Interim funding partner

A pay-for-success deal pays only for results. That creates one very practical problem. The non-profit has to run the programme first, and running it costs money now.

The CSR funder's money is locked in an escrow account. It is released only after a third party verifies the results. So somebody has to bridge the gap. That somebody is the interim funding partner.

The workbook says this partner is a fourth entity in the structure. It is usually a domestic philanthropic organisation. It must be separate from the third-party evaluator, so that the body checking the results has no money riding on them.

When the results are verified, the CSR funder pays out of escrow. Part of that payment goes to the interim funding partner. It covers what that partner spent to get the programme running.

Where it sits (Chapter 2, section 2.3.1.2c — Pay-for-success through Grants). There are four parties:

The sequence.

1. CSR capital is put into an escrow account earmarked for pay-for-success, over a pre-defined period (the workbook's illustration is 3 years).
2. Outcomes are jointly identified by the CSR funder, the NPO and the evaluator. Targets are set up front.
3. The interim funding partner funds the NPO's implementation.
4. On completion, or at stipulated milestones, the evaluator verifies the impact and reports.
5. If the outcomes were achieved, the CSR funder releases escrow money partly to the interim funding partner, to cover its cost of implementing the programme, and partly to the NPO as an accelerator grant of up to 10% of programme cost, but only where the NPO exceeded the pre-defined targets.
6. If the outcomes were not achieved, the CSR funder either rolls over the CSR capital or redirects it.

Why it must be a separate party. The workbook is explicit that the interim funding partner is distinct from the third-party evaluator. Independent verification is the whole basis on which escrow is released, so the verifier cannot also be the party awaiting repayment.

Illustrative names and figures; the up-to-10% accelerator grant is the workbook's.

A listed manufacturer's CSR arm wants to cut school dropout rates in Osmanabad district. It selects Vidya Setu Foundation to run the programme and places ₹2,40,00,000 in a pay-for-success escrow for 3 years. It appoints and pays an independent evaluation firm.

Targets agreed up front: bring 6,000 children back into school and keep 80% of them enrolled for two full years.

Vidya Setu has no working capital. Sahyog Philanthropy Trust, a domestic philanthropic body, steps in as interim funding partner and funds the run-rate: ₹68,00,000 over three years for teachers, transport and materials.

At the end of year 3 the evaluator verifies 6,900 children re-enrolled and 84% retained — above both targets. The CSR funder now releases escrow:

Had the evaluator found only 5,100 children re-enrolled, the targets would have been missed. The CSR funder would then roll over or redirect the CSR capital — and Sahyog, not the corporation, would be carrying the ₹68,00,000 it had already advanced. That is the risk the interim funding partner takes on.

Chapter 2 (10% weightage), section 2.3.1.2, sets out three pay-for-success structures — through intermediaries, through lending partners and through grants — and the interim funding partner belongs only to the grants structure. The examinable point is party identification: who supplies the NPO's working capital (the interim funding partner), what kind of body it typically is (a domestic philanthropic organisation), who it must be distinct from (the third-party evaluator), and out of what it is repaid (the CSR escrow, on verified outcomes).

• The interim funding partner is the fourth entity, not the funder of last resort. The CSR funder puts up the money; the interim partner only bridges the timing gap until outcomes are verified.
• It is distinct from the third-party evaluator. The workbook says so twice. Mixing the two destroys the independence the structure depends on.
• It belongs to pay-for-success through grants, not to the lending-partner structure. In the lending-partner structure the liquidity comes from banks or NBFCs, not from a philanthropic interim partner.
• It is repaid for its implementation cost; it does not receive the accelerator grant. The accelerator grant of up to 10% of programme cost goes to the NPO, and only where the NPO exceeded the targets.
• The evaluator is appointed and paid by the CSR funder, not by the NPO and not by the interim funding partner.
• If outcomes are not achieved, the CSR money is rolled over or redirected — the interim funding partner's advance is not automatically made good.