In part one of this two-part post, we put forth recommendations on adapting results-based funding for crisis and uncertainty. These recommendations come down to a couple of basic principles: first, recognizing crisis is inherently risky, be sure to carefully balance risk and reward to service providers. Second, expect the unexpected by having emergency funding available and preparing to verify results remotely. In part two, we discuss what should not be lost along the way as funders and their partners adapt results-based funding models. But first, we address the underlying need for adaptation.

Results-Based Funding: Why Adapt?

Over the last decade, we have seen the gradual growth of development impact bonds in developing countries. Since 2014, according to the Brookings Institution, 226 social and development impact bonds have been launched globally, 16 of these development impact bonds in low and middle income countries. The latest data show that overall impact bonds have been successful in achieving outcomes and paying out returns, yet in the international development sector, they remain a small fraction of funding.

The pandemic was a stress test for development impact bonds, and overall, the model withstood the shock. According to a survey of social and development impact bonds in low and middle income countries published in a December 2021 paper, all projects but one (11 out of 12) remained operational amidst COVID-19. Still, about half (five) of the impact bonds surveyed had to make contractual changes to outcomes or outcome metrics due to the pandemic.

Our organizations participated in one of these projects: the Village Enterprise Development Impact Bond. The three authors of this article each work at organizations involved in the project and two of our organizations led different sides of the pilot: Village Enterprise co-designed and delivered the program in Africa, and Instiglio co-designed and managed the development impact bond. IDinsight acted as the independent external evaluator.

We came away from this project excited about the results and the power of results-based funding to transform service providers and the sector at large. IDinsight’s evaluation found Village Enterprise’s program was successful — it exceeded its consumption and asset targets and shielded 95,000 households from the worst of the pandemic. (Read the full report.)

Like others, we faced challenges working with a development impact bond during a crisis. Ultimately, we think the standard development impact bond models implemented to date may not be the answer in volatile or unpredictable contexts. Instead, we believe the sector should continue to innovate and test new results-based models while retaining the key elements of the approach that drive impact.

Read the full article about adapting to a new normal by Dianne Calvi, Avnish Gungadurdoss, and Jeff McManus at The Center for Effective Philanthropy.