The potential use of Development Impact Bonds to finance the Sustainable Development Goals

1. Sustainable Development Goals
& Development Impact Bonds
Concepts to action

2. Situation
• In January 2016 the 17 Universal Sustainable Development Goals (SDGs), with 169
targets, will aim to shape agendas and political policies of the UN member states
over the next 15 years. The rationale behind the goals has been reported to:
– Mirror the complexities of the world in which they will be implemented
– Comprehensively encompass the needs of development
– Address the root causes of poverty, human rights and economic development
– Promote gender equality
– Apply to all countries (low, middle and high income)
• The indicators for measuring the SDGs will become available in March 2016, it is
anticipated there will be two indicators for each Goal.
• While it is not straight forward to predict, it has been estimated:
– An annual global investment of $3.3- $4.5 trillion is required in developing countries
– The annual global investment is estimated at $5- $7 trillion
– Currently the aid industry globally invests $ 1.4 trillion dollars, leaving a gap ranging from
$1.9- $5.6 trillion.

3. .
WHICH SECTORS REQUIRE FUNDING? 2015 -2030
Sector Description Estimate
current
investment $
billion
Total
investment
required
$ billion
Investment
Gap
$ billion
Power Investment in generation, transmission and
distribution of electricity
~260 630–950 370–690
Transport Investment in roads, airports, ports and rail ~300 350–770 50–470
Telecommunications Investment in infrastructure (fixed lines,
mobile and internet)
~160 230–400 70–240
Water and Sanitation Provision of water and sanitation to
industry and households
~150 ~410 ~260
Food security and
agriculture
Investment in agriculture, research, rural
development, safety nets, etc.
~220 ~480 ~260
Climate change mitigation Investment in relevant infrastructure,
renewable energy generation, research and
deployment of climate friendly
technologies, etc.
170 550–850 380–680
Climate change adaptation Investment to cope with impact of climate
change in agriculture, infrastructure, water
management, coastal zones, etc
~20 80–120 60–100
Eco-systems/ biodiversity Investment in conservation and
safeguarding ecosystems, marine resource
management, sustainable forestry, etc.
70–210 (included under other sectors)
Health Infrastructural investment, e.g. new
hospitals
~70 ~210 ~140
Education Infrastructural investment, e.g. new
schools
~80 ~330 ~250

4. Complication
• So how much is a trillion?
• Generating up to $7 trillion
of funding is no easy task
• If we are to meet the SDGs
we must have the tools (in
this case money) to do so!
• proposed means for
financing the SDGs currently
include domestic resource
mobilisation, leveraging
funds from the private sector
and ensuring countries meet
their target of 0.7% GNI.

5. • Over the past few decades there has been a
focus on domestic resource mobilisation and
ODA
• However, in line with the ‘innovation’ trend in
the development sector- leveraging private
sector funds is broadly seen as a attractive
option. Private financing takes the form of: a)
Guarantees/ insurance b) Debt c) blended
finance d) sovereign wealth and pension
funds and e) impact bonds
• Each of these mechanisms has it’s own merits
and limitations, and are best suited for
application in a different circumstances
In short, there is no magic bullet
This presentation will aim to explore the use of
Development Impact Bonds (DIBs) as a financial
solution for the SDGs

6. Key Question
Imagine you are the current Prime Minister to the
United Kingdom and amongst your wide mandate
you are responsible to effectively use tax payers
money, to meet the SDGs in the UK and support
developing countries in your role as a donor.
Do you see value in exploring and trialing the use of
Development Impact Bonds (DIBs)?
Going forward it is important to clarify that financing the goals is NOT solely about
acquiring money but about managing it effectively.

7. What are Development Impact Bonds?
DIBs are a form of results based approach to
financing.
An investor (e.g. Rockefeller Foundation or UBS
Optimus Foundation) provides up front financing
to an intermediary1 (e.g. broker).
The intermediary* uses this money to pay
service providers2 (an NGO) to affect some
population in need3.
An independent evaluator4 (Monitoring and
Evaluation specialists e.g. IDSights) will evaluate
and measure the success of the project.
The findings of the evaluation will then be
reported to the outcome funder/payer5 (donor
or foundation e.g. The Global Fund or USAID),
who will then disburse funds to the investor6
based on the results achieved.
*- An intermediary is not always strictly
necessary with DIBs
! In a DIB impact investors take on the
financial risk of expanding proven social
programmes, not philanthropic funders
or governments.

8. 7 reasons to use DIBs?
REASON 1:It makes money more
effective. By tying funding to measurable
results, Impact Bonds reduce the risk of
funding programs that do not work.
REASON 3: It focuses the private sector
on social issues. By creating an
investment opportunity that includes a
financial return, Impact Bonds invite the
private sector to participate in improving
social programmes.
REASON 2: It allows providers to adapt to
change. By shifting focus from activity to
impact – that is, by reimbursing results
rather than receipts – Impact Bonds give
service providers more flexibility to do
what they need to do to get results.
REASON 4: Transferring risk from public
sector to enable earlier intervention and
innovation
REASON 5: Providing upfront funding to
service providers enabling them to more
easily participate in results-based
contracts
REASON 6: Improve partner government
capacity to manage contracts, develop
robust data systems and scale-up
successful programmes.
REASON 7: Much of the money from ODA can end up in the overhead costs of organisations
that pass the money along very long supply chains. The intended beneficiaries of aid have no
way to identify failure or reward success, and no voice or representation, so there is no bottom
up pressure to improve. Many of these problems are an unintended consequence of donors
having to mitigate the risks inherent in providing money in advance of outcomes being
achieved.

9. Examples of DIBs in LMICs
In India, a DIB is being developed
to seek to close the gender gap in
education in Rajasthan (Instiglio,
2014 and undated, b; Mair, 2014;
Crabtree, 2013).
In Mozambique, a ‘pioneering new coalition’
is planning to provide sustainable, cost-
effective funding for malaria control through
DIBs (Han, 2014; Belinsky, 2014a).
In Pakistan, DIBs are
being considered as
an innovative
financing mechanism
for education in
Punjab (CGD and
Social Finance, 2013;
Wheeler and Egerton-
Warburton, 2012).
In Uganda, there are reports of a
number of DIBs under
development, including one on
education and another on
sleeping sickness.
In Rwanda, DFID is
planning a DIB in the
education sector. A
scoping report has
been produced which
explores two broad
options (Robinson,
2013).

10. 7 obstacles against using DIBs?
1) Change of mindsets: Perhaps given the multi-
stakeholder terrain funding a programme must be
considered to be similar to making an investment.
This may be difficult to see from those with a
perspective that development should be to a large
extent ‘selfless’.
2) Like all new mechanisms DIBs are being
introduced based on limited experience, as a
result, the evidence base is extremely thin and
funds from foundations that might have been
available as grants risk being diverted to DIBs.
It is argued that Domestic Resource
Mobilisation is a better more worthwhile cause.
4) Power/ Interest for better or worse,
businesses’ main concern is to make money
(often in the short term for a few people) while
states’ main concern should be the welfare of
their citizens (often in the longer term and for
many or all people). Therefore fundamental
differences between government and
enterprise do exist
5) Expectations of what evaluations of DIBs
might produce are widely divergent. It is
extremely unlikely that evaluations could meet
all the expectations without extremely high
levels of resourcing ( worryingly where
resources are low the scaling back is done for
the evaluation).
6) DIBs have the potential of adding extra
middlemen to the process, increasing
bureaucracy and management fees (which
could be better used for other programmes)
3) There is reluctance among some
stakeholders to talk openly about their
experiences and plans. Reasons are complex
but include concerns about biasing
procurement processes and giving away
valuable intellectual property. This reluctance
or ‘secrecy’ is a major potential barrier to
synthesising lessons learnt into a body of
evidence.
7) Does civil society have the capacity to
deliver against such narrowly defined
criteria and would they want to do?

11. Key Lessons Learned
• Initially private sector investors who are likely to be attracted to this proposition include foundations and
high net individuals who are interested in social returns and not solely financial ones. The reason for this
is there is very little track record for organisations in this area. Thus, the risk profile of investing NGOs in
LMICs is somewhat unknown.
• The pay for success counterpart should always ensure that they have done their level best to ensure a
strong risk mitigation strategy is in place for the investors funds. Measures would include enforceability of
contracts, creditworthiness of payers, and ability of the investors to monitor and oversee the project
underlying their investment.
• Another factor that will determine the success of Dibs will be the ability of bond designers to balance the
quality of pilot projects and their replicability. The work of creating novel contracts, unusual financial
arrangements, and a state-of-the-art social sector performance management system saddles pilots with
costs that may appear unreasonable when compared to costs of existing non-Dibs projects. Financial
support for broad-based market-building activities, such as feasibility studies and workshops will be critical
for progress in this area.
• Donors will need to fund designers to conduct studies into prospective programmes, and help
governments adapt their procurement systems to Dibs. Rigorous, low-cost evaluations, such as the ones
designed by the impact evaluation organisations, will need to be custom-made for Dibs for them to be
accepted widely as an effective funding model and reach their potential.
• The private sector can be more effective at testing different approaches, monitoring performance, scaling
up success and exiting from failure, creating incentives to do better, and is less susceptible to political
pressures to misallocate resources.

12. Three things you can do?
1. If you are interested in the subject area either as finance or
development expert the first step is to familiarise yourself with the other
industry and it’s jargon. This can be achieved through reading the
literature, joining knowledge sharing platforms, reaching out to
professionals or taking a training course
2. Try to identify opportunities where the application of DIBs is appropriate
and can be scaled up. Before doing this do ask yourself:
– Does it( the opportunity) consequences clearly demonstrate a reduction in
future cost?
– Can it produce measurable outcomes.
– Can it produce outcomes in a short timeframe (under 10 years).
– Is there previous evidence of its success.
– Is it located in an appropriate political & legal environment.
3. If you implement DIBs share lessons on your challenges and successes

13. Thank you
Do you see value in exploring and trialing the use of
Development Impact Bonds (DIBs)?
‘When things are broken let us try to fix them, not throw them away’
If you feel this solution is not perfect help us to constructively strengthen it, try
not to point out problems that lead us to discard it!