World's largest education impact bond makes the grade

The Quality Education India Development Impact Bond (DIB), which set out to improve the delivery of core skills teaching in the states of Delhi and Gujarat, has reported a 30% increase in the number of children achieving its benchmark learning outcomes in its first year of activity.

Since its launch in September 2018, the world's largest DIB in education has funded the delivery of teaching enhancement programs to 600 schools, reaching more than 100,000 students aged 5–11. Unlike other forms of funding that simply focus on enrollment numbers, the DIB program focuses on the objective quality of the schooling provided. And based on an independent evaluation of more than 12,000 students, the program has resulted in almost a third more students achieving basic literacy and numeracy skills, and 40% of the target schools demonstrating significantly higher improvements in proficiency, than a similarly representative control group of students from non-participating schools.

Examples of the work paid for by the DIB include training for teachers and school administrators, and new privately operated free schools in poverty-stricken areas with high rates of out-of-school children. The DIB is set to operate on a four-year timeline, ending in 2022.

Pioneering the 'pay-as-they-grow' model

The DIB raised USD 11 million in its first phase of funding. The intention is to double the size of the DIB in the coming years. The structure includes a results-based finance mechanism, where the outcome funders (British Asian Trust and Michael & Susan Dell Foundation) only pay for successful results. These outcome funders can range from charitable foundations and private enterprises to national governments. If the outcomes are not fully achieved, funders will pay proportionate to the results which are achieved.

The working capital of 2.9 million Swiss francs – much of which direct contributions from UBS clients – used to deliver the programs is provided by the ‘risk’ investor, in this case UBS Optimus Foundation. If successful, the Foundation is able to recover its capital and earn a return if pre-determined education outcomes are met. All returns will be rolled over into other philanthropic programs.

Delivery of the change programs at the local level is managed by a carefully selected group of non-governmental organizations (NGOs). The learning outcomes of students and schools participating in the DIB program are independently verified by sector specialists, ensuring the maximum impact is achieved for the investment provided. UBS Optimus Foundation, however, retains a firm grip on the stewardship and distribution of funding throughout.

The UBS Optimus Foundation takes the same business-minded approach to philanthropy that UBS takes in all aspects of our work at the firm, so our clients can be sure it delivers the social return they should be getting from their contribution. We closely monitor the programs we're funding, we challenge assumptions regularly, and we hold grantees to extremely high standards of performance.

This is why underperforming programs of the DIB are subject to defunding. Having analyzed closely the year-one results of all NGOs, we've taken the decision not to continue with one of the underperforming programs, due to its declining efficacy compounded with some operational challenges. But all three original NGO partners will be retained going into year two. They will be joined by a fourth, which will provide an online numeracy learning tool, as well as support for teachers in data, literacy and assessments.

A track record of pairing philanthropy with impact

As a firm we are unique in the financial industry in having a global foundation staffed with philanthropic experts who use their know-how and experience to select, monitor and guide program partners – so programs can grow and improve the future of as many children as possible.

In November 2017, UBS Optimus Foundation launched the Utkrisht impact bond – at that time the largest-ever DIB, as well as the first to target improvements in mother-and-child healthcare provision, this time in Rajasthan, India. In 2018, the Foundation announced the final results of the Educate Girls Development Impact Bond – a world first in education and forerunner to the Quality Education India DIB above. The Educate Girls DIB closed after three years having achieved 116% of its enrollment target and 160% of its learning target in the last of its three years in operation.

Delivery model

  1. The risk investor, in this case the UBS Optimus Foundation, commits up to USD 3 million to fund implementing partners' work upfront
  2. Outcome funders commit USD 11 million over four years
  3. Local NGOs deliver education interventions to improve learning outcomes of students
  4. Learning outcomes are measured annually by an independent evaluator
  5. Verified achievement of learning outcomes triggers outcome payments to repay the risk investor

Press release on year one results

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