The National Council of Nonprofits has released “Principles for Consideration of New Funding Mechanisms,” designed for use by nonprofits, governments, foundations, and for-profit entities when considering launching pay-for-success initiatives, social impact bonds, or other new funding mechanisms.
The new arrangements typically provide that organizers secure private funding for experimental social interventions with the promise that governments will pay back the investors with interest or profit if the intervention proves successful in improving outcomes and saving money that the governments would otherwise be expected to spend.
As interest in pay-for-success initiatives and social impact bond programs have spread in recent years at the local, state, and federal levels, these experiments have had mixed results. The results show that the new funding mechanisms are neither the cure-all remedy for every social problem or public funding short-fall as promoted by some nor the guaranteed disaster in every circumstance warned against by others. Rather, they are nuanced tools that can be appropriate in certain situations.
The Principles from the National Council of Nonprofits will help parties contemplating alternative funding arrangements set expectations and avoid unintended consequences as they seek to address community problems. The Principles can aid in decisions about how to structure future partnerships – or to determine whether these funding mechanisms may not be right for a particular project or community.
Principles for Consideration of New Funding Mechanisms
News Release of the National Council of Nonprofits, August 22, 2016
Principles for Consideration of New Funding Mechanisms
The nonprofit community welcomes creative funding mechanisms and innovative solutions designed to overcome barriers to success in communities. The following principles should be applied in any discussion of Pay for Success projects (Social Impact Bonds) or any other new funding approach that may be suitable for a given problem and set of circumstances.