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Perspectives on Impact Bonds: The Next Five Years for International Development

Created Oct 06 2015, 12:00 AM by Dilshod B. Yusupov

Reading Brookings’ outstanding report charting the trajectory and lessons from the first five years of Impact Bonds made me reflect on my own journey into impact bonds. It was early 2011 and the first social impact bond in the U.K. had just been launched. As I saw what were then novel ideas start to percolate into the U.S., I couldn’t help but think how this instrument might be used to address some of the unique challenges to delivering services in low- and middle-income countries. The time was ripe for this approach as results-based initiatives were gaining traction in international development. Governments, particularly in Latin America where I was working, had a long history of public-private partnerships. This particular instrument was new, but there was a strong foundation upon which to build.

At the same time, the $135 billion aid industry was confronting some big questions. How should aid agencies disburse hundreds of millions of dollars while ensuring that they were achieving their intended results? How could the private sector be engaged in partnerships centered on clear lines of responsibility, accountability, and results? An increasing amount of rigorous evidence was being generated about what works, but how could an environment be created to scale that evidence into policy? Impact bonds provided a potential response to each of these questions.

It’s what’s inside that matters

While impact bonds spoke to some of these higher-level questions in international development, for them to be more than just the latest development fad, they would need to deliver lasting value. Some of the bells and whistles of impact bonds that draw the most attention (for example, mobilizing private investment capital for social good) matter only if they lead to meaningful change on the ground—a new way of delivering services.

Five years into the use of this tool in the developed world, I see that the application of impact bonds to international development is not so much about the financial innovation, but rather what that financial innovation can unlock. Impact bonds, when designed appropriately, can move from a top-down aid planner’s mentality, to a bottom-up searcher’s mentality. The challenges of poverty, health, and education are rarely simple or straightforward. The solutions are unlikely to be either. Impact bonds can incentivize the discovery and scale of locally appropriate, adaptable solutions to meet the needs of the very poor.

 

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