Outcome-based financing for development in India


  • Different levels of government and policymakers attribute funds for the delivery of social programmes aimed at tackling poverty, hunger, malnutrition and other critical policy issues.
  • These programmes, while necessary, have met with varying degrees of success.
  • Their social impact and performance are not rigorously measured or assessed.
  • This makes it challenging for governments to make informed, evidence-based choices about their spending.

Searching for the best ways:

  • Governments are continue searching for the best ways to achieve real impact
  • Certain provider-participant relationships can be incentivized such that they inform the design of government programmes
  • These include pay-for-success programmes and instruments such as social and development bonds
  • When implemented effectively, payment structures based on successfully meeting agreed social outcomes can increase efficiency, lower costs and have a profound impact on programme success

Innovative financing instruments: 

  • Innovative financing instruments such as social and development impact bonds and innovation funds stand out as promising instruments for addressing various policy challenges
  • In these arrangements, non-government investors cover the upfront costs necessary to set up the interventions implemented by service providers,
  • while the government or development agency commits to pay a return on investment if predefined desired outcomes are reached
  • When investment is tied to outcomes, rather than activities, service providers gain greater flexibility to innovate and improve their programmes
  • Governments and taxpayers transfer the risks of programme performance to the private sector, and enhance the value for money of a given intervention-by clearly specifying the cost of the measurable outcomes, instead of the inputs, of any programme ex-ante.

Development impact bonds in India
(a) The world’s first development impact bond was launched in 2015 in India: “Educate Girls”

  • It consisted of a three-year intervention focusing on improved learning outcomes and enrolment numbers for out-of-school girls
  • It targeted 18,260 school-going children in the Bhilwara district of Rajasthan
  • As the intervention enters its last year in 2018, preliminary intervention results have already been made public and have shown positive improvements in learning outcomes and enrolment rates

(b) Utkrisht impact bond: on maternal and newborn deaths

  • It is funded by an NGO, with USAID and MSD for Mothers committing to making the outcome payments if the three-year-long programme targets are met
  • Within the intervention, the implementing non-governmental organizations are targeting quality of care in 440 private healthcare facilities to positively impact 600,000 pregnant women in Rajasthan

Social impact bonds in other countries

  • The UK is one of the most developed social impact bond (SIB) and pay-for-success markets in the world
  • It led the way with the launch of the SIB in the world
  • Most of the ecosystem has been developed from the top down through government commitment and encouragement of evidence-based policymaking
  • Such policy commitments positively signal markets and help in the development of a robust ecosystem for impact investing and such instruments

The need of the hour:

  • The promotion of such instruments(SIB) in India would require the existence of local institutional frameworks that allow and promote all the necessary stakeholders to perform properly
  • The Indian government could also set up an innovation fund to finance impact bonds
  • This would signal the government’s interest in promoting innovative and evidence-based programmes in line with current policy priorities, such as those in healthcare, education and employability
  • Investing in such a fund would galvanize private investor interest
  • What’s required now is for the lessons from the first two development bonds in Rajasthan to be translated across policy and government circles

The way forward

  • As data culture is imbedded in government programmes and efforts shift from inputs to outcomes,
  • governments need to be driven not only by cost-effectiveness but also by a commitment to providing full transparency to taxpayers
  • SIBs and a robust impact investing market in India would ensure just that.


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