The Educate Girls Development Impact Bond, the first DIB in India and in education globally, shows that these bonds can drive significant innovation and impact gains, even in organizations that already have a strong trajectory of delivery. 

The positive conclusion of the DIB provides process learnings that can inform the design and roll out of future DIBs, particularly around:

• Processes that improve efficacy i.e., the effectiveness of DIBs in delivering impact, and 

• Processes that can improve the long-term sustainability of DIBs (either in terms of lower transaction and opportunity costs, or through terms that are more acceptable to a wider group of outcome payers and investors). 

Driving innovation and impact: the DIB structure is only as effective as the processes that are followed

A DIB, in theory, improves delivery efficacy via the combined force of an ambitious outcomes framework with independent evaluation mechanisms and incentive capital for the investors and implementation partners (IPs). 

The EG DIB experience indicates that specific processes during the design and implementation of a DIB can significantly impact how effective it is at prompting innovation. These processes can be summarized as follows:

Setting ambitious targets based on existing evaluation data to spur innovation

• Capacity building of the implementation partner, including: a) up-front support to better understand targets, evaluation methodologies and how to budget for innovation; b) ongoing support to augment existing capabilities, such as monitoring, evaluation and learning (MEL) 

•  Sharing detailed outcome evaluation data in a timely manner and providing support to unpack data, to help the implementation partner better identify gaps, adapt their interventions and fine-tune their internal processes to better measure impact

•  A hands-off approach by the risk investor and the outcome funder (i.e., not interfering in decisions around the program or deployment of funds); while this is an expectation within the DIB framework, it is an important cultural shift for ‘impact-driven’ funders who are likely to come from a tradition of providing ongoing support to grantees

• Recognition by the investor that impact from adaptations is likely to be visible in later years and continued deployment of the risk capital even with a non-linear performance trajectory; for the same reason, considering longer time-horizons (4-5 years) for innovation DIBs may be beneficial to all stakeholders.

In addition, EG DIB stakeholders felt that future DIBs should consider early facilitation of government buy-in around DIB activities, particularly when implementation partners are using government delivery channels. Government buy-in may also be important to ensure long-term sustainability and scale of the intervention, for example, by transitioning to a social impact bond.
The EG experience also suggests certain capabilities are pre-requisites within the implementation partner so that IPs can effectively leverage DIB structures and processes. These include having a target-driven culture, existing MEL capabilities (even if used in another context), and an entrepreneurial culture that is receptive to learning and adaptation. These findings also resonate with other practitioners’ experience across impact bonds. 

Increasing Sustainability: critical to reduce the proportion of transaction costs and adapt terms and structures to make DIBs relevant to a wider group of investors and outcome payers (OP)

From a sustainability standpoint, the EG DIB has faced criticism for the high transaction costs that were incurred, and this merits additional thought about processes that can improve transaction cost efficiency. 

There is agreement amongst EG DIB stakeholders and the wider ecosystem that transaction costs are likely to decrease over time as DIBs become more widely used. This is likely true only for larger DIBs. The EG DIB was conceptualized as a ‘proof-of concept’, to demonstrate the feasibility and potential of such an instrument. Its size, therefore, was small and associated transaction costs were disproportionately high. Future DIBs should consider larger outcome pots, which would benefit all stakeholders by allowing investors and outcome payers to pool risk and spread transaction costs over a wider base. 

To scale the DIB ecosystem and meet the promise of unlocking new forms of capital, processes to arrive at DIB terms and structures may have to evolve to accommodate the perspectives of a wider set of stakeholders (above and beyond the early adopters/ impact-driven investors, who participated in the EG DIB). For example, DIB stakeholders may have to consider undertaking risk analysis to establish return payouts for commercial investors and/ or structure the investment differently to distribute risk borne by the investor. 

Finally, there is a need for catalytic capital to create certain ‘public goods’ in the outcomes/ DIB market, such as platforms for collaboration among stakeholders, funding research into questions around outcomes and measurements, and facilitating knowledge sharing around one-time costs such as legal contracts and frameworks across contexts. Such investments can improve the relevance of DIBs, amplify impact and improve efficiency, thereby improving the sustainability of DIBs.