Enhancing Government Effectiveness - DIBs, a Valuable Tool for a Much Broader Agenda

By Avnish Gungadurdoss and Ben Stephens

Development Impact Bonds have an emerging record of improving impact by enabling results-oriented delivery, even in the most difficult circumstances. However, to drive sustained impact at transformative scale, we must migrate the results-oriented practices of DIBs to the heart of development spending by aid-agencies and governments alike.

The potential of DIBs is increasingly well demonstrated. For instance, a recent rigorous impact evaluation of our Village Enterprise DIB focused on poverty alleviation – which was supported in part by USAID’s Development Innovation Ventures (DIV) – found that the program lifted 95,000 ultra-poor and vulnerable Kenyans and Ugandans out of poverty, increasing their consumption levels by 6.3 percent and their income by a projected $21 million. All this during the same pandemic that pushed more than six million people back into poverty in these countries. 

While the results of this DIB and others are exciting, we can not be complacent with the relatively small scale-successes of DIBs in the face of much wider delivery failures across so much development spending by governments and aid agencies. 

Dwarfing the small innovation funding flows associated with DIBs, governments in low and middle-income countries spend almost $5 trillion delivering critical services like education, health, employment services, water and electricity. These are essential to save lives, reduce poverty and address inequality but most programs fail to achieve these outcomes. For example, a recent World Bank review of 31 countries showed that 48 percent of education programs evaluated showed zero positive impact on learning outcomes. These performance failures represent a massive effectiveness gap on trillions in spending. This is a stark moral tragedy of waste and missed opportunities in the use of the scarce dollars that could and should be changing lives.

The success of DIBs such as the Village Enterprise DIB provides compelling evidence of the potential of Results-based Financing (RBF) and other results-oriented practices to drive improved delivery even in the most trying circumstances. It is our hope the successes of these DIBs will further support and motivate the mainstreaming of results-based approaches in the billions of aid dollars spent by aid agencies and governments. 

As we have noted elsewhere, while DIBs sound complicated or exotic, they are just one example of deploying simple, sensible, and performance-critical delivery management practices: Clarify, articulate, and incentivize target outcomes; provide necessary autonomy to front-line staff; measure progress; reward good performance; and repeat these steps. These practices are routine in high-performing organizations but are often lacking in many developing country governments managing trillions of dollars of taxpayers’ money.

RBF and other results-oriented practices can help migrate these practices to the heart of spending by aid-agencies and governments.

At Instiglio, we have been fortunate to see a growing ecosystem of actors working to advance exactly this agenda, manifest is a growing body of results-oriented practice.

For instance, this is illustrated by the work of governments in Morocco and Colombia who are increasingly making use of RBF to drive more effective workforce delivery programs, responding to critical employment challenges of youth and women which have been so exacerbated by the pandemic. Likewise, working with the United States’ Millennium Challenge Corporation, public utilities in Sierra Leone embraced RBF to transform their performance in delivering water and energy to Freetown’s population of over a million residents. We have also seen the concerted effort of the Global Fund to enhance the effectiveness of its life-saving health work by promoting results-oriented contracting in contexts as diverse as South Sudan, Pakistan and the Philippines.

While DIBs will remain a niche instrument set against this wider body of RBF and results-oriented practices, they continue to offer donors the opportunity to promote broader adoption. This is the exciting potential of DIBs which we hope will increasingly be fulfilled in the years ahead. 

Avnish Gungadurdoss is Managing Partner and Co-Founder and Ben Stephens is Manager at Instiglio. For more information please visit instiglio.org.