Taking Stock of the DIB Market

January 22, 2015

Amid rising interest in social impact investment, a growing number of social impact bonds, and a persistent interest in how the private sector can be best engaged in addressing global development challenges, Development Impact Bonds (DIBs) have been attracting a lot of attention. But one of the clear early findings has been that implementing a new instrument is challenging and takes time. Before a deal is in place, a government or donor outcome funder (or funders) must buy into the idea of paying only for outcomes, and be clear with its partners on why a DIB is better than an alternative approach such as results-based financing; interest from socially motivated investors is then likely to follow. 

These were some of the lessons that came out of a conference the consulting firm GRM International organized in December to gather together a range of different partners who have been thinking about implementing DIBs – including potential investors, outcome funders, intermediaries, service providers, evaluators, and other market-builders.  A little over a year since CGD and Social Finance UK published the DIB Working Group report Investing in Social Outcomes: Development Impact Bonds, these experts convened to take stock of where the market for DIBs stands and review the progress that they have made so far.  Videos of the whole day’s presentation and discussions are available here. We discuss here just a few of the highlights. 

From Peterborough to Uganda

David Hutchison, CEO of Social Finance, kicked off the day with the presentation “From Peterborough to Uganda” during which he discussed the power of an outcomes-based funding mechanism in two very different contexts. Social Finance launched the first Social Impact Bond in Peterborough, UK as a way to channel more funding towards solving a social problem, in this case recidivism, with the flexibility to respond to needs on the ground.  The same principles have applied to Social Finance’s work over the last couple of years to assess the feasibility of a DIB to address sleeping sickness in Uganda. The possibility of convergence of two strains of a deadly disease provides a compelling case for a large upfront investment to tackle this problem. In this case, investors would be paying for cattle treatment and insecticide spray to reduce the prevalence of sleeping sickness in high-risk districts in Uganda. As David explained, the DIB would have to incorporate education and marketing efforts to increase farmers’ awareness of the right solutions to the sleeping sickness problem and to build a sustainable model. Although it sounds very convincing, this deal is not complete yet; a donor outcome funder such as the UK Department for International Development, which has supported research on sleeping sickness, would have to commit to paying for the results if the interventions are successful. Indeed this message was repeated throughout the day: a commitment for outcomes funding is needed before investors commit to funding the project and the DIB is implemented. 

Investors’ Perspectives on DIBs

It was clear however that there is investor interest in DIBs. For example, Phyllis Costanza, CEO of the UBS Optimus Foundation, investors in the first DIB to be launched, explained that the Optimus Foundation’s choice to invest in the Educate Girls DIB in Rajasthan India was client-driven. UBS Optimus is investing in the India-based NGO Educate Girls which will implement its model to improve enrollment and learning for girls; the Children’s Investment Fund Foundation (CIFF), as the outcome funder, will pay for verified outcomes, meaning that UBS clients stand to earn a financial return but only if social outcomes measurably improve. As Phyllis said, there is strong interest from investors to put money where it will generate not only positive financial returns but a positive social impact, and this interest is only growing as the millennial generation makes investment decisions. As an investor, the UBS Optimus Foundation is not stopping with this DIB but looking for more opportunities to invest in good ideas for DIBs and re-invest any financial returns, and using the Rajasthan DIB as a proof of concept. 

A Broader context for DIBs: Payment by Results  

Mike Belinsky, co-founder of Instiglio, in his presentation reminded the audience that Development Impact Bonds fit in a broader context of results-based funding for development (which comes in many forms, as I’ve said here). Indeed at CGD, we find the commonalities between the impact bond model and approaches like Cash on Delivery Aid to be very appealing: by linking funds to outcomes, outcome funders open up the space for local implementers to discover and implement solutions that work. There will be cases where one approach makes more sense than another. Mike offered examples from Instiglio’s work where a simple results-based financing model – outcome funders paying service providers directly for the results they achieve – might work better than an investment-backed DIB approach, or might be a useful precursor to DIBs where service providers need to build their capacity for outcomes-based contracting.

The December conference was very much a chance to learn and share new developments, common questions, and both positive and negative experiences. It was encouraging to see GRM International’s commitment to help share the lessons from early DIB experiences, starting by convening the event and making recordings of the day public. Many at the conference shared the sentiment that this kind of lesson-sharing, and transparency around the implementation of pilots, will only help the market to grow, and we hope to be seeing more of this.  


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.