Pay for Results Case Study: Village Enterprise Development Impact Bond
The Village Enterprise Development Impact Bond, (DIB), launched in November 2017, was the first DIB for poverty alleviation in sub-Saharan Africa and the first DIB funded by USAID.1 Since then, USAID has provided funding, alongside Merck for Mothers, for the $8 million Utkrisht Impact Bond for maternal and newborn health (March 2018) and acted as sole outcomes payer for the $10 million Cambodia Rural Sanitation DIB (November 2019). The Village Enterprise DIB sought to reduce extreme poverty in Kenya and Uganda through the implementation of Village Enterprise’s “Poverty Graduation” model, which equips groups of three individuals with the capital, business skills, and mentoring they need to start and sustain small businesses.
Pay for Results (P4R) approaches comprise models for financing development objectives in which funders make payments when implementers achieve milestones or development results. Funders pay upon accomplishment of results rather than efforts to accomplish results, allowing funders to pay for impact rather than inputs, and fostering accountability based primarily on results achieved.
It is important to note that while it can be useful to test new innovations in structuring grant funding and contracting, such as P4R, doing so should not be considered an end in itself. Rather, the ultimate focus should be on achieving positive development impact for the intended beneficiaries. New forms of financing should be considered a means of achieving this impact: in other words, form should follow function.
P4R approaches comprise several different types of funding models, including conditional cash transfers, advance market commitments, prizes, fixed amount awards, and development impact bonds (DIBs) or social impact bonds (SIBs) (please see “Rationale for DIB Approach” for more on these different forms of P4R). This document highlights a DIB as one type of P4R structuring approach which may be used to allow funders to pay for impact, not inputs. In the case of Village Enterprise, a DIB was judged to be an appropriate form of P4R to achieve the desired results, however, different types of P4R approaches will have relevance in different contexts. Through research and stakeholder interviews completed for this case study, one interviewee noted that “the default for USAID should remain providing assistance directly a service provider when possible unless there are clear advantages that justify using a more complex funding structure like a DIB.”
The purpose of this case study is to provide a reference point for USAID Acquisition and Assistance staff interested in incorporating P4R into their programming. It may be particularly helpful for Agreement Officers and Agreement Officer Representatives. The case study outlines the process taken to go from first concepts to implementation of the Village Enterprise DIB, with a particular focus on practicalities, challenges, and roadblocks faced by USAID staff. While the DIB is still underway and its impact evaluation is not yet complete, this case study also includes some assessment of the anecdotal impact achieved thus far by the DIB structure; consideration of the effect of the ongoing COVID-19 pandemic on the DIB’s operations and evaluation; and guidance around risk management techniques which might be incorporated into future DIBs to support resilience to future shocks.
The Village Enterprise DIB was one of the first DIBs launched worldwide. As an innovation program, it should not be considered a “gold standard” in the space; rather, it provides a useful learning experience to inform future approaches. Through interviews conducted to inform this case study, it was mentioned several times that a key benefit of the DIB was its contribution to learning, both internally within USAID and externally within the international development sector, about P4R approaches and DIBs specifically. This case study has been drafted with this goal in mind and constitutes an objective assessment of the structure of this DIB and the process taken to design, set up, and implement it.
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