Mira, a 12-year-old girl of the Garasia tribe in Rajasthan, stopped going to school when she got her period—the absence of a girls’ toilet in her school and increased family pressure to stay home became insurmountable. Meanwhile, five-year-old Manuel, from Maputo Province, one of the poorest in Mozambique, has a 43 percent chance of getting infected with malaria and a 3 percent chance of dying from it. If he does contract it, he will likely not be the only sufferer in his household, which can lose, by some accounts, up to half its annual income as a result of the infection.

Now imagine a global marketplace where you could pay for Mira and 20,000 other girls to go back to school. And you only have to pay if the girls actually attend school. Or you could choose to pay to prevent malaria for Manuel and three million Mozambicans and get your entire investment repaid in three years, with 5 percent interest.

Welcome to the world of development impact bonds (DIBs), a new financing mechanism that, like social impact bonds, uses private sector incentives and penalties to effectively deliver social services in the developing world. UK Secretary of State for International Development Justine Greening has called DIBs “a tremendous opportunity to quickly get the finance and investment needed to make development work.” The UK has already committed $2.5 million to a DIB in Uganda that prevents sleeping sickness, and it promises to champion others.

In India, a small, grassroots NGO called Educate Girls recently announced the first non-health DIB in a developing country. In six years, it has increased school attendance from 67 percent to 87 percent, prevalence of girls’ toilets from 44 percent to 78 percent and math and English scores by 50 percent at a cost of $3 a child a year—a tiny fraction of what governments and donors spend to achieve similar results. Yet raising funds has been laborious, time-consuming, and largely driven by donor priorities and processes. After learning about the Department for International Development (DFID) Payment by Results initiatives, Educate Girls decided to try a new approach.

Enter Optimus Foundation (the grant-making arm of UBS AG, a 150-year-old Swiss global financial services company and the world’s largest wealth manager), which gives to global children’s causes on behalf of UBS and its clients. In June 2014, the foundation announced a DIB to fund Educate Girls, with the Children’s Investment Fund Foundation (CIFF), a London-based foundation with a $4 billion endowment.

As the investor, Optimus will pay Educate Girls to send 20,000 children to school and ensure that they learn. In three years, if independent evaluators verify that the program has achieved agreed-on outcomes, then CIFF (the outcome payer in this case) will pay back Optimus’s whole investment with interest. If the organization achieves only some of the objectives, CIFF will compensate Optimus for part of its upfront payment.

For CIFF, this is unique. Used to making larger grants, including a $700 million commitment to tackle under-nutrition for children in Africa and Asia, CIFF prides itself on being a hands-on donor. At less than half a million dollars, this education DIB is both small and unusual for the organization—its only formal commitment is to make a payment at the end of three years (or not).

Paying only for achieved results may sound like a dream scenario for donors but what about investors putting their money on the line? Optimus is enthusiastic. For CEO Phyllis Costanza, success is not about earning interest but creating a new marketplace where philanthropists and investors can find clear time- and outcome-bound options for achieving social and financial impact. “DIBs focus on what matters,” Costanza says. “It is easier to explain to a client of UBS that she is paying a hundred thousand dollars to send 20,000 girls to school. That’s what our clients care about, not complex log frames tracking monthly milestones.”

In another example of a developing country DIB, two mining companies (Anglo-American and BHP Billiton), Coca-Cola, and the restaurant franchise Nando’s have come together in Mozambique to reduce malaria in the hopes of fostering a healthier population and economic growth, as Nando’s noted in an interview earlier this year. In the planned pilot, investors will pay an NGO in Maputo province to deliver a comprehensive set of services proven to substantially reduce malarial infection for three million Mozambicans. If the NGO meets its targets, then the four companies will pay back the yet-to-be-recruited investors with 5 percent interest. If it doesn’t, then the investors lose money. D Capital, an investment advisory firm facilitating the Mozambique DIB, values the way in which the DIB brings mining private corporations to the table, rather than relying on a shrinking universe of bilateral aid.

Not every donor can be an outcome payer, nor should every NGO seek a DIB (instead of grants). Michael Belinsky of Instiglio, the advisory firm managing the Educate Girls DIB in India, notes, “Putting together a DIB is time-consuming and complex. You must have proven results and a deep belief that private sector efficiency will be good for your work.” Nor are DIBs right for every cause. DIBs seek to solve specific problems rather than underlying systemic failures. In fact, one argument for investing in DIBs is to free up traditional donor grants for important outcomes such as gender equality and other human rights, whose milestones can sometimes be harder to measure than school attendance and vaccine stamps.

In the best case scenario, increasing the number and diversity of players providing social services will create a marketplace that will match the supply and demand of funds for social services with greater transparency and efficiency. Perhaps there will be a fund one day that offers different products (send Mira to school, vaccinate Manuel) that are “priced” to reflect the context, the service, and the risk-reward trade-off of its possible success.

Safeena Husain, founder of Educate Girls, can’t wait to start. “The DIB is empowering. Whether we spend on pencils or salaries will not matter as long as we show legitimate, independently assessed results. We are no longer being paid for activities. We are now being paid for outcomes.”

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