Outcomes-based funding has surged significantly over the past decade. This is evident in the substantial growth of impact bonds, which have garnered over $764 million in raised capital since they were first launched in 2010. This trend shows a discernible preference among funders for financing structures tied to specific outcomes or outputs rather than conventional grants. 

Since the launch of the world’s first Development Impact Bond (DIB) with Educate Girls in 2014, Dalberg has pioneered outcomes-based financing instruments, successfully introducing five such instruments in recent years. Through this journey, an often-underestimated factor has emerged as crucial to impact bonds: the imperative inclusion of communities at the negotiation table. Incorporating community members into the decision-making process is essential, as they bring firsthand insights into their unique needs and challenges. Overlooking this perspective in traditional top-down approaches hinders the alignment of interventions and outcomes with on-the-ground realities. An inclusive approach not only fosters a sense of ownership and empowerment within the community but also enhances the sustainability and responsiveness of such initiatives. This increases the likelihood of achieving contracted outcomes, resulting in tangible benefits such as improved health, better employment rates, and heightened biodiversity.

Implementing Community Inclusion: A Practical Guide to Designing Outcomes-Based Funding 

Meaningful integration of community voices is a crucial foundation in designing any outcomes-based funding mechanism. The following considerations provide a roadmap for establishing a more equitable and community-centric approach: 

1. Promote Inclusivity: Understanding the local context involves acknowledging the unique social, cultural, and economic contexts of communities. This requires integrating local knowledge to tailor culturally sensitive, relevant, and effective interventions, especially for vulnerable populations. It is crucial to ensure that the voices of directly affected individuals, as well as those representing diverse community perspectives, are heard and considered from the outset to establish community ownership and empowerment in the decision-making process.
   Valuing the lived experiences of individuals within the community and using these insights to shape impactful and sustainable programs require their active involvement in defining and tailoring the interventions, as well as determining the outcome metrics that trigger payment for achieved results. For instance, in the evolution of the Quality Education India (QEI) DIB, we transitioned from Excel sheets to building trustful relationships with the field teams by facilitating dynamic workshops. This process revealed that valuable data often emerged through reflections from team members or observations made during school visits, allowing us to integrate qualitative insights from the school or community alongside rigorous metrics.
2. Be Responsive: Continuous feedback mechanisms are typically incorporated in all impact bonds, allowing ongoing project improvement and course correction to maximize the likelihood of outcome achievement. However, these feedback mechanisms do not always prioritize community voices. Internal mechanisms must actively incorporate community feedback to ensure responsiveness to evolving needs and challenges. Prior to the QEI DIB, the service provider managed teacher and supervisor feedback only at the field level. Following our intervention with the QEI DIB, the service provider extended feedback collection to the central level, leading to notable improvements in practices. Through quarterly tracking and updates, the team was able to quickly detect and evaluate changes in feedback and take timely course-correction measures.
3. Foster Trust: Relationships are the cornerstone of success for all outcomes-based funding mechanisms. This extends beyond contractual ties for service delivery to trustful relationships among all stakeholders, including community members, funders, and implementing organizations. Programs involving community engagement should be guided by the acknowledgment that trust is foundational to success. For Educate Girls DIB, a coalition of stakeholders was brought together to support the implementation and scaling of a model, establishing a new framework for sector-wide impact. The DIB required a high level of trust among the involved parties, cultivated over time through workshops and adaptations to the model, strengthening the relationship between stakeholders.  

Adhering to these considerations can enhance the effectiveness of outcomes-based funding mechanisms and truly reflect the needs and aspirations of the communities they aim to serve.