A student learns Kinh language, the official Vietnamese language, at the Lac Hoa Primary School in Soc Trang province, Vietnam. Photo by: Chau Doan / World Bank / CC BY-NC-ND

The recently-released second year results of one of the first development impact bonds offer evidence of the potential gains and challenges for the innovative financing tool. The timing for those lessons is apt, as a growing number of organizations and funders are now planning or considering launching DIBs.

The Educate Girls DIB aims to raise school attendance for girls and overall educational attainment among students in Rajasthan, India. At the end of the second year, the NGO’s interventions have reached 87.7 percent of the enrollment targets and 50.3 percent of the learning targets that were set. The bond seeks to enroll 79 percent of all out of school girls in the area and improve the education of 15,000 children in grades three to five, with 9,000 of them girls, in 166 schools.

In this and other DIBs, an investor provides upfront capital for an intervention that is implemented by a service provider. If the program achieves specific, closely-measured, and preagreed results, then the outcome payor — in the case of development impact bonds, usually a foundation or donor agency, though it could be a private corporation as well — pays the investor based on how well the intervention succeeds.

The UBS Optimus Foundation provided the upfront funding for the Educate Girls bond. If the project succeeds, then the Children’s Investment Fund Foundation — as the outcome payor — will repay UBS’ investment, plus a return depending on performance.

DIBs present a shift in how funds are spent and could provide an important accountability framework, given their focus on paying for results.

Based on the gains in the first two years, the investor — the UBS Optimus Foundation — has made about 76 percent of the original investment back thus far.

The development community has been exploring alternative funding models, such as DIBs, in an effort to find new ways to fund development programs amidst a shifting landscape and often declining aid budgets. DIBs may not mobilize a great deal of new capital, but they present a shift in how funds are spent and could provide an important accountability framework, given their focus on paying for results.

As one of the first experiments in DIBs, Educate Girls has provided regular updates on progress that are helping other organizations better understand the model and when it may be best used. As a result, there is growing interest from donor agencies and international NGOs in considering what role they can play and how to best apply the innovation.

Educate Girls

Though DIBs have garnered a great deal of buzz in recent years, there have been only two efforts testing the results-based financing mechanism. DIBs offer the potential to improve accountability, catalyze funding and change the way organizations operate. Yet they are also complex to structure and not always the right solution.

Educate Girls set about addressing school enrollment and quality in Rajasthan, an Indian province with a larger percentage of girls out of school than the national average. Implementers went house-to-house to identify a baseline of students not enrolled, and then sought to engage directly with families to boost attendance. Meanwhile, Educate Girls offered a new curriculum to students in grades three to five in public schools, in hopes of improving test scores.

The first year now seems a blur, said Safeena Husain, the founder and executive director of Educate Girls. Hiring and training staff and launching the DIB proved challenging.

With the learning outcomes, Educate Girls looked at year one data and determined that the program wasn’t achieving the optimal impact. So in the second year, Educate Girls pushed hard to get girls in school and allowed staff to do more community meetings and go door to door in areas they did not have time to reach in year one. They also identified that it is harder to get older girls back into school and adjusted their efforts and techniques accordingly.

Also in year two, implementers created a new curriculum for English and mathematics and retrained all the teachers. The results are proving positive, Husain said.

“Learning is just so much more complicated,” she said. Obstacles seemingly unrelated to education can have a large impact, for example a good harvest season can keep kids home to help, meaning they are not exposed to the full program. Other family needs can also disrupt education.

Educate Girls is now in the early stages of conversations with central and state governments to discuss how the government may be able to participate in a future DIB as an outcome payor, Husain said.

Implementers say they have learned several things that they would do differently, if they could go back. These include making sure primary baseline data was done prior to setting targets and and creating an evaluation methodology that would be easier and more scalable. With this DIB, some of the baseline information, including building lists of out-of-school girls through door-to-door census-like surveys, was done as the DIB was being put together and operationalized and not before setting specific targets.

How to include a randomized controlled trial in your project proposal

Randomized controlled trials can be an effective way to determine the true impact of interventions. For development projects, they need to be carefully planned and prepared, to ensure they can provide high-quality results that effectively communicate why an intervention does or doesn't work — improving aid and development programs for the future.

The progress on the DIB is measured by an independent evaluator, IDinsight, and in an effort to use the most rigorous form of measurement, the DIB is running a randomized control trial with a large sample size to test the benefits. In retrospect, partners agree that a RCT may not have been necessary. In the past, they have told Devex that a cheaper methodology could have given UBS the confidence to invest, and a similar sample size could have been used for a much larger project.

Using tablets and a specially designed system, Educate Girls employees track actions and progress, information that is then also used by IDinsight as it helps test the learning and enrollment gains. That level of detailed data can help identify problems and course correct quickly, as Educate Girls has done, but also poses some management challenges.

The biggest challenge, particularly in the past year, has been managing the DIB, according to Husain. It has been a struggle to balance the need for technology and data collection — as required by the DIB — with the hands on, human side of the work. Educate Girls wants its team to view the new tools as helpful, rather than a harsh oversight mechanism.

DevExplains: Development Impact Bonds

New developments

A steady pipeline of DIBs is emerging, as donor agencies and NGOs explore using the financing mechanism. Estimates of the total being considered range from 20 to about 30, though not all are likely to come to fruition. Still, at least several look set to come online this year.

“There is growing interest in the instrument, growing interest by donors to apply a range of results-based financing techniques,” said said Avnish Gungadurdoss of Instiglio, the consultancy that designed the Educate Girls DIB and is working on several others. He estimates between four and six DIBs will launch this year.

Among those likely to begin soon are a DIB in Cameroon to treat cataracts and another in Uganda aimed at livelihood improvement for the ultrapoor.

Instiglio recently carried out a donor survey asking decision makers what two or three techniques would represent the future of aid. Respondents named a greater focus on paying results and showing value for money, and a need to be more flexible in managing programs, something that traditional financing has not often done, Gungadurdoss said.

Donors including both the United Kingdom's Department for International Development and the United States Agency for International Development are exploring how they might want to be part of future DIBs.

DfID’s economic development strategy, which was released in January, committed to “assess the scope” of DIBs as a financing tool. The department has studied the feasibility of a DIB in Uganda to tackle sleeping sickness, but hasn’t launched one.

DfID is watching ongoing DIBs to understand how they work and how it could play the role of an outcome funder, Radana Crhova, a development impact bonds adviser at DfID, said in a recent webinar. It is important to look at the costs and benefits of DIBs compared to alternative funding models, she said.

More examples from the field will likely help make the case to donors. Data will be critically important. Village Enterprise, an organization that works with the poorest communities to improve livelihoods, is looking to launch a DIB to scale their programs, which combine business training and cash transfers. The organization has rigorously studied its work, including through a randomized control trial, which provides the data it would need to set metrics to structure the bond.

The Village Enterprise bond, which may well be launched before the end of the year, also demonstrates another trend. While the Educate Girls DIB was for about $250,000, most of the DIBs now being considered, including the Village Enterprise bond, are in the $2-$4 million range.

At least one NGO, World Vision, is also looking at what roles it can play in a DIB, beyond being the service provider. It will be the investor on a DIB that it is developing in Cameroon to spread kangaroo mother care and lower infant mortality rates in Cameroon.

For World Vision, DIBs may help address a critical challenge for donor-funded projects: Even those that work well often end when the project-cycle concludes. DIBs could fund the extension and scale of successful programs, said Terry Gray, a principal for impact investing at World Vision Canada.

“We started looking at it as another tool in the toolkit,” he said. “One of the things early on that got our attention was the possibility of being able to scale.”

Over time, the early adopters may be joined by others, but those most familiar with the tool, including Gungadurdoss, say it won’t be the right fit for all projects. While no magic formula to draw in private capital, it could help push organizations to focus more on results and improve effectiveness.

“At the end of the day, what’s important, what we’re trying to do, is figure out ways to finance programs in smart ways,” Gungadurdoss said.

Read more international development news online, and subscribe to The Development Newswire to receive the latest from the world’s leading donors and decision-makers — emailed to you free every business day.

About the author

  • Adva Saldinger

    Adva Saldinger is a Senior Reporter at Devex, where she covers the intersection of business and international development, as well as U.S. foreign aid policy. From partnerships to trade and social entrepreneurship to impact investing, Adva explores the role the private sector and private capital play in development. A journalist with more than 10 years of experience, she has worked at several newspapers in the U.S. and lived in both Ghana and South Africa.