Giving Compass' Take:

• Kevin Starr explains why the success of the Educate Girls Development Impact Bond doesn't prove that DIBs are the best model for change going forward. 

• How can funders best achieve social progress? Are there places for DIBs to success? 

• Learn more about the Educate Girls Development Impact Bond.

There is a big positive lesson from the Educate Girls Development Impact Bond: Clear incentives to perform against impact targets can make a big difference, and it is here that we owe UBS et al. a big debt of gratitude for this pilot. Targets and timelines, incentives and accountability—these are really important, and by all accounts Educate Girls had to go flat-out in the third year to make up for stutters in the first two. (By the way, DIBs may motivate an organization to shift their best people to the DIB project, to the potential detriment of other work.) What the experience suggests, though, is that we’ve already got a mechanism for performance-based financing—one that skips all the gymnastics, intermediaries, and added costs. It’s called “unrestricted funding on the basis of impact,” and it’s not that hard:

  • Find an organization with an impressive impact track record and/or potential.
  • Give them an initial, unrestricted grant to do what they do best or to try some important new thing.
  • Set verifiable delivery, impact, and cost targets appropriate to their stage. (Sometimes that requires an RCT, but it usually doesn’t.)
  • If they do well against those targets, give them more money. If you want to give their performance a squeeze, create a bonus structure tied to stretch impact targets. That way, the extra subsidy goes toward more good work, not to investors.
  • Repeat.

I know of three other organizations in the midst of launching variants of DIBs, namely Mothers2Mothers, Living Goods, and Village Enterprise Fund. These are fine organizations with well-documented impact and disciplined delivery. For God’s sake, if you like their impact, just fund them!

Read the full article about Development Impact Bonds by Kevin Starr at Stanford Social Innovation Review.