Impact Bonds in Education are Effective. How do we Scale them?

Written by Prachi Windlass and Samar Bajaj, Michael and Susan Dell Foundation
India is the first country in the world to make Corporate Social Responsibility (CSR) spending mandatory, and education receives over a third of that funding. Despite the amount directed at education, only a handful of organizations have achieved change at scale, and even fewer have metrics to demonstrate any improvement in learning outcomes for children. Without measurement that transformation is occurring, it is hard — almost impossible — to influence organizations to secure much-needed institutional funding for education.

Measurement is a core social impact principle at the Dell Foundation, since evidence is the only way to know whether we’re making a difference. To this end, since 2006, we have invested over $5 million in robust student assessments to ensure our investments in education were delivering on impact. Today we have more than one million data points on learning pathways, program performance, and models that steadily deliver results.

In 2018, we collaborated with UBS Optimus Foundation and the British Asian Trust to launch the Quality Education India – Development Impact Bond (QEI-DIB). The QEI-DIB will deploy approximately $10 million over a four-year period to drive learning improvements for over 200,000 primary school children in the country. This DIB supports four established non-profits — GyanShala, Kaivalya Education Foundation (KEF), Pratham Infotech Foundation (PIF) and Society for All Round Development (SARD). All have proven their models at scale and are well-placed to absorb outcome-linked funding.

THE EARLY RESULTS HAVE SURPASSED PAST PERFORMANCE.

Annual targets have been set for each program in consultation with the partners and an independent outcome evaluator. Every year, the learning gains for each program are compared against learning gains for students attending schools in the same geographical area (a quasi-control group). The aggregate gains across all four partners determine the overall success of the DIB.

The results for the first two years (2018-2020) have been outstanding. Children are learning twice as fast as their peers in control schools. The overall program is achieving two to three times of its target and some partners are out-performing up to four to five times.

WE SEE MANY OPPORTUNITIES TO SCALE THIS AS A FUNDING APPROACH FOR A WIDE VARIETY OF STAKEHOLDERS.

The QEI-DIB provides strong evidence that outcome-linked structures lead to results. To bridge learning gaps for millions of children who still need support, below are three ways these structures can scale.

  1. Drive Development Funding (DFIs, CSR, Philanthropy) towards smart, scalable outcomes. Funders today face two challenges. First, most of the funding is still channeled toward inputs (e.g. children reached, infrastructure deployed). Second, there is no convergence in the sector on what metrics to track and how to measure them. Even when learning outcomes are measured, they are not comparable across programs and it is hard to attribute intervention effects. This makes it difficult to prioritize higher performing programs. Instruments like DIB can establish convergence on one to two simple, easy to measure and robust measures to track student learning.
  2. Allow government to introduce cutting edge technology in schools. Social Impact Bonds (SIBs) are the public sector equivalent of DIBs, where government pays for outcomes. It is still early for central and state governments in India to pivot their education budgets to SIB models. But there is an opportunity to adopt outcomes-based contracting in select categories – e.g. education software and lab-based learning solutions. Government should evaluate a mix of fixed and variable fee contracts (with the variable component linked to outcomes.) Last year, the Government of Andhra Pradesh launched an innovative pilot across 3 personalized adaptive learning (PAL) solutions – and future contracts were awarded based on improvements in the pilot.
  3. Create a new investment asset class for individual investors. India is a vibrant market for social enterprises. Instruments like equity and debt focus on financial returns alongside social returns. There is little awareness among individual investors about DIB-style instruments where financial and impact indicators are intertwined. In fact, UBS has been the sole risk investor in all three impact bonds launched in India. Banks, wealth management funds and impact investors should add this instrument to their toolkit. Impact bonds could also list on the Social Stock Exchange which will lead to more transparent pricing of outcomes.

WHAT’S NEXT?

In the next 12 months, the Dell Foundation is actively looking to launch impact bonds in education and skilling/livelihoods. We welcome the opportunity to collaborate with delivery partner and funders.

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