EMBARGOED UNTIL OCTOBER 2, 2013 NOON EST
Making Development an Investment Opportunity
NEW YORK, NY – An international group of experts convened by the Center for Global Development (CGD) and Social Finance UK is seeking to play matchmaker for an unlikely pairing, urging investors and aid donors to join together to create Development Impact Bonds (DIBs), a new financial instrument that taps private sector innovation to help improve the lives of poor people in the developing world.
“Development Impact Bonds can help change the foreign aid and investment landscape by offering an innovative way to engage the private sector and align incentives to turn foreign aid into an investment opportunity,” said Elizabeth Littlefield, president and CEO of the Overseas Private Investment Corporation and a co-chair of the working group that authored the report. “DIBs are one way to encourage effective, efficient new ideas for development.”
The new idea is more than wishful thinking: DIB pilots in various stages of development would hitch the private sector’s drive for success to such seemingly intractable problems as reducing sleeping sickness in Uganda, improving education in Pakistan, avoiding teen pregnancy in Colombia, and fighting malaria in Mozambique.
“There’s growing interest in doing good while doing well but changing the world requires more than good intentions,” says Toby Eccles, a co-chair of the working group with Social Finance, a UK organization that works to inject market-principles into social sector funding decisions. “DIBs provide an opportunity for the private sector to invest in the world’s most pressing development challenges in a meaningful way.”
How it works: Private investors provide up-front capital to service providers who work to achieve a specific, measurable goal, such as reduced sleeping sickness or fewer teen pregnancies. If an independent third party verifies the goal has been met, funders (such as aid donors or national governments) repay the investors their initial investment plus a return linked to performance - the better the outcome, the greater the return.
Unlike traditional aid projects, which tend to focus on implementation of specific solutions identified before a project is funded, the DIBs approach links payments to outcomes and aligns the incentives for investors and the service providers to discover the quickest and most cost-effective means to achieve the desired result. Funders—such as aid donors—only pay if the result is achieved.
A draft report outlining the potential of for DIBs was met with overwhelmingly positive response in June of this year. Leaders of the DIB Working Group will present their final report, including specific next steps for investors and funders wanting to try the new approach, at a public event hosted by the Rockefeller Foundation in New York City on October 7. The report and more information about the event are available on the CGD and Social Finance websites.
Owen Barder, CGD director for Europe and a DIB working group co-chair, is encouraging investors and donors to learn about the new approach—and to consider taking the plunge.
“This is a time for leadership,” Barder says. “Traditional aid is giving way to innovative new forms of development finance that will create new opportunities for private firms and donors—and at the same time much better development outcomes. But these benefits can only be realized if some pioneering funders and investors are willing to bear the upfront costs of creating a new market. Heroes wanted!”
To help manage risk for individual investors and funders, the Working Group recommends the creation of a new DIB Outcomes Fund and DIB Investment Funds. These funds, which would pool capital and dilute risk, would facilitate launch and implementation of the first DIB projects and help catalyze market growth.
“DIBs are a part of the wider movement to use aid and other public funds to pay for outcomes rather than inputs.” said Nancy Birdsall, CGD president. “The report provides a detailed roadmap for those funders and investors who want to take that step.” ”
“Development Impact Bonds are not about privatizing aid,” adds Eccles. “They’re about providing investors the opportunity to engage with complex social issues while providing donors access to the experience of the investor community. Marrying the strengths of these unlikely partners may provide a new way to improve the lives of the world’s poorest people.”
Six case studies of DIBs in various stages of feasibility, development and negotiation are included in the Working Group report. Pilot DIBs currently being explored and the groups in the lead include: Social Finance, for reducing sleeping sickness in Uganda; Lion’s Head Global Partners, a London-based merchant bank, for education in Pakistan; Instiglio, a non-profit that designs Social Impact Bonds, for avoiding teen pregnancy in Colombia; OPIC, a US government agency, for investment in clean energy; and Dalberg, a development advisory firm, for fighting malaria in Mozambique.
The Development Impact Bond Working Group was convened by the Center for Global Development (CGD), a non-partisan think tank specializing in international development, and Social Finance, a non-profit company in London which pioneered Social Impact Bonds in the UK (in an experiment to reduce recidivism at Peterborough Prison).
The Working Group members include thought leaders from the worlds of finance, government, civil society, foundations and official aid. The Omidyar Network and the Rockefeller Foundation financed the group’s work.
Notes to editors
1. For more information about Development Impact Bonds and the public consultation, please contact Catherine An (Center for Global Development) at can@cgdev.org or Alisa Helbitz (Social Finance) at alisa.helbitz@socialfinance.org.uk
2. The Center for Global Development and Social Finance UK will launch the new report at a public event on Monday, October 7 at The Rockefeller Foundation in New York City. More details and RSVP information are available online. Interested press should contact Catherine An at can@cgdev.org or 202-416-4040.
3. Members of the Working Group served in an individual capacity. They are listed below, with their institutional affiliations for purposes of identification only:
Elizabeth Littlefield, Overseas Private Investment Corporation (co-chair)
Owen Barder, Center for Global Development (co-chair)
Toby Eccles, Social Finance (co-chair)
Bob Annibale, Citigroup
Vineet Bewtra, Omidyar Network
Nancy Birdsall, Center for Global Development
Chris Egerton Warburton, Lion’s Head Global Partners
Rebecca Endean, UK Ministry of Justice
Stefan Isaksson, Swedish Ministry of Foreign Affairs
Kippy Joseph, Rockefeller Foundation
Dan Kress, Bill & Melinda Gates Foundation
Susan McAdams, World Bank
Steve Pierce, U.S. Agency for International Development
Oliver Sabot, Kepler/Slingshot
Sonal Shah, Board Member Social Finance US
Smita Singh, Board Member Center for Global Development
Rachel Turner, UK Department for International Development
Peter Wheeler, Board Member Social Finance UK
4. The report of the Development Impact Bond Working Group is online at: cgdev.org/dib or http://www.socialfinance.org.uk/work/developmentimpactbonds.
The Center for Global Development is an independent, non-partisan think tank which works to reduce global poverty and inequality through rigorous research and active engagement with the policy community. CGD combines world-class research with policy analysis and innovative communications to turn ideas into action.
Social Finance is a not for profit FCA regulated social investment intermediary. Its original team, established in 2007, developed the blueprint for the social investment bank. Social Finance is the originator and foremost developer of Social Impact Bonds in the UK and abroad, in partnership with local organisations.