Entrepreneurship, innovation, scale, and money –we want it all, and we want it now
Many of today's development success stories are driven by innovation, often from outside the traditional development framework. For example, the Brookings report “Millions Learning” showed that new approaches and ideas are often allowed to develop and grow on the margins, and are then scaled. It’s true in education, in health, and in many other sectors. And these success stories, these innovations, tend to be led by strong entrepreneurs who want to change the world. So the question for us is how do we mainstream this more efficiently?
Attracting new finance
Attracting new finance from people who are not currently engaged in the space is crucial. And that is already underway. There are new instruments that are generating a lot of interest, for example the world's first Development Impact Bond (DIB) in education we launched just over a year ago. We have seen huge interest in the mechanism pretty much across the board, from private finance, development organizations, governments and philanthropists. And instruments like the DIB offer valuable lessons on what can make such instruments attractive for to stakeholders.
DIBs provide clarity on “what” the money is being used for. The impact element is clearly defined. The same rigors and tests of value-for-money, as well as next-best alternatives, are applied in defining what exactly is being financed.
Their definition of “how” best to deliver is less prescribed, empowering implementers to use their expertise and capability to deliver the impact. It allows them to do what they do best, encouraging them to innovate to overcome challenges as they grow, not putting them in an operational straightjacket designed thousands of miles away from the front line.
And, importantly, DIBs are also highly performance driven meaning an investor's risk is actively managed by people who understand the space and the intervention context.
It may sound obvious, but it is also crucial to remove the three big barriers to increasing financing from the private sector; a lack of clarity on value-for-money, poor transparency about performance, and weak risk management. And this doesn't apply only to DIBs. Removing these obstacles is necessary to ensure the success of any new instrument or vehicle, whether loans, equities or bonds, looking to increase the flow of capital into a new space.