Growing Interest in Development Impact Bonds

Last week, the New York Times’ Tina Rosenberg wrote about Social Impact Bonds – a new and promising approach to investing in improved social outcomes.

Tina provides some good insights on the closely-watched Peterborough Social Impact Bond (SIB) scheme, which uses private capital to fund programs that are expected to lead to lower rates of recidivism. If reconviction rates are in fact lower for men released from Peterborough Prison as compared to a control group, the British government will remunerate private investors, with a return. A key feature is that independent verification that outcomes are achieved will trigger payments from the public sector.

As Owen Barder writes here, CGD in Europe is partnering with Social Finance, the engineer of the Peterborough SIB, to explore how this model can be applied to development. The model of Development Impact Bonds has some important similarities with the Cash on Delivery Aid approach that CGD has pioneered (now being piloted in Ethiopia and other places), such as the focus on development outcomes and the requirement that results be independently verified. However the model of a “bond” (though SIBs are not technically bonds) provides upfront funding, and potential efficiency gains, through the involvement of the private sector.

The possible applications are plentiful – a Development Impact Bond could be used, as mentioned in the New York Times article to finance the installation of clean water systems, or to increase household access to clean cooking technologies, or to reduce the prevalence of malaria – all examples that we are looking into. The Development Impact Bonds Working Group that CGD has convened with Social Finance, co-chaired by OPIC President and CEO Elizabeth Littlefield, will explore how the model can be applied, and we’ll be providing updates of our progress throughout the year.

By Rita Perakis, Center for Global Development

This post originally appeared here

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