Development impact bonds in developing countries: an emerging innovation for achieving social outcomes

Abstract

This research focuses on the development of impact bonds (DIBs), a newly emerging alternative financial innovative product for financing social results in developing countries. DIBs are an agreement between several parties working towards a development goal. The idea of DIBs has not been thoroughly investigated. The various dimensions of DIBs, including their structure, evolution, conduct, and performance, are the focus of this research. This study examines the idea of DIBs specifically concerning developing countries based on an analytical review of grey literature. According to our research, when it comes to DIBs, policymakers have prioritised their policies more towards health, followed by employment and training, education, poverty reduction, and agriculture.

Introduction

Developing countries face enormous challenges accelerating economic growth and development through adequate infrastructure finance. Most of these countries face gross mismatches of functions and finances at all their federal structures. The revenue and official aid sources alone are insufficient to meet the excess demand of social challenges such as widespread poverty, unemployment, food security, and lack of health care services and education. In developing countries, the global investment in sustainable development goals is falling short of the target to close an estimated US$2.5 to 3 trillion annual financing gap (Zhan and Santos-Paulino 2021). The COVID-19 global pandemic shocks through different waves and lockdown of the economy have exacerbated the progress made in the last 7 years in United Nations Sustainable Development Goals (UN SDG) investment. This poses considerable risks and challenges to delivering the 2030 Agenda for Sustainable Development. Therefore, governments of developing countries are looking for innovative models to finance their public agendas without incurring substantial higher costs for society. In the contemporary context, the development impact bonds (hereafter DIBs) have been seen as alternative innovated instruments for the achievement of the UN SDGs because of their ability to connect private financing with developmental challenges and by shifting the risks that the public sector cannot afford (Carè 2021).

A new business model called DIBs was created to address the complicated social issues that face international development. Impact bonds are creative performance-based agreements that service providers, outcome funders, and investors enter to address social or environmental issues. They are a type of public–private collaboration that pays back investment for producing an effect. Investors receive rewards if providers accomplish predetermined results, but they forfeit their investment if providers fall short of expectations or fail. DIBs are financial instruments used to support development initiatives with funds from private investors who receive a return if the initiative is successful and is funded by a third-party donor. The intended measurements are established up front and independently verified. The greater emphasis on outcomes over inputs allows for more room for innovation, local problem-solving, and adaptation in DIBs (Center for Global Development).

This paper explores the potential innovative financing mechanism for developing impact bonds in developing countries. Significantly, the paper makes an earnest effort to understand whether impact bonds can be considered the vehicle for innovative finance. How are impact bonds performing across the dimensions of success such as political feasibility, outcome funder administrative capacity, service provider capacity, data availability, legal feasibility, and the efficiency of the deals in terms of cost–benefit analysis? The paper also tries to analyse whether there is a demand for impact bonds and the impact bonds achieve something besides outcomes. The research is based on the systematic and scientific analytical review of literature, feature analysis, international and national best practices, and case study analysis. The paper contributed to the limited literature on the DIBs by clearly defining the concept, key players, structure, development, conduct, and performance measurement. The paper also contributed to the literature by analysing the future potential impact bonds and the possibility of innovative potential derivatives as a mechanism for solving social challenges in developing countries.

Impact investing is an innovative investment technique seeking financial and social returns. Different names familiarise impact bonds in the context of other countries. For instance, the Social Impact Bonds (hereafter SIBs) are called Pay for Success (PFS) in the USA and Social Benefit Bonds (SBBs) in Australia. Since 2010, SIBs have been increasing globally, spreading austerity and addressing the challenges of leveraging funds for financing social welfare services in the developed world (Alenda-Demoutiez 2020). In this finance model, private parties invest in socially desirable interventions and are repaid by the government with interest only if the agreed-upon result is attained and verified.

In simple terminology, SIBs are arrangements or contracts where results determine payments and are positively correlated with desired outcomes. So far, SIBs have been developed on only three continents: Europe, North America, and Australia (Gustafsson-Wright et al. 2015). The UK launched the first SIB in 2010 to reduce prison recidivism among short-term male prisoners. Since then, above 140 deals have been found or launched (Social Finance Database 2021). These SIBs are used in developed and developing countries to address social issues, including providing high-quality preschool education, avoiding foster care placement, increasing youth employment, and enhancing infrastructure facilities to access health care and education by a larger mass. Though the UK tops in the number of SIBs, Australia, the USA, Canada, Israel, and several European nations like Portugal, Germany, Netherlands, Austria, and Belgium have joined the race to design, launch, and implement SIBs. In 2016, over 56 SIBs (31 in the UK, 11 in the USA, 8 in Europe, 3 in Australia, 2 in Canada, and 1 in Israel) and two DIBs were designed. Over 60 are being negotiated. Half of these are concentrated in developing countries (Financing 50 years of solutions for Sustainable development, UNDP).

DIBs are used for SIB implanted in low- and middle-income countries. DIBs can be considered an innovative technique for social impact financing in the future. DIBs are relatively new financial instruments introduced in 2012 that use private funding to support shared goals. DIBs are a bilateral agreement between the government and private investors ready to pre-finance the government for the social welfare programme. According to the project’s success, the government repays the investors (principal + coupons). The rationale behind DIBs is routed on the idea to promote development projects in developing countries by using financial resources provided by third parties, such as donors, philanthropic organisations, and development or international agencies that are more willing to take higher risks to generate more significant social impact (DIBs Working Group 2013).

The very structure of DIBs is different from conventional fixed income securities as DIBs do not offer a fixed rate of coupon to the investors throughout the bond’s life. Instead, repayment is solely tied to the results of an undertaking. Hence, from the investor’s point of view, the DIBs are mapped under the high-risk instruments for investors compared to conventional bonds. For instance, if the desired result is not obtained, the investors do not receive anything from the government. As a result, the investors will lose part, or all of their principal invested. In DIBs, the investors support social projects and benefit when results are achieved. The overall risk stemming from the DIBs is being shared among investors, outcome funders, and national Governments.

Different economies are increasingly adopting SIBs and DIBs across various sectors (Clifford and Jung 2016; OECD 2019). DIBs usage is specific to developing countries (Carmody et al. 2011; DIBs Working Group 2013). DIBs are an extension of SIBs (Hughes and Scherer 2014) and are based on the principle of sharing risk between donors and a stringent result-based payback regime. It shifts the risk to private players. They incentivise socially desirable projects which would be neglected if left to the mercy of traditional funding models. DIBs planning started in 2012. The first two DIBs launched in 2015 were meant for sustainable agriculture in Peru and the education of girls in India (Government Outcomes Lab 2021). The silver line between a SIB and a DIBs is the funder. The outcomes funder is usually the Government for a SIB, whereas a DIB is typically a donor such as a bilateral cooperation agency, multilateral aid agency, or philanthropic funding (Instiglio 2014). The other difference between DIBs and SIBs is that while SIBs solely apply to domestic financing, DIBs can involve foreign funding (Clarke et al. (2018). More clearly, in a social impact bond, the outcome funder is the government, while in DIBs, it is a third party, such as a donor or foundation.

This is the first study highlighting the more significant number of DIBs in practice and the DIBs’ policy areas of intervention to the best of our knowledge. The rest of the paper is organised as follows. Section II presents the very funding structure of the DIBs and the potential benefits associated with it. Section III highlights the analytical review of the grey literature of DIBs. Section IV has undertaken a feature analysis of the DIBs in practice, followed by the conclusion in Section V.

Why use DIBs as a funding structure?

This section aims to understand the analytical framework of the DIBs. We have also explored the multiple dimensions of DIBs like the production criterion, the agents related to DIBs like public, private, local, and international, the production and validation criterion, market construction, valuation, and the measurement of the outcomes.

Unlike SIBs, in the case of DIBs, investing agencies are full or joint-outcome funders. DIBs are not considered conventional bonds since repayment is outcome-based, and investors are paid only after attaining the desired social outcome. The risk and return profile of each DIB is different. DIBs are more like an equity investment than a debt investment in most cases. The DIBs’ beauty is transferring the risk from public agencies to private actors. DIBs garner private capital for funding various socially desirable outcomes that are subject to market failures and are not adequately supported by the government due to political, operational, and financial constraints. DIBs induce investors to improve the projects’ performance since returns are pegged to the outcomes of such projects. DIBs incentivise programme funding for a more extended time period, say 5–10 years, to enable service providers to build the foundation for scaling up interventions. It supplements service providers with funds and allows them to undertake result-based contracts. Further, it addresses taxpayers’ resistance and instils public confidence as repayment occurs from taxpayers’ money only after desired results are achieved and verified. The potentials of framing DIBs to finance the developmental needs include focussed outcomes, performance-driven management, incentivising collaborations, effective monitoring and robust evaluation, investment in prevention, mitigating risk for government, achieved scale, the crowd in private investment, and sustainable impact.

DIBs have the potential to leverage funds by improvising the collaborations between different development stakeholders, namely government or public agencies, private groups, and non-profit organisations, especially in resource-starved economies. These tools are outcome-based and desirable to address budget constraints and offset the lacunae in traditional financing models. The fundamental structure of the DIBs has enormous potential to provide a joint platform to the private sector, civil organisations, governments, and donors in a way each player contributes towards achieving the social outcomes as depicted in Fig. 1.

Fig. 1.

Development impact bond structure.

Source: Author's Compilation

In Fig. 1, the DIBs structure comprises four actors: investor, service provider, outcome evaluator, and outcome funder. The critical information of DIBs involves location, focus, upfront capital commitment, outcome funding, and the internal rate of return (IRR). The outcome of DIBs is encompassed by the evaluation method, target, allocated outcome payment, outcome, and an impact indicator. However, the precise structure and nature of a DIBs depend on the stakeholders involved, their corresponding objectives for using the DIBs, and the organisational and regulatory requirements in place. The donor agencies usually set up an outcome fund to build a challenge fund for the most lucrative DIBs proposals. The outcome funders typically belong to foundations or philanthropists, bilateral, multi-laterals, intergovernmental financial institutions (IFI), governments, and investment funds. DIBs investment funds ought to be established by investors to channelise funds from banks, development finance institutions, impact investing firms, institutional investors, trusts, and IFIs. They want to invest in anticipating financial and social returns. The service providers of the DIBs are non-profitable organisations, international organisations, non-governmental organisations, development organisations, charities, impact investors, and community organisations. Technical support is extended by social consultancy organisations, think tanks, law firms, universities, and other advisory organisations. The evaluators of the DIBs are research institutes, academics, and professional firms. The different steps in implementing and completing DIBs include (i) signing of contracts and collection of investment funds, (ii) transfer of investment to the concerned service providers, (iii) implementation of interventions, (iv) evaluation of results independently, (v) verification of results, transfer of outcome-based funds to investors, and (vi) repayment of investment along with interest rate.

DIBs: analytical review of grey literature

The purpose of this section is twofold. First, it tries to explore the launch of DIBs across the globe from 2015 to 2021. Second, it highlights the policy areas of intervention of DIBS and the areas where policy intervention has not been done. This study explores the literature and attempts to understand the concept of DIBs concerning developing economies. This section is dedicated to reviewing DIBs studies by practitioners and academicians. However, these studies often lack clarity on the working and effectiveness of DIBs. This paper draws inferences from recent publications to reflect upon DIBs’ structure, application, functioning, and challenges. The concept seems to have been grossly neglected by scholars. To our knowledge, there have been no case studies regarding successful DIBs.

Seventeen DIBs were launched between 2015 and 2021, focussing on health care, employment and training, education, poverty reduction, and agriculture. Out of seventeen DIBs thrown, seven DIBs are concentrated in the health care sector via quality improvements for child and maternal health care, regaining physical mobility, and receiving good-quality cataract surgeries. The health care sector receives more attention so far as DIBs are concerned. Three DIBs are related to employment and training. Sectors related to education, poverty reduction, and agriculture attract only six DIBs (each sector carries only two). DIBs targeting economic empowerment are Asháninka Impact Bond, which supports the agricultural sector, and Village Enterprise DIBs, catalysing entrepreneurial activities to create employment opportunities. Only one DIB highlights child and family welfare in Chile. We believe child and family welfare DIBs will be focussed more on the post-COVID-19 pandemic era.

The global impact bond

As of 26 January 2022, 229 impact bonds had been launched globally (refer to Table 1). Of these, 212 are SIBs and 17 are DIBs. The purpose and classifications of IBs are employment and skill development or training, health, child and family welfare, homelessness, education, criminal justice, poverty reduction, and agriculture. It may be said that IBs policy areas are confined only in above-mentioned eight areas. Out of eight areas, we find that 65 IBs are launched in the area of employment and training, followed by child and family welfare (42), health (36), homelessness (33), education (30), and so on. It is noteworthy that only 3 IBs had been launched for poverty reduction and agriculture. Many IBs had been established for employment and training as developed countries are hungry for innovation.

Table 1.

IBs, SIBs, and DIBs launched per area of intervention

Policy area	Number of IBs launched	Number of SIBs launched	Number of DIBs launched
Employment and training	65	62	3
Child and family welfare	42	41	1
Health	36	29	7
Homelessness	33	33	0
Education	30	28	2
Criminal justice	17	17	0
Poverty reduction	3	1	2
Agriculture	3	1	2
Total intervention	229	212	17

Source: Authors’ elaboration from Government outcomes labs https://golab.bsg.ox.ac.uk and Brookings Global Impact Bond Database

Of 212 SIBs launched, 201 SIBs were found in high-income countries and only 11 SIBs were launched in low- and middle-income countries (refer to Table 2). Hence, it may be said that a more significant number of SIBs are found in developed countries as compared to low- and middle-income countries. The UK tops the list with 89 globally launched SIBs. Next on the list is the USA (27), followed by the Netherlands (17) and Portugal (16), and so on. From Table 2, we observe that the number of SIBs issued in developing countries is way lesser than SIBs launched in developed countries. As shown in Table 1, the IBs covered several areas of intervention. A significant chunk of IBs pertained to employment and training, child and family welfare, health, etc. As far as several SIBs projects are concerned, the area of intervention is highest for employment and training (62), followed by child and family welfare (41), health (29), and so on. The DIBs policy area is more towards health (7), followed by employment and training (3).

Table 2.

SIB launched worldwide

S. No.	Country	Number of SIBs launched	Income levels	Region
1	The UK	89	High income	Europe and Central Asia
2	The USA	27	High income	North America
3	The Netherlands	17	High income	Europe and Central Asia
4	Portugal	16	High income	Europe and Central Asia
5	Australia	14	High income	East Asia and Pacific
6	France	10	High income	Europe and Central Asia
7	Russian Federation	5	Low and middle income	Europe and Central Asia
8	Canada	4	High income	North America
9	Belgium	4	High income	Europe and Central Asia
10	Finland	4	High income	Europe and Central Asia
11	Germany	3	High income	Europe and Central Asia
12	Japan	3	High income	East Asia and Pacific
13	Colombia	3	Low and middle income	Latin America and Caribbean
14	Israel	2	High income	Middle East and North Africa
15	South Korea	2	High income	East Asia and Pacific
16	New Zealand	2	High income	East Asia and Pacific
17	South Africa	2	Low and middle income	Sub-Saharan Africa
18	Argentina	1	Low and middle income	Latin America and Caribbean
19	Austria	1	High income	Europe and Central Asia
20	Sweden	1	High income	Europe and Central Asia
21	Switzerland	1	High income	Europe and Central Asia
22	United Arab Emirates	1	High income	Middle East and North Africa
Total number of SIBs launched		212

Source: Compiled by the authors by collecting information from Government outcomes labs https://golab.bsg.ox.ac.uk. Income levels and regions are classified by the World Bank Open Data

Further, we wanted to know in developed countries which regions attract a more significant number of SIBs (refer to Fig. 2). We find that a more substantial number of SIBs are issued for Europe and Central Asia (151), followed by North America (31) and East Asia and Pacific (21). It is worth mentioning that the South Asia region has not launched any SIBs. From Fig. 2, it is clear that SIBs are confined to developed nations only.

Fig. 2.

Regionwise SIB launched.

Source: Compiled by the authors by collecting information from Government outcomes labs https://golab.bsg.ox.ac.uk. Regions are classified by the World Bank Open Data

Figure 3 presents the number of DIBs launched in a particular country from 2015 to 2021. The blue-coloured area (represented by light blue and dark blue) indicates the number of research works carried out for a specific country from 2015 to 2021. The dark, blue-coloured area represents the more significant number of studies conducted in a particular country. In contrast, the light blue-coloured area represents a smaller number of research works carried out for a specific country. Grey-coloured area indicates that no study has been carried out in a particular country. From Fig. 3, it is seen that more DIBs are launched in developing countries as compared to developed countries.

Fig. 3.

Country-wise DIBs project launched from 2015 to 2021.

Source: Compiled by the authors by collecting information from Government outcomes labs and Brookings Global Impact Bond Database

DIBs in practice: a feature analysis

Seventeen DIBs were launched between 2015 and 2021, and the duration of DIBs varies between 10 months and 5 years (refer to Table 3). Though seventeen DIBs were found, only two, namely Asháninka Impact Bond and Educate Girls DIBs, have been completely implemented, and investors have been paid based on the results delivered by the projects. Fifteen of the seventeen DIBs are underway and believed to make result-based payments to the investor in 2022 and 2023. The DIBs completion process is delayed due to the COVID-19 pandemic, which brought life to virtually a standstill.

Table 3.

Timeline, location, and policy area (DIBs launched 2015–2021)

Name of the project	DIB launched country	DIB focussed area	DIB launched (year)	Project duration in years	Stage of development
Asháninka Impact Bond	Peru	Agriculture	2015	< 1 year (10 months)	Complete
Educate Girls DIB	India	Education	2015	3 years	Complete
Utkrisht Impact Bond	India	Health	2017	4 years	Implementation
Village Enterprise DIB	Uganda and Kenya	Poverty reduction	2017	3 years	Implementation
ICRC Programme for Humanitarian Impact Investment (PHII)	Mali, Nigeria, Democratic Republic of Congo	Health	2017	5 years	Implementation
Cataract DIB	Cameroon	Health	2017	5 years	Implementation
Mozambique Malaria DIB	Mozambique	Health	2017	3 years	–
Palestine Type II Diabetes DIB	Palestine	Health	2017	3 years	–
Quality Education India DIB	India	Education	2018	4 years	Implementation
Cameroon Kangaroo Mother Care Development Impact Bond (KMC DIB)	Cameroon	Health	2018	3 years	Implementation
Peru Climate-Smart Agriculture DIB	Peru	Agriculture	2018	4 years	–
Cambodia Rural Sanitation Development Impact Bond	Cambodia	Poverty Reduction	2019	4 years	Implementation
Finance for Jobs (F4J)	Palestine	Employment and training	2019	2 years	Implementation
Children literary Development Impact Bond	Chile	Child and family welfare	2019	3 years	Implementation
In their hands	Kenya	Health	2020	2 years	Implementation
Skill India Impact Bond	India	Employment and training	2021	–	Implementation
The Refugee Impact Bond	Jordan and Lebanon	Employment and training	2021	4 years	Implementation

Source: Information is collected by the authors from Gustafsson-Wright et al. (2017), CGD Policy Paper, 133, and government outcomes labs https://golab.bsg.ox.ac.uk

Table 4 displays the countrywide DIBs issued globally. The country with the highest number of DIBs launched globally is India (4), followed by Cameroon, Peru, and Palestine (2 DIBs each), and so on. We explored the DIBs investment launched projects per country’s income classification (Table 4). According to the World Data Bank, countries are classified into six categories: high income, middle income, low and middle income, lower middle income, and upper middle income. We find that DIBs investment projects are confined to low- and middle-income countries (World Data Bank). Out of seventeen DIBs, only one DIB is launched in Chile, which falls under higher-income country as classified by the World Bank. Hence, it can be said that DIBs are confined to developing countries only so far. It is noteworthy that Palestine issued two DIBs, such as finance for jobs and Type II diabetes, but the country is not classified by the World Bank so far as income level is concerned.

Table 4.

DIB launched worldwide as per income levels

S. No.	Country	Income levels	Number of DIBs launched
1	India	Low and middle income	4
2	Cameroon	Low and middle income	2
3	Peru	Low and middle income	2
4	Palestine	Not classified by World Bank	2
5	Cambodia	Low and middle income	1
6	Uganda and Kenya	Low and middle income	1
7	Kenya	Low and middle income	1
8	Chile	High income	1
9	Nigeria, Mali, and Democratic Rep. of Congo	Low and middle income	1
10	Jordan and Lebanon	Low and middle income	1
11	Mozambique	Low and middle income	1
Total number of DIBs launched			17

Source: Information is collected by the authors from Gustafsson-Wright et al. (2017), CGD Policy Paper, 133 and government outcomes labs https://golab.bsg.ox.ac.uk

We tried to find out which region in the world attracts more DIBs. The World Bank classifies seven regions, and we find that DIBs investment projects are confined to only three provinces out of seven regions (refer to Fig. 4): Latin America and Caribbean, South Asia, and Sub-Saharan Africa. It may be said that several DIBs projects are confined to developing countries.

Fig. 4.

Regionwise number of DIBs issued in the World.

Source: Compiled by the authors. The authors collect information from Government outcomes labs and Brookings Global Impact Bond Database

Our study is an exploratory analysis to develop the base for an alternate paradigm in finance. The global financial crisis of 2007–2008 prompted scholars to shift from the mainstream proposed alternate finance paradigm. The current study accepts such proposals regarding innovative alternate finance and adopts a qualitative approach to analysing seventeen DIBs case studies. The empirical materials based on the case study analysis method are used to understand the implementation and effectiveness of DIBs in financing and bettering education, health, and poverty reduction outcomes. Our study analyses 17 DIBs models, scrutinised as per the following critical angles: (i) projects outcome, (ii) financial terms—outcome funding, (iii) service and beneficiaries—target population, (iv) number of beneficiaries, (v) DIBs issued towards achieving SDGs, (vi) target population, (vii) service provider, (viii) investor, etc. The case study method is advantageous to generate insights that may lead to new and elaborate theories, specifically on the matters for which knowledge is still fragmented (Corbin and Strauss 1990; Strauss and Corbin 1997). The study can contribute towards building the body and base of knowledge regarding DIBs. The case studies have been analysed based on solid theory, techniques, and procedures rigorously using updated public data. However, regarding DIBs, data availability and usage are significant challenges. Public data can improvise the scale of similar approaches, promote research, and devise policy recommendations worldwide.

Table 5 presents 17 case studies of DIBs launched in different geographical areas worldwide. From Table 5, it is visible that DIBs differ in their degree and areas of funding. For instance, DIBs vary from 0.11 million US$ to 27.6 million US$. Asháninka Impact Bond cost was 0.11 million US$, whereas the Humanitarian Impact Bond involves the highest cost of 27.6 million US$. Table 5 presents an overview of the cases analysed.

Table 5.

Interventions, outcomes, and outcome funding (DIBs launched 2015–2021)

DIB issued	Goal/support	Outcomes	Outcome funding (Max)	Maximum returns	Service and beneficiaries—target population—(value)	Beneficiaries
Asháninka Impact Bond	To support an existing agricultural project	Improve sales, yield, and sustainability practices by farmers	0.11 M USD	$110,000 (return of principal)	The target population included Asháninka families (typically 2 adults and 5 children)	931
Educate Girls DIB	To increase the enrolment rate of girls and improve the learning of boys and girls in the rural area of Bhilwara in Rajasthan	The first DIB to be launched in a developing country in the education sector and the first to surpass both target outcomes. Improve school enrolment and test scores	0.42MUSD	15% IRR	Out-of-school girls in Rajasthan. Educate Girls compiled and maintained a census of out-of-school girls in treatment villages, which IDinsight validated each year	7300
Utkrisht Impact Bond	Support improved quality of maternal and newborn care	Health facilities reach accredited quality standards	8 M USD	8% IRR (UBSOF) 15% (implementation partnership)	Private facilities across Rajasthan. Scale: Less than 100 beds, minimum of 20 deliveries per month	600,000
Village Enterprise DIB	Support poor households to set up micro-enterprises	Increase incomes and living standards	5.2 M USD	–	Individuals living in extreme poverty (less than $1.90 PPP per day)	18,000
ICRC Programme for Humanitarian Impact Investment (PHII)	Provide physical rehabilitation services	Construct new facilities and improve the ratio of staff to persons regaining mobility	27.6 M USD	–	Individuals with physical disabilities living in Mali, Nigeria, and the Democratic Republic of Congo are victims of war, natural disasters, congenital impairments, or disabling diseases such as polio	3600
Cameroon Cataract Bond	Supported improved access to eye surgery at a new hospital	Provide high-quality and sustainable eye surgeries for the poorest patients	2.5 M USD	8%	MICEI has two target groups: low-income and middle-income patients, to operationalise the cross-subsidisation pricing model	18,000
Mozambique Malaria DIB	Malaria interventions through a pay-for-performance mechanism	Indoor Residual Spraying prevention programme	4 M USD	0.05%	–	–
Palestine Type II Diabetes DIB	DIB aims to prevent and delay the onset development of T2DM among prediabetic women in 4 refugee camps in the Ramallah and al-Bireh Governorate, West Bank, by funding a lifestyle modification programme	–	0.15 M USD	–	–	150
Quality Education India DIB	Provide free private school access for children, staff training, and leadership development	Address gap in children’s expected and actual learning level	11 M USD	7% IRR	Primary school-aged children	300,000
Cameroon Kangaroo Mother Care Development Impact Bond (KMC DIB)	Identify a path to scale for and expand quality Kangaroo Mother Care to five regions in Cameroon to reduce infant mortality levels	Increase in access to quality KMC (Kangaroo Mother Care)	2.43 M USD	–	Implemented across five regions in Cameroon, targeting low birth weight (LBW) or preterm newborns	2200
Peru Climate-Smart Agriculture DIB	To increase incomes and environmental sustainability through the (i) increase in productivity and quality of the cocoa and coffee produced; (ii) upgrade Kemito Ene (currently an association) into a cooperative with a clear path for sustainability; (iii) strengthen the community governance over land use and conservation efforts	The project seeks to implement a Climate Smart Agriculture Development Impact Bond (CSA-DIB) to increase farmer productivity, access high-value markets, and improve environmental management to capture CO2 and preserve forest landscapes	3.04 M USD		–	–
Cambodia Rural Sanitation Development Impact Bond	The DIB is the first in the water, sanitation, and hygiene sector and aims to end open defecation in 1600 villages across six provinces in Cambodia	Villages achieve Open Defecation Free (ODF) status	10 M USD	–	Rural communities across six provinces in Cambodia: Svay Rieng, Kandal, Prey Veng, Kampong Thom, Siem Reap, and Oddar Meanchey	1600
Finance for Jobs (F4J)	The DIB will target an estimated cohort of 1500 Palestinian job seekers aged 18–29 years (at least 30% will be women)	Enhancing the skills of the Palestinian workforce in a more market-driven way through training and job matching to foster improved job outcomes	5 M USD	–	1500 Palestinian job seekers aged 18–29 years (at least 30% will be women)	1500
Children's literary development Impact Bond	Improve children’s literary (reading and writing) skills living in vulnerable contexts in the Estacion Central commune of Santiago de Chile	Level of children’s skill in reading comprehension, reading aloud, and writing, measured by tests the children take	0.3 M USD	–	Participants must meet the following criteria: (1) children enrolled in NT2, 1st, or 2nd grade (primary school), (2) have a score of 70% or more in the School Vulnerability Index (IVE), SIMCE Test	–
In their hands	The DIB aims to expand the availability and uptake of sexual and reproductive health services among adolescents in Kenya	Normalise adolescent sexual health and increase uptake of teenage-friendly health services through nudges	6.2 M USD	0.02% IRR	adolescent girls (15–19 years old)	193,000
Skill India Impact Bond SDG Goal 8	Millions of Indians have lost their jobs during the COVID-19 pandemic. The attention of the impact bond is to address the youth employment crisis and precisely that for young women	The youth will be taught through training and provided access to wage employment in COVID-19 recovery sectors such as retail, apparel, and logistics	14.4 M USD	–	Unemployed youth	50,000
The Refugee Impact Bond SDG-1, 5, 8, 10	To catalyse a paradigm shift in livelihood responses to refugee crises	This will support 4380 refugees and host population trainees and provide 3400 business start-up grants in Jordan	12 M USD	ARR 0.051	Jordanians and refugees	4380

Source: Compiled by the authors. The authors collect information from Gustafsson-Wright et al. (2017), CGD Policy Paper, 133, and government outcomes labs https://golab.bsg.ox.ac.uk

Table 6 highlights the target population, service provider, investor, and outcome from 2015 to 2021. The explanation of the specific DIBs is appended below.

Table 6.

Target population, service provider, investor, and the outcome achieved (DIBs launched 2015–2021)

Name of the DIB launched	Target population	Commissioner (outcome funder)	SERVICE provider	Investor	Outcome evaluator	Outcome
Asháninka Impact Bond	Asháninka families (typically 2 adults and 5 children). Indigenous Asháninka live near the Ene River in the Peruvian Amazon	The Common Fund for Commodities (CFC)	Rainforest Foundation U.K. (RFAK) with local partner organisations in Peru: Central Asháninka del Río Ene (CARE) and Kemito Ene Cocoa Co-operative	Schmidt Family Foundation	The Royal Tropical Institute, KIT
Educate Girls DIB	Eligible out-of-school girls and children in government primary schools	Children's Investment Fund Foundation	Educate Girls	UBS Optimus Foundation	ID-Insight	(a) Enrolment of girls aged 7–14 in primary education (b) Improvement in quality of education for girls and boys in grades 3–5
The Utkrisht Impact Bond	Private health facilities in Rajasthan and the mothers and newborns they serve	Merck for Mothers and USAID	Hindustan Latex Family Planning Promotion Trust (HLFPPT) and Population Services International (PSI)	UBS Optimus Foundation and co-investment from the implementation manager (Palladium) and service providers (HLFPPT and PSI)	Mathematica Policy Research	Improved quality of delivery care in private institutions. Reductions in maternal and newborn mortality. Impact the quality of approximately 600,000 institutional deliveries over 5 years
Village Enterprise DIB	Households living in extreme poverty (less than $1.90 per day)	Department for International Development, UK DFID, USAID, USA	Village Enterprise (self-managing)		ID-Insight	Increase in household income, proxied through consumption and assets
ICRC Programme for Humanitarian Impact Investment (PHII)	Persons with physical disabilities in Mali, Nigeria, and the Democratic Republic of Congo	La Caixa Foundation and governments of Belgium, Italy, the UK, and Switzerland	International Committee of the Red Cross (Physical Rehabilitation Programme)	Munich Re, Lombard Odier pension fund and charitable foundations, and others	Philanthropy Associates	Staff Efficiency Ratio (SER)
Cameroon Cataract Bond	Low-income patients and middle-income patients with cataracts in urban and rural areas in Cameroon	The Fred Hollows Foundation, Conrad N. Hilton Foundation, Sightsavers	Magrabi ICO Cameroon Eye Institute (MICEI)	US International Development Finance Corporation (DFC)	Bond Manager: Volta Capital	1. Number of cataract surgeries 2. Quality of surgeries with at least 50% of surgeries achieving a good outcome 3. Financial sustainability
Mozambique Malaria DIB	Maputo Province, Mozambique	Goodbye Malaria, underwritten by Nandos and other corporates	Lubombo Spatial Development Initiative (LDSI) II	TBD	Independent M&E expert	Prevalence and incidence rates
Palestine Type II Diabetes DIB	For the pilot DIB, the target population is prediabetic women above 40 years old within 4 refugee camps in the Ramallah and al-Bireh Governorate, West Bank	Currently in discussion with a potential outcome funder	Juzoor for Health and Social Development	Bank of Palestine	TBD	OUTCOME METRICS: TBD but will include weight loss
Quality Education India DIB	Primary school-aged children in India	Michael & Susan Dell Foundation (MSDF), The Mittal Foundation, and The Ellison Foundation	Gyan Shala, Kaivalya Education Foundation (KEF) and Society for All Round Development (SARD), Pratham InfoTech Foundation	UBS Optimus Foundation	Grey Matters India, Dalberg Consultants	OUTCOME METRIC: Improvement in numeracy and literacy learning
Cameroon Kangaroo Mother Care Development Impact Bond (KMC DIB)	Five regions in Cameroon target low birth weight or preterm newborns	Ministry of Public Health, Cameroon (drawing on funds from the Global Financing Facility); Nutrition International	Kangaroo Foundation Cameroon (lead service provider); Kangaroo Foundation Colombia (Technical advisor); 10 partnering hospitals (including the KMC Centre of Excellence in the hospital Laquintinie in Douala)	Grand Challenges Canada	IRESCO	Enhanced transparency and accountability
Peru Climate-Smart Agriculture DIB	Asháninka cocoa and coffee producers and Asháninka communities	Multilateral Investment Fund—Inter-American Development Bank (43%), others TBD	RFUK is working with two local partners	Common Fund for Commodities and a California based impact investment fund- subject to due diligence and board approval	TBD	Economic impact of cocoa improvement (in USD) Economic impact of coffee improvement (in USD) Social sustainability—good governance (number of hectares of forest conserved/no deforestation)
Cambodia Rural Sanitation Development Impact Bond	Rural communities across six provinces in Cambodia: Svay Rieng, Kandal, Prey Veng, Kampong Thom, Siem Reap, and Oddar Meanchey		IDE	The Stone Family Foundation	USAID	Villages achieve Open Defecation Free (ODF) status
Finance for Jobs	1500 Palestinian job seekers aged 18–29 years (at least 30% will be women)	World Bank Group Trust Fund for Gaza and West Bank (TFGWB), World Bank Group State and Peacebuilding Fund (SPF)	DAI Global	PIF, EBRD, FMO, Semilla de Olivo	Ramallah-based management team	Likely to be a mixture of training outputs and employment outcomes
Children's literary Development Impact Bond	Cohort within 11 targeted schools	Fundacion Colunga, Fundacion Larrain Vial, Fundacion Mustakis, Fundacion Viento Sur	Fundacion Crecer con Todos		Fundacion San Carlos de Maipo
In their hands	Adolescent girls (15–19 years old)	DFID	In Their Hands (ITH)	Children’s Investment Fund Foundation
Skill India Impact Bond	Unemployed youth. 60% of the target population will be women and girls	Government to be 50% outcome funders and the rest through private sector grants and philanthropies	INDIGO-ORG-1287, Apollo MedSkills Ltd.	MSDF	British Asian Trust	Increase in job retention rates; and increase in income levels
The Refugee Impact Bond	Jordanians and refugees	IKEA Foundation	Near East Foundation	DFC		Survival of business after 10 months. Improvement in household spending on basic needs after 24 months

Source: Compiled by authors by looking at various reports

Asháninka impact bond was launched in 2015. It is a pioneer in Latin America for supporting sustainable practices in cocoa and coffee production by the Asháninka community. DIBs were designed to support an existing agricultural project in Peru, and the project helped enhance the yield and sales and promoted sustainable practices.

Educate Girls DIBs Educate Girls DIBs was launched in India in 2015, and it was the world’s first DIBs based on education and aimed at supporting 15,000 girls’ education in Rajasthan. Around 40% of girl students leave schools before completing the fifth grade in this state. The programme’s target was to raise the enrolment ratio for girls, improve learning outcomes, and promote quality education in rural areas of Rajasthan. The DIBs targeted to support more than 7000 children in Rajasthan who are 6–14 years old. Along with improving girls’ education, the DIBs aimed at reducing the gender gap in education. These DIBs reached their target outcomes in 2018 and improved school enrolment and test scores of students in grades 3–5.

The Utkrisht Impact Bond, aiming to provide improved health care, cover up to 600,000 pregnant ladies and newborns of Rajasthan, is the first of its kind in the world. The expected outcome is that health facilities reach accredited quality standards.

The Village Enterprise DIBs for alleviating poverty in Sub-Saharan Africa is also the first. The aim is to assist poor households in setting up micro-enterprises, and the expected outcome is to increase incomes and living standards. The Village Enterprise DIBs microenterprise development programme aims to create more than 4000 sustainable micro-enterprises to uplift more than 12,000 poverty-ridden households of rural Kenya and Uganda. The target population belongs to the poorest of the poor category and has no prior idea or business operation experience.

ICRC Programme for Humanitarian Impact Investment (PHII) was launched to expand and improve the quality of physical rehabilitation services for physically disabled people needing mobility devices. This bond aims to provide physical rehabilitation services. The expected outcome is the construction of new facilities and improving the staff ratio to people gaining mobility back.

Cameroon Cataract Bond aims to provide better facilities regarding eye surgery at new hospitals. The expected outcome is making high-quality eye surgeries available, especially for poor patients. The Cameroon Cataract Bond is a pay-for-performance loan designed to provide funding to build a hospital to prevent blindness through cataract surgeries. The ultimate goal is to make the hospital self-sufficient after 5 years.

Mozambique Malaria DIB Internationally, Mozambique ranked 6th in malaria burden. This DIB is a part of the PPP initiative between the government, the Global Fund, and MOSASWA launched to increase funds and efficiency of interventions to tackle malaria.

The Palestine Type II Diabetes DIB is designed to delay and prevent T2DM among prediabetic women in four refugee camps in the Ramallah and al-Bireh Governorate. It funds a lifestyle-changing intervention comprising nutrition and physical exercises. A pilot DIB targeting 100 prediabetic women is designed. An assessment of its success would scale up interventions to address T2DM throughout Palestine.

Quality Education India DIB is designed to provide access to free education in private schools, leadership training, staff development, and expected outcomes. Further, it addresses the gap between the actual and expected learning outcomes. Quality Education India DIB aims to enhance educational outcomes for over three lakhs primary school students from 2018 to 2022. Quality Education India DIB shifts the focus from the achievement of inputs to outcome achievement. The QEI DIB aims to support the education crisis in India. It funds three high-performing service providers to boost learning outcomes based on grade appropriation for about 300,000 primary school children over 4 years. Educate Girls DIB and Quality Education India DIB aim to improve the quality of schooling and education and boost attendance rates (Quality Education India 2018).

Cameroon Kangaroo, Mother Care DIBs, aims to implement Kangaroo Mother Care (KMC) in about ten hospitals in Cameroon. KMC aims to provide continuous skin-to-skin contact, breastfeeding for infants, and early discharge and follow-up. Cameroon Kangaroo Mother Care Development Impact Bond (KMC DIB) was extended by 6 months due to COVID-19. KMC is globally recommended and proven effective for babies born before time or small. Under this intervention, KMC was rolled out in ten hospitals in Cameroon, spread across five regions. The expected outcome was a verifiable and significant improvement in health conditions of LBW infants. Intermediate results are an extended duration of skin-to-skin care, exclusive breastfeeding, and weight gain above average within 40 weeks of gestational age.

Peru Climate-Smart Agriculture DIB This DIB is designed to address the low-income and environmental impacts of cocoa and coffee cultivation by over 4000 Asháninkas residing along the Río Ene Basin in the Central Jungle of Peru. This innovative funding mechanism aims to support agroforestry systems and organise a cooperative of the Asháninka communities to better market their cocoa and coffee. This project is an attempt towards scaling up a pilot DIB implemented in 2015 (see factsheet on the “Sustainable Cocoa and Coffee Production DIB”).

Cambodia Rural Sanitation Development Impact Bond Cambodia has seen significant progress in increasing rural sanitation coverage over the last 15 years, with national coverage rates rising from 20 to 74.6% in 2020. The Royal Government of Cambodia has now set the ambition of eradicating open defecation by 2025 as part of its National Action Plan for Rural Water Supply, Sanitation, and Hygiene II. However, realising universal sanitation coverage in Cambodia is more challenging as the focus shifts to the poorest, the most marginalised, and the hardest to reach populations. This DIB is the first one in the water, sanitation, and hygiene sector and aims to end open defecation in 1600 villages across six provinces in Cambodia.

Finance for Jobs (F4J) This impact bond is designed to improvise the workforce’s skills in Palestine. It is designed to strengthen the collaboration between education and training providers and the private sector. This would ensure that workforce is trained with the requisite skills to meet the needs of the private sector.

Children's literary Development Impact Bond This DIB is designed to improve children’s reading and writing skills in the Estacion Central commune of Santiago de Chile in collaboration with the Ministry of Education's “language and communication program”. This intervention runs throughout the academic year and helps children read and write and develop their vocabulary, comprehension skills, and creative writing abilities.

On the hand' the DIB programme is designed to address the sexual well-being of adolescent girls in the age group of 15–19 years of Kenya. This programme aims at health care that is teenage-friendly. It intends to reduce unwanted pregnancies and bring an end to unsafe abortions. The programme draws inferences from behavioural economics and incentivises positive health behaviours in the form of vouchers and rewards. Teenagers in Kenya are now better aware, connected, educated, and informed than they ever were with the traditional sex education provided at school. Now, teenagers are better aware of contraception (around 97%), and most of them use social media and networking platforms. However, despite these interventions, Kenya is globally ranked highest in teenage pregnancy rates, unsafe abortions and related injuries, and HIV infections.

Skill India Impact Bond This DIB targets to cover 50,000 youth over 4 years in India. Of this, 60% would be girls and women. The youth will be trained with requisite skills and provided access to jobs in COVID-19 recovery sectors, including logistics, apparel, retail, etc. Indian youth face challenges in terms of poor post-training placement rates and retention. Merely 27% of women are employed, with the majority in the informal sector (around 93%).

The Refugee Impact Bond The Syrian conflict has displaced more than 11 million people. Six million refugees have settled in five neighbouring countries, including Lebanon and Jordan. 85% of Syrian refugees live in urban areas, and 6 in 10 refugees live in extreme poverty. Women and young people are the most vulnerable. Lebanon has the largest refugee population per capita in the World, and Jordan is the fifth largest. This puts a strain on local economies and infrastructure. Refugees and host communities are also struggling to access safe and dignified work, essential services, and affordable housing.

We identified 16 research papers from 2014 to 2021 based on DIBs. Care has been taken to maintain the quality, and, in this context, we have ignored the documents that appeared in books and magazines, which may be one of the limitations of our study. Table 7 reports the distribution of selected studies, publication venues, and impact factors of the journals.

Table 7.

Publication venues and distribution of selected studies

Publication venue	Type	No. of studies	Impact factor (2020)	Publisher	Indexed in
BMC Pregnancy and Childbirth	Journal	2	3.007	BioMed Central Ltd.	Scopus, SCIE
Journal of International Development Cooperation	Journal	2	–	Hiroshima University	–
PLoS neglected tropical diseases	Journal	1	4.411	PLoS	Scopus
Journal of Urban Affairs	Journal	1	3.377	Routledge	Scopus
Acta Tropica	Journal	1	3.112	Elsevier	Scopus
Acta Paediatrica	Journal	1	2.299	Wiley	–
Journal of Human Rights	Journal	1	0.694	Carfax Publishers	Scopus
African Journal of Business Management	Journal	1	–	Academics Journal	–
Childhood Education	Journal	1	–	Routledge	Scopus
Enterprise Development and Microfinance	Journal	1	–	Practical Action Publishing	Scopus
Scientific Annals of Economics and Business	Journal	1	–	Alexandru Ioan Cuza-University of Iasi	Scopus
Mathematica Policy Research Report	Journal	1	–	KIPP	–
World Bank Legal Review	Journal	1	–	World bank	–
Mirovaya ekonomika i mezhdunarodnye otnosheniya	Journal	1	–	Department of Global Problems and International Relations of the RAS	Scopus, WoS, ESCI

Impact factors are as per 2020 Journal Citation Reports (Clarivate Analytics 2020), which Thomson Reuters released

Conclusion

Very little is known regarding DIBs’ potential, effectiveness, value for money, performance, and impact. This lack of information may be attributed to the minimal number of DIBs that have completed the entire implementation process and have provided outcome-based returns to investors. Case studies published on Peru’s Asháninka Impact Bond and India’s Educate Girls DIBs are the only sources to analyse the impact of DIBs. Despite being highly desirable and sought after, very few DIBs have been launched. This paper attempts to frame the knowledge base and encourage extensive usage of impact bonds.

DIBs have surfaced as an innovative tool to complement the traditional policy financing techniques, especially in economies challenged by budget constraints and social issues. They can be helpful when government interventions are not strong enough to address market failures. This study highlights the launching of DIBs across the globe from 2015 to 2021 by considering recently available information. Further, we attempted to address the policy areas of intervention of DIBs and SIBs. We find that policy authorities have prioritised their policies more towards health, followed by employment and training, education, poverty reduction, and agriculture so far as DIBs are concerned. It is noteworthy that none of the DIBs focuses on the plastic bag ban.

This is the first study that highlights the more significant number of DIBs in practice and the DIBs policy areas of intervention to the best of our knowledge. Though the number of DIBs is increasing YoY, it is still shallow compared to SIBs. Though seventeen DIBs have been launched in developing countries, only two have delivered the desired result, and the remaining projects are in pipelines. DIBs result outcomes are delayed due to the COVID-19 pandemic. We expect that a more significant number of DIBs may deliver the desired effect once the pandemic becomes endemic. DIBs are like newborn babies, and their impact is complicated to address with the limited available information. The effectiveness of DIBs in addressing social needs should be analysed further. The lack of knowledge challenges the explorative nature of the study. Future studies may consider enlarging the DIBs’ samples and integrating them with other business models to derive better conclusions in general. Further studies may focus on resolving current challenges associated with DIBs and how data are used in DIBs and outcome-based financing to improve service delivery and measure impact.

Authors’ contribution

All authors contributed to the study’s conception and design. Material preparation, data collection, and analysis were performed by AKD and AKM. The first manuscript draft was written by AKM, and all authors commented on previous versions. All authors read and approved the final manuscript.

Funding

The author(s) received no financial support for this article’s research, authorship, and/or publication.

Declarations

Conflict of interest

The authors reported no potential conflict of interest.