Pay for Success: Opportunities and Risks for Nonprofits

Published Monday, April 1, 2013 | by Laura Callanan, Jonathan Law

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Laura Callanan and Jonathan Law are both affiliated with McKinsey and Company, the consulting firm that recently published a comprehensive study on the potential for social impact bonds in the US. In discussions of the study’s findings, stakeholders repeatedly stressed that nonprofits are likely to continue providing the majority of social services in the US 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. This article considers those questions.