Post-Event Resources: Realizing the Potential of Development Impact Bonds: Is the Verdict Still Out?


Photo: Newly opened fruit shop supported by development impact bonds in Nairobi, Kenya. Photo credit: Giulia Lorenzon/Unsplash

On May 12, 2022, the USAID Private Sector Engagement (PSE) Hub held "Realizing the Potential of Development Impact Bonds: Is the Verdict Still Out?," a webinar in the Mobilizing Finance for Development (MF4D) series. Check out the event page to read the panelist biographies. 

Key Event Highlights 

Overview of Impact Bonds 

  • Impact bonds are not technically "bonds", but they have features that attract impact investors who are looking for financial as well as environmental, social, and governance (ESG) returns.
  • The overall approach of an impact bond is to pay for outcomes rather than efforts when addressing development challenges. 
  • Impact bonds have both champions and detractors:
    • Pros: Impact bonds bring in new partners and awareness to development challenges. 
    • Cons: Impact bonds can be costly and take a long time to structure. There may be easier pay-for-results approaches that accomplish the same goal. 

State of the Impact Bond Market Today:

  • The Brookings Institution database reports 226 impact bonds have been contracted globally across 38 countries to date:
    • 210 social impact bonds (SIBs)
    • 16 development impact bonds (DIBs)
  • SIBs require at least one outcome funder to be a government entity. Outcome funders for DIBs may be a third party like a donor agency or foundation.
  • The majority of impact bonds have been contracted in the social welfare sector, followed by employment, health, and education.
  • The potential benefits of impact bonds are considered through the three “E”s:
    • Effectiveness: the ability to achieve outcomes using a “levers of change” framework.
    • Economic Returns: personal and social economic returns.
    • Ecosystem Effects: these include performance management systems, innovation in delivery,
      potentially crowding in private funding, reducing government risk, incentivizing collaboration, and
      sustained impact.

Speaker Debate

Statement 1: Impact Bonds Achieve Better Results than Alternative Mechanisms
Agree Disagree
  • Impact bonds embed outcome-based incentives, which drives development and improvement of real-time M&E systems, as well as decision making processes.
  • Context matters. Impact bonds have two common use cases: 1) help scale; 2) test new
  • Targets are set higher than past results/performance programs.
  • Flexibility and adaptation enable innovation.
  • When designing your activity, make sure you have the right use case.
  • Long-term funding visibility is important.
  • Incentives are not always aligned with what outcome payers are looking for. More data and
    evidence. And there is uncertainty on whether DIBs incur cost savings (how to cost and pricing).
  • Benefits have a multiplication effect, creating benefits beyond the immediate activities.
Statement 2: Impact Bonds Achieve Better Results than Alternative Mechanisms
Agree Disagree
  • UBS Optimus Foundation clients are often reluctant to give philanthropically to international
    projects. Through impact bonds, clients are more likely to engage overseas because of the
  • Impact bonds may crowd in new money, but this is not guaranteed.
  • Environmental, social, and governance (ESG) standards in projects are on the rise. Clients are
    using this criteria as an impact investing tool and are investing in sectors in anticipation of getting
    their money back after the result is achieved.
  • DIBs may force your current funder to align their funding to this new funding mechanism, which could have a negative effect and create delays.
  • Increasingly, more funders are structuring impact bonds, and funding has gone up.
  • Impact bonds have the potential to compete with traditional funders.
  • Organizations need to be proactive in leveraging your current donors.
Statement 3: Impact Bonds will Become Mainstream 
Agree Disagree
  • Outcome funders are realizing there’s a way to pay only if outcomes are achieved, and will be less likely to spend on programs without outcomes.
  • Impact bonds often have too many players involved and require a lot of work to  construct.
  • Impact investing is growing and investors are attracted to more concrete metrics.
  • Every impact bond is done on a one-by-one basis.
  • Some projects have resulted in entire dedicated funds for impact bonds.
  • The total beneficiaries are too small. 
  • Impact bonds are too complex to scale. 
  • To be successful, DIBs need tools, such as standardized impact units, complete price transparency, etc. 
Statement 4: Private Investors Bring Benefits Beyond Just Capital Alone 
Agree Disagree 
  • Impact bonds bring a new way of thinking about
    and tackling problems and solutions.
  • The primary role of investors is to provide capital; they’re addressing the liquidity restraint for service providers.
  • Structuring impact bonds is a new skill set that
    donors can bring to the global development
  • Investors play a minimal role in managing DIBs. Performance management intermediaries conduct the evaluation and measurement of the activity.
  • Impact bonds are about collaboration. 
  • Investors need to keep a distance from the project activities delivered by service providers to ensure greater transparency and accountability in the potential outcomes.
  • A private sector partner must be equally invested
    in terms of time, energy, and the effort it takes to
    manage the grants.

Webinar Resources 

Event Resources 

Webinar Blogs

Speaker Resources

Mobilizing Finance for Development (MF4D) Webinar Series Resources 


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