Photo: Mirzobek Ibragimov / World Bank

A new education funding project using social impact bonds (SIBs) seeks to help increase the number of children ages 3-7 enrolled in preschools in disadvantaged urban areas across Uzbekistan. The planned program is made possible through a $4.85 million grant provided by the World Bank’s Global Partnership for Results-Based Approaches (GPRBA). 

This GPRBA-funded preschool education project is a component of the World Bank’s Promoting Early Childhood Development Project, financed through a $59.5 million credit from the International Development Association (IDA), with an additional grant of $9.5 million from the Global Partnership for Education (GPE). 

Access to quality early childhood education services, including preschool, can provide crucial support during the early years of a child’s development, while also facilitating their readiness for school. According to a World Bank study, there is a correlation between preschool attendance and employment outcomes, such as having a better formal sector job later in life. Since the public preschool infrastructure hasn't yet reached all children nationwide, the Government has opened the sector to private service participation to accelerate coverage and meet the growing demand. 

The SIB component supported by GPRBA is one example of the private sector’s efforts, and is designed to attract investors’ funding to support key activities in private pre-school education, such as teachers' training and the provision of child-centered teaching and learning materials. This is GPRBA's first attempt to use a SIB, with the objective of fostering public-private partnerships that tie financial returns and payments to rigorously measured and predefined results, intended to deliver the desired educational services in 140 private preschools in urban areas.

An impact bond is a type of results-based financing and an innovative type of public-private partnership that rewards investors for successfully delivering positive social outcomes. The funds provided upfront by the investors for social projects help service providers who lack cash flow to focus on service delivery and achieve results. This type of results-based financing has demonstrated the ability to attract private investment in historically “non-bankable” projects, particularly in the social and environmental sectors. 

How are investors paid? The project's performance is what determines investors' returns. Among the measurable outcomes are the occupancy rate in the participating preschools, enrollment of economically disadvantaged or disabled children , and improved learning environment.

Given the health, economic and societal benefits attributable to early childhood development and preschool education, the Government has diversified its financial sources and expanded participation in its commitment to provide universal access to all preschool children. While much progress has been made in recent years regarding improved preschool access to just over half of children ages 3-7, this project based on a SIB helps bridge the financing gap to make private preschools more affordable, an important element to meet the goals outlined in Sustainable Development Goal #4 (“Universal Access to Quality Education”). 

------------------------------------------------------------------------------------------------------

Related Story: Investing in Children Means Investing in Uzbekistan’s Future 

Summary: This objective of this project, GPRBA's first impact bond, is to increase access to quality early childhood education services by incentivizing private sector service provision in the country's urban areas. The Government of Uzbekistan will pay for the achievement of the following outcomes:

1.         Occupancy rate to ensure that schools enroll at full or near full capacity

2.         Enrollment of children with disability and from low-income families

3.         Quality of learning environments, measured by a standardized tool

The outcome fund will draw on three sources: GPRBA grant ($4.85m), IDA credit ($5.15m), state budget (return to the investor). The social impact bond is expected to launch in January 2020.

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

World Bank Press Release below: 

WASHINGTON, May 29, 2019 – The World Bank’s Board of Executive Directors approved today a project that will help increase access to and improve the quality of early childhood education in Uzbekistan. The $73.85 million Promoting Early Childhood Development Project is financed through a $59.5 million credit from the International Development Association (IDA) and grants from the Global Partnership for Education (GPE) and the Global Partnership for Results-Based Approaches (GPRBA) in the amount of $14.35 million.

******

The project is expected to stimulate public-private partnership development through a social impact bond - an innovative financing mechanism –- that ties financial returns and payments to rigorously measured results. Under this scheme, 140 private preschools located in urban areas of Uzbekistan will deliver appropriate educational services so that the Government can concentrate funds in rural areas.

Read complete Press Release 

Imagine if you could bring private sector resources and skills to social projects. Impact Bonds (IBs) are an innovative Results-Based Financing (RBF) mechanism that tie financial returns and payments to specific results incentivizing investors and service providers.

As governments and development partners seek to meet the Sustainable Development Goals (SDGs) with limited financial resources, it is becoming apparent that we need to crowd in private investors, capital and expertise to reach the goal.

The World Bank Group (WBG) along with other multilateral development banks (MDBs) have emphasized the need to shift focus from “billions” in Official Development Assistance (ODA) to “trillions” in investments of all kinds to achieve the SDGs. Impact Bonds make social sectors more “investible” and support the WBG’s agenda to maximizing financing for development.

While the WBG has ample experience with private sector participation in infrastructure sectors, this experience is limited in social sectors where programs are traditionally funded from public resources. Impact bonds change this paradigm by monetizing the benefits of social outcomes and making investments in social programs attractive to private investors.

Delivering basic public services to the world’s poor or underprivileged sometimes requires innovative, even experimental solutions. In addition to lack of capital to fund solutions to these problems, private investors usually aren’t willing to take a risk on projects that aren’t always a “sure thing.” Impact bonds, a relatively new funding approach successfully bring together private investors, governments and services providers to unlock funding for projects that focus on delivery of social and environmental outcomes. 

At the Global Partnership for Results-Based Approaches (GPRBA), for the past 15 years we have been promoting different types of RBF instruments that link funding to actual results achieved. Impact bonds are one of those approaches we have been looking at recently, as they create the opportunity to make social programs attractive to private investors making them “investible”.

What are impact bonds?

Impact bonds are innovative, performance-based, contracts between an investor, an outcome funder and a service provider that tackle a social or environmental challenge. Also known as pay-for- success bonds and social benefit bonds, impact bonds aren’t really “bonds” in the conventional sense. They are a form of public-private partnership that rewards investors for successfully delivering impact.

How does it work?

First, investors—which could be a private sector actor or an NGO—provide the upfront capital to a service provider to carry out an intervention that targets a population in need. Once the desired results are achieved, outcome funders, typically a donor or a government, repay the investor at a premium. The investor thus generates a return on its investment and the outcome funder only pays for success.  There are two types of impact bonds: In a Development Impact Bond (DIB), the role of the outcome funder is played by third parties as opposed to a Social Impact Bonds (SIB) where the role is played by the government.

Where did impact bonds get their start?

The first social impact bond was launched in 2010 in Petersborough, United Kingdom and targeted short-sentence male prisoners with the aim of reducing re-offending. Prisoners were provided with a mentor and support finding housing, treating drug addiction or securing a job up to 12 months after their release from jail. The £5 million program, which ended in 2015, was a success; it reduced recidivism by more than eight percent.

The first development impact bond was implemented in Rajasthan, India in 2014 to enroll out-of-school girls and improve the performance of boys and girls in English, Hindi, and math. It targeted 15,000 children, of which 9,000 were girls, in the Bhilwara District.  Going door-to-door, the service provider, Educate Girls, identified out-of-school girls and engaged directly with their families to encourage enrollment. The program also helped boys and girls in grades three-five improve their schoolwork.   

How many impact bonds are in operation now?

Today, 151 impact bonds are active globally, eight of them are in middle-income and low-income countries. The countries with most impact bonds are the United States and the United Kingdom. 

Some 28 impact bonds are in the implementation and design stages in developing countries.  Most popular sectors are health, employment, agriculture, education, and social welfare.

How is the World Bank involved?

GPRBA, housed in the World Bank, provides innovative financing solutions that link funding to results. Impact bonds are one of the RBF approaches that GPRBA adopted to ensure access to basic services like water and sanitation, energy, health and education for low-income families and communities that might otherwise go unserved.

Useful Resources

Social Finance
Brookings
Impact Bond Working Group