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Private capital can help lead responses to world's greatest challenges: an example from India

Photo courtesy of Project Ujjwal

Article published in the Huffington Post on December 3rd 2017 by Managing Director | CEO of Palladium, Kim Bredhauer.

Following last week’s launch of the world’s largest maternal and newborn health impact bond (The Utkrisht Bond), I’ve been reflecting on how new and different approaches to development can change the way we view progress. Not only is there an opportunity to design cutting edge ways to fund development, we also have an opportunity to ensure private capital and private philanthropy are active and leading partners in responding to some of the world’s greatest challenges, leveraging their unique perspective and approach for maximum impact. To even start thinking about achieving the United Nation’s Sustainable Development Goals, we need to look beyond traditional aid.

Rajasthan’s maternal and newborn health crisis, and a brand new solution
Rajasthan in India has one of the highest maternal and newborn mortality rates in the country. The scale of the problem is frightening. It’s estimated that 80,000 babies die in Rajasthan every year, with 244 maternal deaths per 100,000 births and 47 infant deaths per 1000 live births.

The Utkrisht Bond (‘Utkrisht’ means ‘excellence’ in Hindi) is the world’s first healthcare development impact bond, and it will work to reduce maternal and newborn deaths. It will support government efforts to improve access to, and the quality of care in, up to 440 private healthcare facilities in Rajasthan. Utkrisht aims to deliver improved care during delivery for 600,000 women over five years, which could lead to 10,000 maternal and newborn lives saved.

The Utkrisht Bond’s aims are ambitious and bold, but they are not necessarily unique. What is unique is the design of the funding model and its application to this sector.

Utkrisht is a Development Impact Bond – a funding mechanism that brings the public and private sectors together, and shifts the burden of financial risk to private investors.

Testing innovative ways to fund Positive Impact is critical to making progress
Put simply, a Development Impact Bond (DIB) is a financial instrument designed to deliver a social or developmental outcome. Private investors provide upfront capital to fund public programs and their returns are only paid by the public actor if the outcomes are successfully achieved. It is a model that ties investment risk and returns to the achievement of social impact.

Utkrisht has succeeded in bringing together two major corporate foundations (UBS Optimus Foundation and MSD for Mothers), the world’s largest donor (USAID) and two sector specialist NGOs (Population Services International and HLFPPT). We’re particularly proud of Utkrisht because for us at Palladium, it has been three years in the making. From conception to design and now launch, we are investing our time and money in testing a new approach to maternal and newborn health. Testing is at the heart of progress and the lessons gleaned from this, the world’s largest ever DIB, will make a huge contribution to the future of innovative financing.

Why DIBs have potential
For Phyllis Costanza, CEO of the UBS Optimus Foundation, the potential of these kinds of financial instruments is huge: “The model is proving increasingly attractive as people recognize its ability to secure new and much needed sources of finance and deliver significant and sustainable social returns.”

Perhaps the key feature of the DIB is the transfer of risk from public agencies and governments to private investors who provide upfront funding, without which, projects like Utkrisht would never get off the ground. This transfer of risk has its price of course, and investors are therefore compensated with reasonable returns relative to the risk taken.

But risk is the very reason instruments like DIBs have such great potential. Risk changes the dynamic of a project. The relationship between returns and impact serves to attract finance and drive performance. What’s more, investors are traditionally drawn to investments with the best prospects of return on investment. That means they target projects with the highest likelihood of achieving the strongest social impact. It also offers them the opportunity to re-invest the accrued funds into other development vehicles that can bring additional benefits to society. So development impact bonds have the potential to offer credible financial investment opportunities for private capital, drive better development practice and social impact, and contribute to future development activities.

Whether we call them DIBs, public-private partnerships or innovative financial instruments, models that narrow the gap between social motivation and investment viability are essential to the future of global development. Private capital not only has a role to play, it should be seen as a necessary and positive component of progress.