Outcomes-Focused Financing Improves Government Worldwide

(Illustration by Melinda Beck) 

Many of the challenges that outcomes-focused government seeks to address in the United States—job creation, homelessness, education, and mental health—are also entrenched in other countries, even in places where social safety nets are stronger. As governments worldwide search for more effective ways to deliver results, a global effort is emerging. How might the United States and countries such as Canada, EU member states, and India ignite transformational shifts that make public spending more outcomes-oriented?

In recent years, international development and social impact practitioners have embraced outcomes-based financing (OBF) as a way to move beyond traditional funding models that reward activity instead of impact. At its core, OBF reorients public and philanthropic spending from rigid program designs to more flexible, accountable structures that connect payments to achieving outcomes. While the concept is not new, its practical application, along with the levers governments can use, have started to expand in significant ways.

From impact bonds to social impact incentives and performance-based contracting, governments and funders have a growing tool kit to help them link funding to results. Each mechanism, playing a different role, offers governments flexibility to adopt approaches suited to their own regulatory, political, and institutional contexts.

Global Case Studies

As outlined in Scaling Impact: Finance and Investment for a Better World, a plethora of global examples shows how OBF can improve government effectiveness by strengthening accountability, enabling data-driven learning, promoting disciplined performance management, and aligning financial incentives with social impact.

1. Improving Accountability and Transparency | In Turkey, Dalberg supported the design of a Social Impact Bond that tied government payments to verified employment outcomes in the tech sector. The Istanbul Development Agency partnered with private investors and training providers to launch a program to address youth unemployment. Investors provided up-front capital for software as well as information and communication technology (ICT) training, and the government repaid only when job placement and retention targets were met. This approach created a transparent, accountable funding mechanism—ensuring that taxpayer dollars flowed to effective programs—and established a replicable model for cross-sector partnerships that hold all actors responsible for the results.

In the United States, Pay for Success projects (the US term for Social Impact Bonds) have been gaining traction since 2012. Six years after President Donald Trump signed the $100 million Social Impact Partnerships to Pay for Results Act (SIPPRA)
into law as part of the Bipartisan Budget Act of 2018, this demonstration program is poised for scaling up. SIPPRA’s Pay for Success contracts enable the federal government to invest in cost-effective, locally oriented strategies with increased transparency from embedded evaluations and reporting. While these early SIPPRA-funded projects are in progress, this approach can be scaled (to $1 billion over the course of 10 years).

2. Encouraging Continuous Learning and Data-Driven Decision-Making | India’s Skill Impact Bond illustrates how OBF can embed continuous learning into public programs. Dalberg worked with that country’s National Skill Development Corporation to digitize outcome tracking and identify factors contributing to high dropout rates among female trainees. These insights led to targeted interventions, including health support, and facilitated real-time adjustments based on performance data. The initiative not only improved program responsiveness and equity but also demonstrated how embedding feedback loops in funding models strengthens a government’s ability to learn and adapt.

As part of a 2018 outcomes-focused financing project, Third Sector developed an improvement process for government and community partners to integrate arrest, incarceration, housing tenancy, Medicaid, and program participation data to monitor critical performance indicators and anticipate enrollment, retention, and well-being challenges. Third Sector partnered with Lane County, Oregon, and the nonprofit Sponsors Inc. to secure funding from the US Department of Housing and Urban Development and the US Department of Justice for a Pay for Success Permanent Supportive Housing (PSH) project. The outcomes contract established a flexible housing model to provide Housing First PSH services.

To date, more than 230 individuals have been housed with a housing stability rate greater than 85 percent. The incarceration rate due to new felony convictions has fallen to 11 percent, which represents a reduction in recidivism of almost 60 percent for individuals enrolled in the project compared to the overall reentry population in Lane County. After earning outcome payments, the project is sustained by state, county, and philanthropic funds.

3. Promoting Disciplined Performance Management and Scalable Delivery | In Mexico, the government supported the expansion of Clínicas del Azúcar (CdA)—a social enterprise providing affordable diabetes care—using a Social Impact Incentive. Outcome funders made bonus payments for verified improvements achieved in patient health outcomes. This outcomes-focused structure has allowed clinics to scale in sustainable ways, maintain quality of care, and attract follow-on investment. Starting with just one clinic in Monterrey, CdA has expanded to more than 50 clinics across the country, including at least one in each state in Mexico, and even a clinic in San Antonio, Texas. This model exemplifies how linking funding to results can encourage disciplined execution while enabling high-performing service models to grow.

In California, $1 billion in public funds are invested annually in Full Service Partnerships (FSPs), which provide comprehensive community-based services for more than 60,000 people facing severe and persistent mental illness. FSPs have tremendous potential to reduce psychiatric hospitalizations, homelessness, incarceration, and prolonged suffering by Californians with severe mental health needs. FSP programming, however, varies from county to county, with different operational definitions and a lack of consistent data processes that make it difficult to understand and tell a statewide story about impact.

To address this problem, Third Sector formed the California Multi-County FSP Innovation Project, which brought together 10 counties to change how vital mental health services are developed, implemented, and evaluated, using an approach that is data-driven and person-centered. The project has enhanced the counties’ ability to use data to improve FSP services and outcomes, fostering collaboration, standardizing data reporting, and increasing consumer input in service changes and outcomes. The RAND Corporation recently evaluated the initial six counties in the project and found that FSP participants experienced on average 2.5 fewer psychiatric admissions, fewer arrests, and a lower likelihood of being arrested than non-FSP participants.

4. Aligning Financial Incentives with Social Outcomes | In Latin America and the Caribbean, IDB Invest and the Women Entrepreneurs Finance Initiative (We-Fi) applied performance-based pricing to contracts with borrowers, tying financial incentives to the achievement of gender equity goals such as increasing women in leadership or lending to women-led businesses. Clients who met these milestones received interest rate reductions or performance-based grants, linking capital costs to social outcomes. Companies such as Grupo Elcatex in Honduras and Atlas Renewable Energy in Brazil qualified for these incentives by integrating gender equity strategies into their operations. This approach embedded accountability in financing structures, encouraged data tracking, and demonstrated how financial terms can be leveraged to accelerate organizational change and development efficiency.

In the United States, the federal Advanced Research Projects Agency for Health (ARPA-H) Health Care Rewards to Achieve Improved Outcomes (HEROES) program would have provided $99 million to explore how an incentive structure focusing on preventative care can change the health-care market and lead to better health outcomes. Before it was canceled this past summer, HEROES was one of the most significant and innovative public-private federal investments in health in US history. Health Accelerators (HAs)—organizations or regional coalitions consisting of health-care providers, nonprofit organizations, private companies, state-funded educational institutions, and other nongovernmental entities—would have provided preventative interventions to address alcohol-related emergencies, opioid overdoses, cardiovascular disease, and prenatal and postnatal health complications. ARPA-H would have made outcomes payments as an Outcomes Buyer, creating a structure that directs investments to health challenges where measurably achieved outcomes are purchased based on results.

Catalyzing Global Scaling of Outcomes-focused Financing

These international cases suggest that becoming outcomes-oriented doesn’t require sweeping reforms or complex instruments. It calls for greater investment from government, philanthropy, and private investors to transform public systems. The cases described above reveal how outcomes-focused financing can move beyond experimentation to serve as an important means for improving public-sector performance.

Successes in countries such as Mexico, Turkey, and India demonstrate that OBF can do more than test new ideas, by redirecting government funding toward what works across sectors such as employment, health, and education. Rather than feasibility, the limiting factor is institutional readiness.

To accelerate adoption, US governments at all levels could:

• Establish innovation labs that cocreate OBF pilots with service providers and communities
• Use outcomes-focused federal grants (e.g., SIPPRA and ARPA-H HEROES in the United States) to catalyze local government transformation
• Support intermediaries to help design, manage, and evaluate performance-based contracts
• Participate in global learning exchanges to adapt proven international models (such as the Investors for Health or Education Finance Network communities of practice)

As public budgets become more strained and service demands continue to grow, governments can no longer afford to fund programs based entirely on intentions. Thoughtfully implemented outcomes-focused approaches can deliver better results, strengthen public trust, and help scale what works.

International models make clear that outcomes-focused public funding has transformed how governments define success, measure impact, and foster innovation. Now is the time to invest in a global movement to go beyond pilots and transform public systems and funding to pay for outcomes, not only activities.

Read more stories by Kusi Hornberger & Tim Pennell.