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CGD Podcast


The CGD and Social Finance Development Impact Bonds Working Group is designing a new type of investment vehicle to attract private investors who want to do good and do well while delivering development outcomes. My guests this week are two of the group’s three co-chairs: Elizabeth Littlefield, President and CEO of the US Overseas Private Investment Corporation; and Toby Eccles, founder and Development Director at Social Finance, a UK-based non-profit that has pioneered a similar investment vehicle, the Social Impact Bond or SIB.

I recently spoke with Elizabeth and Toby following the working group’s second meeting here in Washington. Owen Barder, the third co-chair, joined the meeting via video link from London and did not join us for the Wonkcast.

So just what are Development Impact Bonds or DIBs? Toby is quick to confess that they are not bonds at all and apologizes “profusely to the entire market” for the misnomer. It’s a reflection of the rapidly growing interest in these new vehicles that the names SIB and DIB seem to have stuck nonetheless.

Toby answers my question by describing an ongoing Social Finance SIB project at the UK’s Peterborough Prison. Social Finance raised £5 million from investors to fund intervention programs—help like counseling and job training – for men released from the prison following short sentences in an effort to reduce reoffending rates, also known as recidivism. If recidivism falls, the Ministry of Justice will repay the investors their initial investment plus a variable return. The greater the fall in recidivism, the higher the return.

DIBs would follow a similar model, with donor agencies or host country governments contracting to pay private investors when specified outcomes are achieved. Like SIBs, DIBs would enable public funders to shift the risk of failure to private investors—no outcome, no payment. Perhaps as importantly, however, SIBs and DIBs may increase the likelihood of success, by tapping investors’ strong interest in recouping their investment with a financial return.

When Elizabeth joins us for the second part of the Wonkcast, I ask her to first tell me about OPIC, the US government’s development finance institution. OPIC, she explains, channels private capital into emerging markets by supporting US businesses trying to establish a foothold. It operates on a commercial basis and actually earns a profit for the US Treasury every year.

While Elizabeth is serving as a co-chair of the working group in her private capacity, it’s easy to see where OPIC’s interests in the DIB model would lie. Elizabeth says that OPIC is interested “as an investor—and an investor that cares deeply about social and environmental outcomes alongside the financial outcomes."

"When we see an attractive instrument, which US businesses may be involved with, and that will generate returns that are good for the country in which those investments are being made, we get very excited," she says. "We see this as a potential means for us to invest capital in things that will be positive for developing countries.”

Among the possible applications of potential interest to OPIC: education, health, and energy efficiency and renewables.

Elizabeth says it's not just the UK trying SIB experiments. There are already several under development in the US, where the approach is called “pay for success.” Projects in various stages of development include preventing recidivism, work force development and care for children with disabilities.

In the final section of the Wonkcast Toby describes a possible health application in Africa: prevention of sleeping sickness, which is spread via a cattle parasite and is a serious problem in Uganda. Listen to the Interview to learn how this would work.

We close by discussing when a DIB might make sense.

“If an aid program is already hugely successful, they should carry on as normal. Where something is too innovative or requires too much upfront investment or there’s a poor track record,” then DIBs could be considered, Toby says.

My thanks to Alexandra Gordon for her production assistance on the Wonkcast recording and to Beth Schwanke for drafting this blog post.


CGD blog posts reflect the views of the authors, drawing on prior research and experience in their areas of expertise. CGD is a nonpartisan, independent organization and does not take institutional positions.