The government of Washington DC recently announced plans to launch its first Social Impact Bond (SIB), an innovative finance approach that in this case will be aimed at reducing teen pregnancy and improving educational outcomes for teenagers. SIBs, a new “pay for success” approach to problem solving, are spreading quickly in the U.S. as more state and city governments experiment with arrangements that allow them to pay only for results, while private investment finances program costs.
This promising new idea is being explored for development, too. CGD and Social Finance UK (the sister organization to Social Finance US, which is working with Washington DC on the teen pregnancy and education outcome SIB) are working with a range of partners to design and launch Development Impact Bond (DIB) pilots in several developing countries. As a former resident of Washington who has been working to promote DIBs from CGD in Europe, I’m excited that this promising approach will now be tried in my former hometown. A while ago I explained how DIBs work in this short video. The same principles apply to DC’s new SIB:
SIBs and DIBs have a lot in common. Both finance arrangements enlist the entrepreneurial drive of private investors to deliver results which, once independently verified, are then paid for by a public funder—Washington DC in the case of the new SIB, or an aid agency, possibly in partnership with the government of a developing country, in the case of a DIB.
What makes SIBs and DIBs potentially transformative is that the more flexible source of upfront financing—private investment—gives programs that aim to solve complex social problems (such as teen pregnancy, recidivism, or diseases like malaria or sleeping sickness in developing countries) much greater latitude to experiment, evolve and adapt to changing needs and circumstances.
Prevention of teen pregnancy is a good case for using a SIB financing model because it involves a clear and measurable outcome; a need for investment now to prevent higher future costs; and a set of challenges, discussed further here, that can’t be solved by a “one-size fits all” solution.
In Washington DC, where the teen pregnancy rate has been falling but remains higher than the national average, the SIB will have to address not only contraception education but school retention, unemployment and family and personal relationship issues. It’s a good example of using this new approach to public-private partnerships to attract funding for programs that show evidence of working but need to reach greater scale.
The new SIB is not only good for teenagers and local authorities in DC who committed to addressing this problem; it also makes for a very interesting and relevant pilot to inform whether it’s possible to design a similar program for reducing unwanted teen pregnancy in developing countries. There has been interest in this in places like Colombia, where Instiglio, a non-profit social enterprise, has advised government officials in Medellin on the design of a SIB to reduce adolescent pregnancies. The DC government announcement underscores the importance of sharing information and learning across SIB and DIB pilots.
The next step in the launch of the DC SIB will be to identify qualified providers who can deliver programs that meet teenagers’ needs. SIBs are already underway in the US in New York City, New York State, and Massachusetts (in various aspects of criminal justice) and in Utah (in the area of early childhood education). In international development, the UK Department for International Development and Instiglio recently announced that they will be launching DIBs to prevent sleeping sickness in Uganda, and to improve girls’ education in India, with many more pilots by a range of actors under discussion.
We at CGD, our partners in Social Finance UK, and others who are involved in SIBs and DIBs in the US and around the world are delighted that Washington DC is joining the growing list of innovative jurisdictions experimenting with this promising new approach to solving difficult social problems. I wish them success and will be watching the progress with interest.
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.