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Financing the SDGs: Exploring Impact Financing Through Development Impact Bonds

Author: Hinah Espejo Mian

Bio: Hinah is a second-year Development student at the Geneva Graduate Institute, specializing in the mobilities and spaces track with a keen interest in innovative and sustainable financing for the SDGs . Hailing from Pakistan and the Philippines, she completed her undergraduate studies in Tokyo where she gained experience in the public sector and in leading entrepreneurial social impact projects.

From the advanced market commitments that funded and expedited vaccine research for the COVID-19 pandemic to the green bond market that was propped up to support environmental projects, various financial instruments have been innovatively developed to fund the SDGs. The problems that the Goals address are complex and multidimensional. While money is not the panacea to these problems, resource mobilisation to finance solutions is a factor that needs to be accounted for, especially by states where the traditional public resource of taxation is ineffective. Development impact bonds constitute one of the innovations in impact finance designed to resolve the issue of public funding constraints in development.

How do DIBs work?

Despite the label, ‘Development Impact Bonds’ (DIBs) have very little to do with traditional bonds. The DIB funding mechanism is premised on a collaborative, results based impact investing model where investors or third party donors such as foundations or governments finance the upfront cost of a development project implemented by a service provider. The initial investing entity receives agreed-upon returns in addition to their principal by an outcomes funder upon the attainment of pre-established outcomes as verified by an independent evaluator (Gustafsson-Wright et al., 2017). The results based financing approach places outcomes at the centre, making the appraisal of the effectiveness of developmental projects a critical element of the financing mechanism instead of an afterthought.

A closer look: The Case of Educate Girls

Educate Girls (EG) is a non-governmental organisation in India that launched the world’s first DIB in education (Dalberg, 2018). Channelling an initial capital investment of $270,000 funded by the UBS Optimus Foundation, EG aimed to enhance the quality of education and increase the enrolment rates for 18,000 children- especially girls aged 6 to 14 in rural Rajasthan (Saldinger, 2018).

The Challenge: Rajasthan had 9 districts out of 26 that nationally ranked the lowest on gender development measures (Frotté, 2020). The literacy rate for women in the state was 52% compared to that of 79% for men (Census Organization of India, 2011). Boys in rural areas were 50% more likely to be in school than girls (Social & Rural Research Institute, 2014) and for every 10 girls between the ages 11 and 14, one girl would be out of school (Frotté, 2020). The factors contributing to disparate educational outcomes for girls can be understood using the concept of push and pull effects. Cultural norms that held girls responsible for domestic chores and saw them as an economic burden together with traditions like child marriages and poverty ‘pulled’ girls away from school. The lack of learning attained by going to school, owing to the poor quality of education, decreased the value of education and ‘pushed’ girls out of school towards culturally gendered activities.

The Impact Financing Solution: EG championed a community approach to address the push and pull factors underpinning enrolment and learning issues. Volunteers led outreach efforts to transform mindsets and provide learning interventions based on feedback from parents and students to encourage participation, continuity and improved educational outcomes (University of Oxford, 2019). The DIB was launched to scale this work targeting children in grades three to five in 140 villages in the Bhilwara district of rural Rajasthan (Frotté, 2020). Based on a survey of 34,000 households:

  • EG identified 837 out of school girls aged 7-14 and sought to achieve an enrolment rate of 79 % for these girls (Saldinger, 2018).

  • EG’s second goal was to enhance learning outcomes for both boys and girls by a gain of 5,592 levels, in comparison to a control group, using the Annual Status of Education Report (ASER) test for Hindi, English and Maths (Boggild-Jones & Gustafsson-Wright, 2018).

For these ends, the UBS Optimus Foundation provided the initial $270,000 investment to Educate Girls. As the service providers, EG were supported by Instiglio in project design and management. The results were evaluated by IDinsight and provided to the Children’s Investment Fund Foundation, which was set to pay UBS a 15% return on top of reimbursing their principal upon the attainment of the agreed upon outcomes (Boggild-Jones & Gustafsson-Wright, 2018).

160 community volunteers implemented the project in 166 poorly equipped public schools, visiting thrice a week to interactively teach the relevant subjects using songs and games (Saldinger,2018). Overall, outcomes payments were based 80% on learning outcomes and 20% on enrolment reflecting the comparative extent of education quality and participation issues (Slobig, 2017). IDinsight’s evaluation report (2018) found that the project successfully achieved 116% and 160% of the enrollment and learning benchmarks.

As outcomes were fulfilled, UBS received a total investment gain of $422,000 and reinvested 32% of the internal rate of return back in EG (UBS, n.d.).

Educate Girls DIB model

What makes DIBs work and what to watch out for?

DIBs yield several advantages over traditional financing. From the perspective of development project implementers, they alleviate financial risk by transferring it to the investor. This can allow for scale, adaptability and rigour with the project. It frees up resources for investing in data collection and design whilst leaving room for flexibility and iteration. All this in turn, positively benefits investors by enabling a project to successfully deliver its outcomes, on the basis of which investors obtain returns.

There are also several key feasibility issues to consider regarding DIBs. These include:

  1. High administrative and evaluation cost: Management and evaluation costs can consume a major chunk of investments, potentially making development projects unsustainable in the long term.

  2. Evidence-based decision making: Without evidence, project design and buy in from investors becomes harder.

  3. Service provider capacity: Deliverables are highly contingent on the service provider’s system’s understanding, field experience and deployed resources. Due diligence by funders is required.

  4. Buy in from funders: Funders may not be used to granting flexibility and may pursue short term gains or metrics that ignore the long term nature of results otherwise known as impact.

Author: Hinah Espejo Mian

Editor: Hélène Oeuvray


Boggild-Jones, I & Gustafsson-Wright, E. (2018, July 13). World’s first development impact bond for education shows successful achievement of outcomes in its final year. Brookings.

Boggild-Jones, I., Gustafsson-Wright, E., Segell, D & Durland, J. (2017). Impact bonds in developing countries: Early Learnings from the field. Brookings.

Frotté, M, D. (2020). Educate Girls development impact bond. Network for International Policies and Cooperation in Education and Training.

IDinsight. (2018). Educate Girls development impact bond final evaluation report.

Saldinger, A. (2018, July 13). The Educate Girls DIB exceeded its goals: How did they do it and what does it mean? Devex.

Slobig, Z. (2017, August 1). World’s first development impact bond for education: What Educate Girls has learned. Skoll Foundation.

Social & Rural Research Institute. (2014). National sample survey of estimation of out-of-School children in the age 6 – 13 in India.

University of Oxford. (2019, October). Educate Girls.

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