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This funding strategy is suffering from terminology-itis

Terms can be a barrier to entry. April 20, 2016 Category: FeaturedFundingMedium
Impact investing. Venture philanthropy. Social enterprise. Program-related investment. Let’s be frank: the social impact space is brimming with complex and wonky terms that cloud lines of communication.

It’s the biggest challenge facing social impact: Despite its inherent socially conscious objectives, social impact is limited in its accessibility to the general public by its own terminology.

Take “pay for success” (PFS) — a strategy used by governments to fund and scale social services with private sector backing. In the U.K., where the term originated, that kind of government contract is called a “social impact bond” (SIB).

(Pennsylvania is launching two PFS projects. Here’s more about that and here’s more about the strategy in-depth).

The language is just not set yet, according to Jeff Shumway, VP of Advisory Services at Social Finance — a nonprofit that supports government adoption of PFS, including Pennsylvania’s two projects and a feasibility study conducted in Philadelphia.

“Our colleagues at Social Finance in the U.K. coined the term social impact bonds in part because I think they wanted to indicate there was a strong obligation on the part of the government to repay if things worked out correctly,” Shumway said. “But it’s not actually a bond. That’s a misnomer in terms of the actual legal and financial definition of a bond.”

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Shumway said there’s not a “really strong technical definition” for PFS/SIB just yet. Here in the U.S., the term “pay for success” rings truer to the strategy’s method — governments literally only pay for outcomes laid out in the contract.

"We run into issues with government about being really crystal clear and specific about which outcomes they're trying to achieve."
Jeff Shumway

But defining those outcomes can be a barrier in itself.

“We run into issues with government about being really crystal clear and specific about which outcomes they’re trying to achieve. That’s something every organization deals with,” Shumway said. “That’s very time-intensive. Sometimes government has the capacity, sometimes it doesn’t.”

PFS is a complicated strategy, and governments need to allow their employees time to get educated on how it works. But that process of education on PFS is ongoing for everyone.

“We’re still at the very early stages of pay for success in the US,” Shumway said. “The interest has really spiked, and we want to use that momentum to help governments get done what they want to get done.”

There’s “no question” communicating around PFS is difficult, Shumway said, but all the general public needs to know is what it sets out to do.

“The objective of this thing, no matter what you’re calling it, is to help individuals in need, to get the best services they can by driving more resources to programs that work,” he said. “If you start with that as the starting point, then I think it all works out fine.”

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