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Outcomes Funding Can Help Non-Profits Unlock New Capital

Business people making plans
Business people making plans

Adam Jagelewski

Executive Lead, Centre for Impact Investing at MaRS Discovery District

Employment and social support programs delivered by non-profit organizations are more vital than ever as communities deal with the fallout from the COVID-19 pandemic. But now the non-profit sector itself is facing tough times, too.

With countless fundraising events cancelled, the sector has been kept afloat by $350 million in emergency federal aid. But a slow recovery and record federal deficit will weigh on donations and public-sector support. There’s an urgent need to help non-profits unlock new funding to pay for the social programs they deliver.

How outcomes funding encourages change

One promising solution is outcomes funding. This new model links payments from a government or philanthropy directly to a service organization’s performance against pre-agreed targets. These targets reflect measurable improvements in quality of life. For instance, an employment organization might be paid based on the number of people it finds secure, stable jobs for.

The model, which has been tested in projects in more than 30 countries including Canada, offers confidence that funds given to charities are creating genuine change. That’s an attractive proposition for governments or managers of large family or corporate foundations charged with spending money most effectively.

The National Outcomes Fund

To scale this approach, MaRS is creating a National Outcomes Fund, which aims to attract $200 million in new philanthropic donations and matched government funds. It will work with local partners across Canada to select projects suitable for outcomes-based funding. It will then sign contracts with non-profits to deliver against target outcomes and will provide expert advice and financial support to help these organizations build their performance management capabilities.

In the short term, outcomes funding can help pay for social programs to tackle urgent needs like the unemployment crisis. Longer term, it could open the door to even more innovative funding models that help non-profits attract investment from Canada’s fast-growing social finance market. This will be new for most as a recent survey found that two thirds of Canadian non-profits have little awareness of social finance. For these organizations, outcomes funding could act as a vital steppingstone on the way to building their capacity to unlock new revenue streams.

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