By Michael Belinsky
In these programmes, a donor such as the Department for International Development writes a contract with a service provider in which it agrees to pay the provider only for the successful outcomes of its programme. For example, DfID would pay a workforce development organisation not for the number of people it trains, but for the number of its graduates who receive stable employment. The provider would raise money from socially-motivated investors to fund its work. The donor pays for the programme after verifying that it had achieved results, and investors get their investment back, plus a premium for taking the risk that the programme might have failed.
Dibs are a variation on social impact bonds, which have been implemented in developed countries for similar social gains. Over the past three years national and regional governments in Australia, England and the United States – as well as in places like India, Morocco, and Uganda – have started designing over 40 social impact bonds and development impact bonds.
Early pilots in England are showing promising results. An interim evaluation (pdf) by the UK Ministry of Justice of the Peterborough Sib, a project that aims to reduce reoffending, showed that over the past 12 months reoffending fell by 6% among adult men in the programme, while reoffending among a comparable group of adult men outside the programme rose by 16% – an impact of 22 percentage points. And social sector organisations participating in the Peterborough Sib have reported a sea-change in their methods for tracking and improving the performance of their services.
But programmes that are being designed in developing countries face additional hurdles and require more support from the development community.
The success of development impact bonds can be measured by their ability to jump from early adopters of innovations to a broad range of development donors and organisations. And it depends on at least three factors.
Be clear about where Dibs will and won't work
It's crucial to be able to show that, in at least some cases, Dibs is a more appropriate funding model than up-front funding or results-based financing. Dibs are probably not the right way to fund projects in areas such as advocacy and research, because results take a long time and are often difficult to attribute to a single programme. But they hold potential for programmes in global health, education, and employment where results can be seen in less than 10 years.
Comparing the performance of a Dibs-funded programme with an identical programme funded up-front, can show the value of the Dibs-based payment structure, and reveal how service models evolve in response to market-based incentives.
The challenge will be in finding programmes where the impact of the Dibs mechanism can be isolated, since Dibs involves a process change that affects an entire organisation. A recent report by the Centre for Global Development hypothesises that Dibs will improve the performance of social programmes by allowing service providers to experiment with different intervention models and by creating a financing incentive for providers to focus on outcomes, rather than on process and reporting. Whether this is true is too early to tell, but St Giles Trust already has described that the performance management system it uses for the Peterborough Sibs is more sophisticated and better than the systems it has used for previous projects.
Keep management costs low
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. These costs will shrink as designers streamline contracts and leverage current relationships among investors, donors, and NGOs. Financial support for broad-based market-building activities, such as feasibility studies and workshops will be critical for progress in this area.
Develop a supportive ecosystem
An ecosystem that supports enterprising organisations in piloting and improving development impact bonds is crucial. These organisations need funds to research and design pilot projects, to evaluate and learn from these projects and to collect and disseminate results. England, where Sibs were first designed, has a rich social enterprise ecosystem. The UK Cabinet Office has launched a Sibs centre of excellence and a £20m top-up fund. Bridges Ventures runs a £14m Sibs investment fund, and the Sibs design specialist Social Finance has steadily grown its practice.
But as organisations in resource-poor environments like rural India try to replicate an innovation that has been incubated in a resource-rich ecosystem, the capacity gap becomes clear. This gap will become more pressing as more governments announce commitments to launch Dibs, as Mauritius and New Zealand had done recently.
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 organisation IDinsight, will need to be custom-made for Dibs for them to be accepted widely as an effective funding model and reach their potential.