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8 From the Eighth: Engaging CDFIs in Pay for Success

Sept. 11, 2015

Engaging CDFIs in Pay for Success, Andy Rachlin (The Reinvestment Fund) and Joe Schmidt (IFF) (23:55)

Current investment products that exist to meet the needs of people living in low- and moderate-income (LMI) communities have historically been oriented toward real estate development. While that type of investment is important for communities to thrive, it is also critical that investments be made in people, or what some refer to as human capital.

Enter Pay for Success (PFS). At its core, this innovative funding model is performance-based contracting that drives government resources toward social programs that are proven to be effective. Should a targeted outcome be achieved (e.g., keeping people out of prison), that proves beneficial not only to the program recipients but also to the public, by way of reducing government expenditures.

In a PFS structure, a social service provider obtains program funding from private investors and, if a targeted outcome is realized, the government repays the investors their principal plus a nominal rate of return. As a result, PFS, or more specifically a Social Impact Bond, is the first investment product that is oriented toward human capital needs.

Learn how Community Development Finance Institutions (CDFIs), in particular, can engage with PFS. Andy Rachlin, managing director of lending and investment at The Reinvestment Fund, and Joe Schmidt, director of strategic initiatives at IFF, discuss their experiences with PFS transactions, lessons they have learned and their thoughts on what lies ahead for this nascent investment product.