California’s water conservation?
What about climate change? A clear energy fund could pay an investor, contingent on service providers spreading the adoption of sustainable technology. PFS projects are all about aligning interests, so so long as you have a problem, partners, and payable outcomes PFS possibilities exist.
Entrepreneurship and Art:
To successfully complete a PFS project, you will need a fund, a fiduciary and a non-profit service provider. Venture capital funds could become end payers, purchasing non-profit entrepreneurship accelerators. If the accelerator achieves a certain measure of success, private investors, potentially well-connected angels, are certain to get paid. Success might be measured in the number of companies to generally meet a prerequisite rate of growth, target revenue, or social-impact metric.
Dual-incorporated businesses with a non-profit branch may manage to experiment in-house with the PFS model. Village Capital, which consists of a non-profit and stand-alone fund, could essentially structure an in-house DIB. If private investors wanted to purchase the non-profit, they could enter in to a PFS agreement with VilCap Investments.
From an art accelerators standpoint, they could scale their operations with a PFS project, similar to entrepreneurship accelerators. If art investors wanted the McGuffey Art Center to expand its artistic co-op model, the investors could provide up-front cash, and a fund, even local government, could part of being an end payer. This PFS model could easily be piloted in Charlottesville, VA if art-backing investors step-up to the plate.