POST TIME: 22 November, 2019 00:00 00 AM
Social finance: The future of international development
Richard Hawkes

Social finance: The future of international development

Professor Gowher Rizvi, International Relation Affairs Adviser to the Prime Minister (5th from left), Salman F Rahman, Private Industry and Investment Adviser to the PM (4th from left), Robert Chatterton Dickson, British High Commissioner to Bangladesh (2nd from left) and Shayan F Rahman, Chair of the British Asian Trust’s Bangladesh Advisory Council (3rd from right) among the high-profile diplomats and business leaders at the inauguration of British Asian Trust at a Dhaka hotel on October 26. Independent Photo

Bangladesh is, for many, a development success story. It has made rapid progress on a range of indicators: millions lifted out of extreme poverty, greater life expectancy, increased school enrolment and literacy rates. At the same time, it has one of the strongest civil society sectors anywhere, giving birth to the world’s largest NGO and bringing microfinance to global attention.

Despite this success, huge challenges remain. Millions of young people are entering the jobs market every year without the necessary skills to find decent work, grow the economy, and earn enough for their families. One in five girls are married before the age of 15, and women are underrepresented in most sectors of the economy. Public services are struggling to cope with rapid urbanisation and population growth, especially in traditionally under resourced areas such as mental health services.

It’s why we launched the British Asian Trust here in October, and I believe we can make a unique contribution to ensure even more people can benefit from Bangladesh’s ongoing development. The British Asian Trust was established in 2007 by His Royal Highness The Prince of Wales and a group of successful business leaders from the British Asian diaspora communities. We were established with a mandate to do development differently, so that is what we are doing across South Asia.

There is a huge financial gap between what is needed to achieve the United Nation’s Sustainable Development Goals (SDGs), and what is currently available. Yes, we need to attract more donors to invest in development solutions, and yes we need to increase the size of the funding pot. But an overlooked factor in attracting more donors is the need to make existing funds more effective. Not only will this allow us collectively to achieve more with what is already available, but by demonstrating increased effectiveness we have a more compelling case for attracting further investment.

So how is the British Asian Trust doing this? We see social finance as a mechanism for extracting greater value out of development funding. Social finance instruments identify precise outcomes to be achieved and set clear, quantifiable targets to measure progress against. Development Impact Bonds (DIBs) are an example of such instruments. In a DIB, funders only pay for successful results. To enable NGOs to run such programmes, upfront capital is provided by a risk investor. The investor will be repaid by the funders, with a small additional return, if the programme is successful in achieving its targets. The return is justified due to the risk the investor adopts – if the programme is not successful, the funders won’t pay and the investor will lose their investment.

All of this rests on accurate measurement of social outcomes. In a DIB, an independent outcome evaluator is contracted at the very beginning of the programme, to design and manage a method for measuring the programme’s success. From a funder’s perspective, this is the key difference from a traditional grant. In a DIB, they can be sure that they are only paying for success, whereas in a grant they pay upfront and hope for the best.  

This all sounds good in theory, but early learning from the few DIBs that exist suggests this approach is working. One of the very first DIBs in the education sector achieved 160% of its target in three years. However, this DIB worked with a relatively small number of children in one Indian state. We wanted to see if this approach could work on a much larger scale, so last year we launched the Quality Education India DIB at the UN General Assembly. This $11m DIB is designed to improve learning outcomes for up to 200,000 children across multiple states, working with four different NGO delivery partners over four years.  The results at the end of the first year have been very encouraging: the DIB has enabled 30% more students to overcome learning gaps and achieve basic literacy and numeracy skills. While the final outcome won’t be known for another three years, we are very confident that by taking a social finance approach to education, we can have a real impact on improving education outcomes for the poorest children.  

We are now bringing social finance to Bangladesh, and I am excited to launch similar programmes here in the near future to address some of the challenges highlighted above. The development sector needs to innovate and take risks if it is to close the SDG funding gap; social finance can enable this shift to happen.

 The writer is Chief Executive, British Asian Trust