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Development Impact Bonds

Development Impact Bonds (DIBs) emerged at the international scene a couple of years ago. The concept is based on the Social Impact Bonds (SIBs) and aims to integrate a more results-based approach in public service delivery and improve the involvement of the private sector. The first SIB was implemented in the UK in 2010. Since then about 60 of them have been implemented in the UK, the US, Australia, the Netherlands and other industrialized countries. DIBs are more recent than SIBs. The first DIB was only implemented in Rajasthan (India) in 2014 and focused on girls’ enrollment in primary education and progress in English, Hindi and math. Other impact bond proposals have focused on sleeping sickness in Uganda, employment creation in Palestine, HIV in South Africa and malaria in Mozambique.

Like SIBs, DIBs are a form of output-based aid aiming to shift incentives and accountability to results and to benefit from a better involvement of the private sector. They start from a pre-defined outcome goal set by the government and agreed-upon by all partners, as well as a method of measuring success against this outcome. Private investors subsequently pre-finance a program aimed at achieving the agreed development goals. Implementation of this program is usually entrusted to experienced service providers that manage delivery while maintaining space for innovation and learning throughout the implementation process; these service providers can be (a combination of) public, private or non-profit. Only when the implemented program has been successful and pre-defined outcomes are met and independently verified, outcome funders, donors or public sector agencies, repay investors their principal plus a financial return covering the risk taken, and in line with the level of success reached

The research foreseen under this work package aims to provide concrete inputs to DGD on the further development of this aid modality based on experiences of other donors, e.g. DFID, and the available literature on the topic.