The importance of results-based funding in a post-COVID world

Largest development impact bond in education well on track to boost schooling for children in India

by Dhun Davar, Head Social Finance at UBS Optimus Foundation 29 Oct 2020

The COVID-19 pandemic has had a huge impact on societies globally and more so in developing countries – with big disparities in health and education. As the world responds, countries rely on increased government and philanthropic spending and support while at the same time there is extra scrutiny on development budgets.

What does this mean for funders in education and health?

This increases pressure on budgets in important areas such as health, education and youth employment. Governments and funders will need to rigorously assess programs to see what works, what doesn't, and why, making sure that funding is being put to work efficiently, effectively and in an accountable manner. Results-based funding meets these needs. The opportunity now exists to apply learnings that have been tested, proven and scaled more widely.

An innovative delivery model

In 2018 together with The Michael and Susan Dell Foundation and the British Asia Trust, UBS Optimus Foundation launched the Quality Education India Development Impact Bond (QEI-DIB). The development impact bond (DIB) – focused on learning outcomes for children from low income families, and seeded with capital by the UBS Optimus Foundation – supports four result-oriented, leading education non-profit organizations in the states of Maharashtra, Delhi, Uttar Pradesh and Gujarat. With around USD 10 million spent over four years the DIB program aims to reach 200,000 children.

The results so far speak for themselves: since its launch the QEI-DIB has funded the delivery of teaching enhancement programs to more than 600 schools, reaching over 100,000 students. Building on a very successful first year, the independent evaluation of 20,000 students shows that students in the DIB program surpassed the learning targets in year 2, learning twice as fast as their peers in comparable schools. Considering an average student is at least two years behind in grade appropriate learning, the results show that these programs are helping to close this learning gap.

The program has responded well to challenges in implementation and has been adaptable over time to keep striving to push the envelope on child learning achievement. As a result, the UBS Optimus Foundation is, so far, on track to generate returns on its investment.

  • The investor funds the implementation an intervention with predetermined outcome targets.
  • An independent evaluator verifies whether results are achieved.
  • If the intervention succeeds in achieving its goals, the outcome payer will pay the investor based on the performance.
  • As an incentive, a portion of the outcome payment may then be passed on to the implementing NGO(s).

A benchmark for development funding in a post-COVID world

The QEI-DIB serves as a benchmark for what is possible in results-based funding. It shows that the right program selection in combination with strong partners can provide the impact that is needed. While a DIB is not the solution for all types of challenges, it can be a great tool when the conditions are right. This DIB provides an important point of reference for investors interested in results-based funding, proving the merits of the approach and establishing a track record for future programs.

How is UBS Optimus Foundation taking this forward? 

The foundation is working on investments in further DIB programs with partners worldwide and aiming to develop a portfolio of DIB investments into a fund with the ambition to launch within the next six months. In partnership with governments, established non-profit organizations and investors we want to establish results based funding programs as a mainstream solution to address challenges in health, education and employment.