As traditional sources of development funding are increasingly squeezed, we are hearing much about new approaches to financing development outcomes, bringing together new forms of partnerships.
Development Impact Bonds (DIBs), a specific application of Social Impact Bonds (SIBs) in a development context, are being heralded as one such approach. At the 2018 World Economic Forum, DIBs were introduced as a “pioneering approach” and a “promising way to mobilise private capital”, and the Utkrisht Development Impact Bond was introduced and profiled by USAID’s Mark Green as an exciting new development. If successful, the Utkrisht DIB will avert over 10,000 maternal and newborn deaths in Rajasthan over the next five years.
So how do Development Impact Bonds work? DIBs are a financial instrument designed to deliver a social or development outcome in low income countries. They bring together four main partners:
- Private Investors (foundations, philanthropists, impact investing firms, government financial institutions) provide the up-front capital to fund an identified project or programme;
- Implementing Agencies (NGOs, non profits, international orgs) deliver the services as planned, working closely with the Evaluators (e.g. research institutes, academics, consultancy firms) who verify whether the agreed outcomes have been achieved;
- the Outcome Funders (includes multilaterals, bilaterals, governments, foundations) then repay the investors their principal, including an agreed-upon return on investment, so long as the outcomes are achieved.
DIBs have been much talked about as an exciting innovation in financing that can minimize risk for the outcome funders, providing an attractive social investment model of private investors, driving results, at the same time as generating evidence and learning. But in actual fact there are very few examples of DIBs currently in operation. A report from the Brookings Institute cites an underwhelming total of three worldwide, as at August 2017. One particularly well known one, that has been running for a while, is Educate Girls, which aims to boost enrolment and learning in India.
Mark Green described the Utrkisht DIB as “our first health impact bond…. I’m quite sure it won’t be our last”. In the case of Utktrisht, UBS Optimus Foundation are providing US$3.5m up front as the investors, implementing agencies Population Services International and their partner HLFPPT will deliver improved maternal care, and USAID and MSD for Mothers have committed a total of up to US$8m in outcome funding.
Does the theory behind DIBs really play out in practice? With only four examples worldwide currently operational, it would be fair to say it is early days. However, the Brookings Institute has brought together some learning from both DIBs and SIBs in their report.
They have identified the high cost of establishing DIBs, and the need to deal with this cost upfront. They also highlight how important it is that all of the partners concerned are aligned in terms of what they are aiming to achieve and how.
There are some pressing issues around verification and evaluation of results, that equally apply to other Payment by Result approaches. It would seem that DIBs would lend themselves well to programmes where the results are easily tracked, e.g. education, health, WASH programmes. However, we may ask ourselves if DIBs really take off, how would issues of power and accountability be dealt with in this model, and whether this will limit the extent to which DIBs are a panacea for achieving the SDGs.