In 2018, Palladium designed and helped deliver the world’s first healthcare development impact bond (DIB), called Utkrisht. Implemented in Rajasthan, India, the goal was to reduce the number of maternal and newborn deaths in the region, which at the time, had one of the highest mortality rates in India. It did this by working with the government to improve access to, and the quality of care in, up to 440 private healthcare facilities in Rajasthan.
The project, which ended this year, was a resounding success, proving that results-based financing, particularly DIBs, have a role to play in financing development priorities and programs, especially ones with a very specific focus or clear outcome to measure success. Unlike other programmatic financing, but like Social Impact Bonds, DIBs are results-based contracts in which private social investors provide financing upfront to tackle a problem. If the program is successful based on the pre-determined outcomes (e.g., lives of babies and mothers saved, as with Utkrisht), the investors receive their principal plus a return paid out by the outcome funders.
But despite successes documented by Utkrisht in the health sector in India and the Quality Education India (QEI) DIB, which supports improving learning outcomes also in India, DIBs and SIBs do not yet have an established role in development financing. “Development practitioners and decision makers still don’t have a clear philosophy around when to use these types of funding mechanisms,” says Dr. Farley Cleghorn, Palladium’s Chief Medical Officer.
Results based financing isn’t a new notion; it encompasses a broad group of funding mechanisms. But as Cleghorn adds, DIBs represent an advancement, the cumulative results of which need to be assessed at the sector level. “Results based financing through a DIB requires multiple players through an articulated and coordinated planning and implementation process. It’s not just an agency procuring a budget and giving it to an organisation and telling them to go off and complete the project,” Cleghorn explains.
“It’s far more structured, akin to a field clinical trial and that’s where some of the confusion and scepticism comes from across the sector in implementing a project using results-based financing. The narrow focus on a critical outcome and the precision of the field measurements implies that DIBs and SIBs are an adjunct to broad-based financing of health, education, and social programs.”
He adds that DIBs are most useful for socially focused programs and projects. “Health, wealth, and happiness – that’s what we mean when we say projects have a social tag and though we have plenty of socially aware funders, there’s no consensus on how to use DIBs to help program their money towards impactful social causes.”
Cleghorn will be one of several speakers and panellists at an upcoming event being held in partnership with the Brookings Institute, UBS Optimus Foundation and QEI, where attendees will discuss the role of DIBs in development, The Future of Outcomes-Based Financing. “My hope for the event is that we can get some consensus for moving forward around the place for DIBs,” he notes. “I see a definite place for it, not necessarily a huge place for it, but when you look at the whole envelope of development resources, even if a small portion goes to DIBs, a small portion of a large number is still a large number.”
He adds that it is critical for Palladium to be leading these conversations. “As a leader in both financing and impact, we’ve successfully implemented a large DIB, and not many, if any, other organisations have done so.” Progress, he notes, is not made in a logical or straight line and bringing together like-minded players to extract some consensus is an important step in institutionalising progress.