The world’s first-ever development impact bond (DIB) in education has been judged a success after surpassing its target outcomes.
The offering is focused on girls’ education and backed by the UBS Optimus Foundation and the Children’s Investment Fund Foundation (CIFF).
It comes in the week that a World Bank study warns that failing to let girls finish their education could cost the world as much as $30trn in lost earnings and productively annually. The report was published ahead of U.N. Malala Day on Thursday, which marks the birthday of the Pakistani activist on girls’ education (link).
The “proof of concept” three-year programme saw NGO Educate Girls deliver an innovative education programme for girls in India Rajasthan. UBS Optimus Foundation invested $270,000 into the project, with CIFF, the philanthropic organisation set up by hedge fund executive Chris Hohn and his then wife Jamie Cooper, agreeing to paying the foundation its principal and a return if the DIB met measured outcomes.
Impressive results means the UBS Optimus Foundation has recouped its investment with a 15% return. NGO Educate Girls will receive part of the return as a bonus payment, while the rest will be used for other UBS Optimus Foundation programmes.
Phyllis Costanza, CEO of the UBS Optimus Foundation and a former director at CIFF, says the DIB model enables NGOs to try and replicate what makes businesses successful.
“The beauty of the DIB is that it incentivises everyone to do what they are good at. The way aid money is distributed and monitored is unfortunately mostly based on inputs and outputs. In other words, government aid funding will grant money to an NGO working in a developing country and say we are going to give you all this money but you have to report on these indicators: ‘How many girls went to school?’ ‘How many teachers did you train?’ ‘What was attendance rate?’
“All of these outputs may or may not be related to what children learn. And the NGO has no flexibility to modify their approach if it’s not working. They have to do what they’ve been contracted to do.”
Costanza says that what can make private businesses successful is the flexibility to monitor their performance on a daily basis so they can shift their approach if something is not working.During the lifespan of the Educate Girls DIB the programme was changed if performance management systems found approaches were not working. For example, a school that was part of the programme did not do well in a maths exam. After working out the school children did not understand the concept of decimal points, the school retaught classes and improved exam results.
Overall, the Educate Girl DIB measured progress against agreed targets for the number of out-of-school girls enrolled into primary school, as well as the progress of girls and boys in English, Hindi and mathematics.
It achieved 116% of the enrolment target and 160% of the learning target in its final year and involved about 7,300 children, across 166 schools and 140 villages.
Following the successful innovation, the UBS Optimus Foundation is working on a second DIB in India, again focused on education — and this time at a larger scale.
Costanza explains: “We are doing an education fund building on the work we are doing with Educate Girls. But this one will diversify risk. It will have different NGOs delivering the programme, different outcome funds and different investors.”
The Foundation has also co-invested $3.5m in a healthcare-focused development impact bond aiming to reduce mother and baby deaths in Rajasthan, India. The impact bond was designed by consultancy Palladium, and the U.S. Agency for International Development and NGO MSD for Mothers have committed up to $8m in outcome funding if measured targets on improving maternity care are met.
Costanza says the UBS Optimus Foundation, that was founded almost 20 years ago by the Swiss bank, has a strong focus on impact and scale. “More than 90% of our large clients are interested in philanthropy and increasingly impact investing. Yet fewer than 20% are satisfied that they are making an impact.”
She says she believes to help their clients be more impactful and larger with their philanthropy; partnerships are vital, reflected for example in the DIB model.
Though legally separate, Costanza says the Foundation works closely with UBS Bank. It counts UBS CEO Sergio Ermotti among its board members and they share a lot of lessons and objectives.
UBS has set out a goal to get $5bn into Sustainable Development Goals-related impact investing by 2021. “What we are trying to do at the foundations is help innovate things that can be scaled by the capital markets, so organisations like UBS, so we are an incubator for testing out new ideas,” says Costanza.