USAID announces a new development impact bond

A newborn baby in a hospital in Rajasthan, India. Photo by: Poulomi Basu / CIFF / CC BY-NC

SAN FRANCISCO — Mark Green, administrator of the U.S. Agency for International Development, will announce a new development impact bond aimed at reducing maternal and newborn deaths in India, during the closing plenary of the 2017 Global Entrepreneurship Summit.

Launched Thursday, the Utkrisht Impact Bond, named for the Hindi expression for excellence, will fund maternal and newborn health in the Indian state of Rajasthan. DIBs are results-based contracts, in which investors — in this case UBS Optimus Foundation, a grantmaking organization focused on improving the lives of children — provide financing for social programs upfront. Then donor organizations — in this case USAID and Merck for Mothers — repay investors their principal plus a return determined by whether targets are achieved. DIBS are focused on outcomes, in this case improving the access to and the quality of care in up to 440 private health care facilities in the state, so that they achieve the new certification standard developed by the National Accreditation Board of Hospitals and Healthcare Providers and the Federation of Obstetric and Gynaecological Societies of India.

DevExplains: Development impact bonds

Development impact bonds are often tossed around as a potential innovative financing mechanism, including in several cases to address global health challenges. This video explores what they are, how they work and when they should be used.

USAID and its partners are calling this the world’s first health impact bond, although these innovative finance tools are also being applied to eye care. And while Development Innovation Ventures is supporting a DIB on poverty alleviation in sub-Saharan Africa, this is the first DIB from USAID outside of DIV. UBS Optimus Foundation will provide up to $3.5 million in initial working capital so service providers can begin their work with private facilities, and USAID and MSD for Mothers are committing up to $8 million in outcome funding if the targets are met.

“This results-based financing mechanism is ground-breaking in that it takes a business approach to development, while still targeting basic needs like improving the quality of care and private facilities,” Green said in a press release provided to Devex ahead of the announcement. “By leveraging the assets and skills of a diverse group of partners across the public and private sectors, we are stretching our investments further while saving more lives.”

This is the first DIB focused on maternal and child health, although there are other DIBs in the works targeting that issue, such as a DIB to implement Kangaroo Mother Care in Cameroon. And the Utkrisht Impact Bond is the latest in a number of recent announcements of DIBs as more organizations look to test the tool as an innovative way of financing global health and international development. What sets this DIB apart is the fact that there are two implementation partners — the nongovernmental organization Population Services International and the Hindustan Latex Family Planning Promotion Trust, or HLFPPT — and the implementation partners are also co-investors, contributing more than 20 percent of the capital required.

“The reason for that is the sense that we are working all together to create impact, and we also thought that would be much more attractive for the investors,” Phyllis Costanza, CEO of the UBS Optimus Foundation, told Devex. “The biggest challenge is de-risking these investments, because we are not delivering market rate returns yet, so we need to offer incentives for investors.”

The UBS Optimus Foundation is also providing upfront funding for the Educate Girls DIB, also in Rajasthan, which Costanza called a coincidence.

“While it's coincidental, it's really beneficial,” she said. “The Indian government is very interested in this.”

She mentioned that the UBS Optimus Foundation is also working on another DIB in India, which has yet to be announced, and will work across several states.

In its Investing for Impact report, the Center for Accelerating Innovation and Impact at USAID features financing tools available to USAID, including DIBS, illustrated here. / Courtesy USAID

Within USAID, the effort to create and launch the DIB was led by the Center for Accelerating Innovation and Impact, which works to bring a business-minded approach to the development, introduction, and scaling of health interventions, and USAID India. Costanza told Devex that conversations began in 2016, but the team lost a few months following the U.S. election, when there was some uncertainty as President Donald Trump took office as to whether this DIB would be a priority for the administration.

Since then, the team has taken lessons they are learning from other DIBs, and they are trying to make their capital do more for less, for example, by getting payments from the outcome payers annually so they can recycle capital, she said.

Read more Devex coverage on development impact bonds:

New innovative finance tools aim to boost eye health care

New DIB brings in big donors, provides biggest test of model to date

Development impact bonds gain momentum

In a report on the emerging landscape for global health financing, USAID mentions DIBs among the nontraditional financing tools available to the agency. Other examples include pooled investment funds, such as the Global Innovation Fund, or grant funding that operates like venture capital, such as Saving Lives at Birth. The report mentions that Palladium received funding from Convergence, a blended finance platform, to design the Maternal Health DIB.

The DIB grew out of the need to bring accreditation and transparency to private health care facilities, as the private sector accounts for more than 25 percent of hospital births in Rajasthan. Together, PSI and HLFPPT hope to save the lives of 10,000 women and newborns during the next five years in Rajasthan, which has 244 maternal deaths per 100,000 births and 47 infant deaths per 1,000 live births. Having two implementers diversifies risk, Costanza said, and the hope is that PSI and HLFPPT will employ different models and learn from each other.

“We need innovative and sustainable financing models to help solve some of development’s vexing challenges,” said Karl Hofmann, president and CEO of PSI, in a press release. “The Utkrisht bond is bringing together new funding partners motivated by social and financial returns, with the goal of improving the quality of maternal and newborn health services in the private sector — where a majority of Indian women go for health solutions. It makes perfect sense for us to meet the consumer there, and try to better meet her needs.”

This DIB could have a transformative impact on how development is financed in the future, said Kim Bredhauer, CEO of Palladium, which designed the DIB and will manage its implementation during its three-year term.

“This new results-based financing mechanism, which in effect is a public-private partnership, is bringing a commercial approach to international development and ultimately will save lives and taxpayer money,” he said.

Update, Nov. 30: This article was amended to clarify that MSD for Mothers is known as Merck for Mothers in the U.S. and Canada

Read more about development impact bonds