Social Impact Investing Through Impact Bonds


Social and Development Impact Bonds (SIBs/DIBs) are two of the development financing tools used by Impact Bridges Group that focus the allocation of money to social programs which yield effective results. The outcome payer, who might be a government donor, foundation, or even private sector, agrees to purchase predetermined outcomes and impact results. Since payment is only made once the results have been validated, the implementer receives working capital for the project from investors.  Investors provide the up-front financing based on an agreement on the proposition of a financial and social return.

The difference between a SIB and DIB comes from whom ultimately pays for the outcomes. In a SIB the outcome payer is the government in the country where the work is undertaken. With a DIB the outcome payer is often a foreign government aid donor, but could also be a foundation, or in some cases the private sector.   

Impact Bond Model and Development Agents

The figure below provides an overview of how a DIB works. There are six main agents:

Outcome Payer – is the payer or funder if the expected outcomes are achieved. As previously mentioned, the outcome payer is often an international government aid donor, but there are instances where a foundation and the private sector will pay for results once they have been achieved.  

Service Provider – Impact Bridges Group works with partners to form the best team possible to achieve results. 

Independent Evaluator – this is the validating agency.  The role of the independent evaluator is to verify the results reported.

Target Population - the people or community benefiting from the project services.

The intermediary takes on an important role because of the unique nature of a development impact bond and more specifically the need to make the project into an investment.  

The primary role of an intermediary is to determine the feasibility of a project and whether it can be a high-quality investment. An intermediary works with the service provider to define outcome metrics, identify the most appropriate interventions, and to work with outcome payer. The intermediary will also develop the operating model, complete the financial modeling, calculate the outcome pricing and ultimately produce a business plan and term sheets that will be used in an outcome contract and investor proposition. The intermediary will also provide leadership in the legal structuring that includes the design procurement process for outcome-based contract and the contracting structure(s) between payer, investor, and service provider.

When appropriate, Impact Bridges Group will recommend the use of an impact bond for several reasons. First, an impact bond addresses the need of maximizing net benefits or in other words being good stewards. Impact bonds make money more effective by tying funding to measurable results and reducing the risk of funding projects that do not work. Second, it provides the implementing agents the freedom to innovate by determining how best to implement the project. An impact bond is focused on outcomes and allows flexibility on how to achieve those results. Third, the design of an impact bond places strong and appropriate incentives behind each of the ‘agents’, as described above, to maximize the development impact of the project. The use of an impact bond can be most appropriate when catalyzing a promising intervention. There are strong incentives to learn and adapt in order to become more efficient.

Impact Measurement

Every day, all over the world, there are people working on development projects. Some are working on a project design with hopes to win a competitive-bid or to have it approved by a bilateral donor, others are managing ongoing projects, while others are in the final wrap-up of multi-year projects. In all cases, these development projects were designed, implemented and managed with the intent to improve outcomes. In many cases a logic model was developed as part of the proposal to explain the causal effect. Many of these implementing organizations would proudly tell you about the success of the project or about the innovative approaches that were used to achieve improved outcomes. Oddly though, very few actually measure the project impact and know with certainty that their stories of success can actually be attributed to the project.  

Impact measurement is about evidence-based decision making. It is about knowing that the changes in the well-being of communities can be attributed to a specific project. The reason for doing an impact evaluation is to understand the attribution of the project and the causal relationships. It is all about wanting to learn and to continually improve. Without these passions, impact measurement is of little use.

IBG works with innovative partners who are experimenting and are implementing new approaches in an attempt to improve outcomes. Our partners want to know whether intended outcomes are being achieved. We work with them to select an appropriate evaluation method along with an evidence-base monitoring and performance management system that will allow them to make real-time changes based on data. Project managers are able to make decisions to optimize the causal effect or impact of the project outcomes.  

In the Understanding IBG Services – Impact Evaluation section it explains that not all projects need to have an impact evaluation. We have provided a list of criteria for deciding whether an impact evaluation should be considered. Although there are many cases that an impact evaluation would not be necessary, there are too many instances where lots of hard work and innovative thinking has gone into developing a theory of change that no one will know with certainty whether this new approach is achieving better outcome results.  

Unfortunately, in too many instances, implementing organizations have chosen to use anecdotes, such as the improved health of a child, to demonstrate the impact of their projects. Marc Epstein and Kristi Yuthas, in their book Measuring and Improving Social Impacts, share that many organizations “are guilty of fooling themselves about the impacts they are making. They do this by assuming that good intentions lead to meaningful actions, by confusing the amount of action with the quality of results, and by basing important decisions on instincts instead of evidence.” We know there are a lot of hard working and dedicated development organizations, but too many are not achieving the impact that they claim they are making. For some, success becomes a matter of the size of the organization and an increasing amount of resources are committed to improving marketing and fundraising. We are only critical of this approach when there is no real effort on improving development results. The point is that they are not mutually exclusive. IBG wants to work with those who embrace achieving the best results possible and then disseminating the results and know-how to others. In most cases, funding will follow for scale-up either from donors in a traditional manner or through innovative financing instruments. We would be glad to help.

To learn more on how Impact Bridges Group might help in measuring impact contact us here or send an email to us at

Blended Social Return and Finance Continuum

The gap between the funding required to meet UN Sustainable Development Goals and the current annual budget is around $2.5 trillion a year. This is for things such as health care and education for the world’s poorest countries. We are unable to continue with a ‘business as usual’ approach consequently there have been discussions on how ‘blended finance’ might provide a major contribution to closing this financing gap.

Blended financing is a mix of public, private and philanthropic money. Its intent is to make a limited pool of money for development purposes go further. Public funds can be used to attract private money, but the challenge has been doing so at scale.

Many private investors have shown a keen interest in these new investment instruments, but they are still on a rather steep learning curve. For the most part, they are not accustomed to investing into a project that is focused on reducing water borne diseases or other similar social need within a developing country. In addition to the unfamiliar optics there are other issues such as the returns often being hard to monetize, or the risks being too great for investors to take on. Blended financing is addressing some of these issues through the use of public or philanthropic funds that take on a role of ‘first-loss’, reducing the risk and making deals much more palatable. The World Economic Forum estimates that for every public dollar spent it attracts a further $1-$20 in private investment.

A global platform, Convergence, was designed to match investors with projects. Convergence is based in Toronto and has a growing database of blended transactions. The challenge is to identify a larger pool of private investors, as well as high quality projects that can be made into investments. To this latter point, IBG is working with partners who have evidence of high performing projects to make them into strong investments. We work with economists and others who have strong backgrounds in financial and economic modeling whose experience allows them to monetize social benefits for the purpose of structuring an investment deal. Naturally, part of the deal structuring will be the use of blended financing and being able to leverage public and philanthropic financing to reduce risk to private investors.

Role of Data in Maximizing Benefits to Communities

Access to the right type of data is essential for being able to improve development programs and to participate in innovative social financing. With all of the progress we have seen in Africa, it continues to be a continent with limited data. In many countries, fewer than half of births are recorded. There are some countries that have not taken a complete census in several decades.

In order to measure impact there is a need for data. IBG relies on data to achieve its core value for improving efficiency and equity. To achieve this core value IBG requires reliable data to optimize net social benefits for community-based programs. Although we talk about the importance of data, it is also important to understand that it is what Google has referred to as the ‘ingredient’ and that the analyzing of data and reams of information is the actual ‘recipe’ for making a satisfying dish. Although data is vital, it is the actual analysis that will help inform innovative initiatives and improve development outcomes. 

IBG is working with technology partners and others to have data turned into artificial-intelligence (AI) or machine cognitive abilities that can further support the social sector. The use of AI allows for further experimenting on improving outcomes particularly in the health and agriculture sectors. IBG works with partners to pool data from devices being utilized in pilot and other programs, and then trains algorithms that can help improve the results of community programs.

The quality of the algorithms and the analysis of the data is an area of interest to IBG. Algorithms are increasingly self-teaching, but to know the optimal size of data sets is in question. There are diminishing returns in collecting more and more data. The argument for doing so is that at some point it may be able to offer more social services.

The collection and use of data is not without its challenges. While prospects are exciting there remain many obstacles that need to be resolved. One of these is the fact that digital information can easily be used for other purposes, and how we share this information. While it is not easy to trade data, it isn’t the intent of IBG to withhold data when it could be used for the social good. As well, data that is not traded creates inefficiencies. In addition, without a price for data, valuable data may never be generated. Similarly, if data gets stuck in silos, much of the data may never get extracted. Lastly, AI services are not provided by algorithms but by the people who generate the raw material. How do we measure the value of individual data contributions and make a fair exchange? There are few answers to important questions such as who should own, and benefit from development data. IBG will contribute to finding solutions to these challenges.