Pay for Success (PFS) is a new and innovative funding mechanism used to finance social benefit projects with high-quality impact metrics. PFS projects are popping up in every sector, from the homeless to healthcare to education. The new models demonstrate that PFS projects can be used to stimulate investment in commodities as well as workforce development. What impact will this have on the private sector? Will your business pay for success?

Peruvian raw materials:

The Common Fund for Basic Products presented a Development Impact Bond (DIB) to modernize the production of cocoa and coffee in the Amazon region of Peru, Ashaninka. This first permanent Commodity Sector DIB breaks into a new frontier of Pay for Success (PFS) possibility.

DIBs follow the fundamental principles of PFS projects, but have a final third-party payer, instead of a government. In this case, the Common Fund for Commodities has agreed to repay the investor, the Schmidt Family Foundation, once predetermined goals are successfully achieved.

The Rainforest Foundation UK is the service provider for the project, and the organization has already begun experimenting with rust-resistant coffee varieties. Last year, the leaf rust disease devastated almost 70% of the coffee production areas in Ashaninka.

Due to worldwide recognition as a premium commodity, Peruvian cocoa has experienced a substantial increase in demand among foreign consumers. Pushing supply to meet demand, more efficient cocoa production methods are being implemented just in time.

This Peruvian coffee and cocoa project raises the question of whether DIBs can be used to modernize other types of commodity production. Could an IDB be used to complement exports of quinoa, corn and salt from the Peruvian Andes?

Sustainable technology and water:

During the Social Entrepreneurship Conference at UVA Pay for Success, a participant raised the question of whether or not PFS projects could be used to fund sustainable technologies and water conservation. The possibility exists. Based on the Peruvian model, a California commodity fund could pay an investor when a nonprofit organization results in widespread adoption of sustainable planting methods. Would you invest in California’s water conservation?

What about climate change? A clean energy fund could pay an investor, depending on service providers spreading the adoption of sustainable technology. PFS projects are all about alignment of interests, so as long as you have a problem, partners, and payable results, there are PFS possibilities.

Entrepreneurship and Art:

To successfully complete a PFS project, you need a nonprofit fund, trustee, and service provider. Venture capital funds could act as final payers, investing in nonprofit start-up accelerators. If the accelerator achieves some measure of success, private investors, potentially well-connected angels, will be paid. Success can be measured in the number of companies meeting a growth rate, revenue target, or social impact metric.

Dually incorporated companies with a non-profit branch can experiment internally with the PFS model. Village Capital, which is an independent, not-for-profit fund, could essentially structure an in-house DIB. If private investors wanted to invest in the nonprofit, they could enter into a PFS agreement with VilCap Investments.

From an art accelerator point of view, they could scale their operations with a PFS project, similar to startup accelerators. If art investors wanted the McGuffey Art Center to expand its arts cooperative model, investors could provide cash upfront and a fund, including local government, could step in as the end of the payment. This PFS model could easily be tested in Charlottesville, VA, if the investors backing the art would step up.