Our Hong Kong Foundation proposes a Pay-for-Success Mechanism

Enhancing the collaboration between the Government, businesses and community in tackling social issues via the use of “Pay-for-Success”

Our Hong Kong Foundation (OHKF) launched an advocacy report on Pay-for-Success today. Pay-for-Success is an innovative mechanism in solving social problems. As an outcome-based investment, the financial return is dependent on the outcomes of the underlying social services. The report provides a detailed analysis of Pay-for-Success and how it can enhance collaboration between the Government, businesses and community for effective solutions on social issues such as the ageing population. 

Prevalent in the US and the UK, Pay-for-Success is an alternative financial instrument utilized by the government or social enterprises to raise private funds for preventive social projects. To implement the mechanism, Government or intermediaries have to identify a targeted social issue. Intermediaries will then raise funds from investors for service providers in delivering the social service. Should the service providers fail to achieve the targeted outcomes, the Government is not required to repay the principal in full. On the other hand, Government has to pay investors with both the principal and interest if the targeted outcomes can be achieved.

In fact, another advantage of Pay-for-Success is that it focuses on the development of preventive social services instead of the remedial counterparts. Examples include reengaging youths with education or employment and providing intervention services to children or young people who are at risk of developmental, emotional, social or behavioral problems. The services can prevent more severe social issues preemptively, as well as reducing public expenditure on remedial services and hence bringing long-term cost savings.

The advocacy report on Pay-for-Success was launched at the seminar titled “Financial Innovation for Social Impacts” of the Social Enterprise Summit 2017 today. Mr. Alvin Cheung, Senior Researcher of OHKF who was responsible for the report, said, “Highly efficient financial mechanisms can result in greater cost effectiveness of social services. Pay-for-Success is a new initiative for Hong Kong and is also unprecedented for the Government. While it involves a greater number of institutions and its development may be complicated, it is decisive in the constitution of social welfare.”

Mr. Stephen Wong, Deputy Executive Director and Head of Public Policy Institute of OHKF, added “In order to effectively implement Pay-for-Success, well-established databases for social impact assessments are essential. The Government should employ social impact assessments in its policy formulation process and provide guidelines similar to the Green Book in the UK. The evidence and values of policy impacts can then be accumulated to form databases.”

For the full advocacy report on Pay-for-Success, please visit:
https://www.ourhkfoundation.org.hk/en/node/346/