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Development Impact Bonds – a new finance model for international development

 

March 01, 2016

In a remote region of Rajasthan, India, an experiment in a new finance model for international development is well under way and will soon be announcing its first year results.

Guest Post by Maya Ziswiler and Shikha Goyal

As philanthropists and investors across Europe look for innovative ways to achieve more demonstrable impact with their money, the Educate Girls Development Impact Bond aims to create a proof of concept, showing how DIBs could contribute to societal gains in lower and middle income countries while also offering financial returns to investors.

As backers of the project, our two foundations will be seeking to stimulate discussion about the model within the philanthropic and investor communities – sharing failures as well as successes in order to better inform the conversation and evolve the model.

By way of background, the Educate Girls DIB has been up and running since mid-2015. It was the first DIB to go into operation and the programme is run by the Indian NGO Educate Girls. Over the course of three years, they’re tasked with getting 18,000 children into school, half of them girls whose education is deprioritised in the impoverished and traditional communities in which they live.

But it’s not just about enrolling children in school; it’s also about ensuring they stay there and learn effectively so they have the best possible chance to escape poverty. To this end, the children’s progress in literacy and numeracy is regularly assessed by an independent evaluator. The first year learning results will be released in the second quarter of this year.

Much like its domestic equivalent, the social impact bond or SIB, a development impact bond involves an upfront investor who puts in the working capital. In our pilot programme, Zurich-based UBS Optimus Foundation is playing that role. The outcome payer could be a donor such as a foundation or a multilateral or a bilateral agency. In this case it’s the UK based Children’s Investment Fund Foundation who will pay back the original investment to the investor and a return of up to 15 per cent – if all the enrolment and learning targets are reached. As the service provider delivering the programme on ground, Educate Girls will get a portion of the outcomes payment depending on the success of the programme, layering in incentives for success at ground level.

And this is what makes the development impact bond different: it’s 100 per cent focused on the programme’s end results. Because DIBs tie financial returns and payments to rigorously-measured social outcomes they have the potential to sustain long-term, results-focused partnerships among non-profits, donors and investors. They can draw in new investors interested in helping to tackle global poverty, especially for countries where traditional sources of aid are declining. Just as importantly, they can give new and existing donors much more confidence that their investments are yielding the desired impacts.

The latest feedback from the Educate Girls teams in Rajasthan is that the DIB model is already affecting the way they go about their work. Because they are incentivized to ensure the children make real progress in their learning, extra focus is being placed on this outcome. Similarly, under the guidance of DIB Project Managers Instiglio, the Indian NGO is developing a performance management team that is analyzing and visualizing data from their work, feeding it back in real time to the field teams who are using it to improve program delivery on ground. It’s early days still, but we envision future impact bonds as a way of creating investable solutions for the underserved and those at the bottom of the pyramid. Ultimately the goal is to deliver high-quality life-changing impacts for millions of people in areas such as education, health and gender equality.

For now, we look forward to receiving the first results and to a vibrant discussion on the possibilities for this newest form of development finance.

Read more about the project here.

 

This article was written by

Maya Ziswiler Maya Ziswiler

Shikha Goyal Shikha Goyal

 

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