Investing for development outcomes: Can an output verification platform for Development Impact Bonds increase the efficiency and effectiveness of data collection and impact evaluation?
Development Impact Bonds (DIBs) are pay-for-success partnerships that pull in private investors to share in the financing risk of delivering development outcomes. In a DIB, governments or donors pay for outcomes, which according to an evidence base and results map, should have a positive impact on development outcomes. Investors, on the other end, pay up front for the inputs and their capital is repaid or not depending on how many outcomes are achieved. Their goal is to increase the accountability for their investment.
DIBs currently depend on a costly, time-consuming verification process to validate claimed outcomes. Because the government and donors only pay when impact has been achieved, there is a considerable amount of investment to verify that the claim for the outcome is legitimate.
The process, however, is lengthy and invaluable insights from evaluations can fail to meet the pace of delivery on-the-ground, often taking months to report. This process may also be carried out by a third-party independent evaluator, which increases the overall cost of the project.
With support from the UK government, the Frontier Technologies Hub is working on a Pilot from its latest Call 5 cohort to make this process more efficient. The aim of the Pilot is to test new technologies that would enable real-time data collection and analysis, continuous learning, reduced verification timelines and costs, and increased transparency and traceability.
Illustrating the value-add of tech for DIBs
To showcase the benefits of implementing technology in DIBs, let’s look at the Quality Education India Development Impact Bond (QEI-DIB.) Launched in 2018 to improve learning outcomes in literacy and numeracy, the programme’s goal is to cover over 200,000 primary school children across Delhi, Gujarat, Maharashtra and Uttar Pradesh over four years.
QEI-DIB is distinctively data driven, and data pertaining to evaluations and performance management are shared with partner organisations. Tablets and computer-assisted personalised learning solutions facilitate capturing student test score results, which ultimately provide greater flexibility and agile ways of working by using real-time data for decision-making.
The operational results from this approach include programme adaptation and fund reallocation to ensure that the agreed outcomes are achieved. Moreover, after two years, an independent evaluation showed that students under the QEI-DIB’s programme gained more than two years of additional learning compared to schools where these were not present. QEI-DIB then illustrates how DIBs can benefit from incorporating technology into their monitoring and verification systems.
What our pilot is all about
We believe that if we can demonstrate the effectiveness and trustworthiness of using technology platforms to verify outcomes, we will learn how to overcome the challenges of using technology to improve the performance and efficiency of impact bonds. Ultimately, we will increase the effectiveness and adaptability of international development programmes.
This pilot has the potential to generate key lessons and significant trickle-down effects, as it would provide greater clarity of the DIB verification process. The main benefits of improving this process include increasing VfM for governments/donors, and enabling greater access to currently untapped impact finance. More importantly, it would inform the FCDO’s and the wider development community’s DIBs and similar contracts. This, in turn, would provide benefits to the many beneficiaries who can be served by DIBs.
To achieve this goal, the Hub has partnered with Social Finance, who are experts in the DIBs field, to run a series of experiments that will inform how we can best tackle this challenge. Together we are scoping existing DIBs, platforms and potential collaborations with technical partners to inform our decision with whom to partner and which process-enhancing technology is most suitable for potential partners.
We are also developing criteria to evaluate technology and DIB programmes through market research, conducting interviews with key DIB stakeholders, including providers and funders to explore the barriers to using digital verification, and evaluating what is needed to overcome these barriers.
We are looking forward to sharing our findings on our Medium site as soon as we complete our first set of experiments so that the learnings from our experience can be shared far and wide. If this is the first time you are following our series on SIB, we invite you to take a look at the study that inspired this work: Connecting Finance to Results.
We are thrilled to see how much progress has been made since we started, so stay tuned for our follow-up post with the findings!
Images courtesy of Unsplash
