From India, with love and evidence: lessons from a decade of impact bonds

India launched the world’s first education Development Impact Bond, the Educate Girls DIB, in 2015, sparking a decade of innovation in outcomes-based financing (OBF). Since then, additional impact bonds (IBs) and other OBF tools across education, health and employment have mobilised over USD 55 million and reached 4.5 million people in India. Reflecting on a practitioner’s experience of running some of the country’s largest IBs and OBF programmes—Quality Education India DIB (QEI DIB), Skill Impact Bond, LiftEd DIB and Nano Entrepreneurship Sustainability & Transformation (NEST) Outcomes Facility—we share five lessons that may be relevant for other developing nations, particularly at a time when global aid and development finance are under increasing strain.

Early IBs in India were funded by philanthropy and positioned as proofs-of-concept for eventual government adoption. In practice, organic transition to government becoming an outcome funder proved slow. We realised the need for governments to not only see evidence of success under OBF, but also gain hands-on, low-risk exposure to outcomes contracting — particularly around procurement, budgeting, measurement, and quality assurance — before committing to OBF. In response, innovative transitional models were developed to provide this “runway” for government engagement.

For instance, under Skill Impact Bond, a quasi-government body under the central ministry (overseeing national skilling schemes and standards) participated as a co-investor and housed performance management within its institutional system. This enabled stronger cross fertilisation, alignment with national programs, vocal champions and greater prospects for government becoming an outcome funder. Similarly, the LiftEd DIB acted as a capacity-building tool rather than a direct delivery contract, strengthening on-ground execution of national Foundational Literacy and Numeracy Mission through public systems.

Textbook preconditions for IBs (robust impact benchmarks, reliable cost data, mature verification systems) are often absent in low- and middle-income settings, including India. IBs in India had to, therefore, adapt. For instance, under the QEI DIB, the solution to lack of comparable data on learning levels was a dynamic, yet contextual, approach: each partner’s performance in one academic year became the benchmark for the next. Similarly, Skill Impact Bond used a ‘sliding scale’ for linking outcomes to funding where payments initially remained closer to ecosystem’s input-based norms (completion of training) and progressively increased the proportion linked to outcomes (job retention), offering acclimatisation support for all involved.

A core principle of IBs is rigorous, independently verified outcomes attributable to the intervention. India’s experience shows that insisting on ‘gold standard’ randomised controlled trials is not always practical. Instead, fit-for-purpose evaluation approaches have proven effective. For instance, Skill Impact Bond accounted for attribution by defining outcomes in a specific, time-bound manner, without relying on costly counterfactuals. Other IBs used quasi-experimental methods, keeping verification costs for large IBs between 6–12% of outcomes funding. Leveraging technology and strengthening public data systems could further reduce costs. The key lesson here is not to lower rigour, but to calibrate it to reflect realities and constraints.

A related point here is the importance of co-designing outcomes with service providers. While outcomes frameworks under IBs have typically been commissioner-led, both LiftEd DIB and NEST allowed for customisation of definitions in place of a rigidly defined outcome, especially when working with a portfolio of service providers that use different intervention pathways based on local contexts.

While IBs in India were driven by global philanthropy, domestic outcome funding is paramount for OBF to gain wider acceptance, scale and sustain. The emerging model in India positions global funders as catalytic actors supporting technical assistance to cover design, transaction and evaluation costs, thus working as an ‘impact multiplier’. For the LiftEd DIB, technical assistance of USD 3million from aid brought donors to the table, contributed to design and evaluation, filled funding white spaces, and catalysed a USD 14 million DIB, five times the sum invested.

Simultaneously, to widen the base of domestic funders, especially Corporate Social Responsibility donors, newer instruments such as the NEST Facility entail creative and simplified structures, such as plug-and-play pay-for-results contract compatible with existing donor initiatives and regulatory frameworks. While India is in a unique position on mandatory CSR spending, the role of domestic philanthropy in mainstreaming OBF is a lesson for other countries, regardless of the source of that funding.

After a decade of experimentation, a critical insight has emerged: scaling IBs does not necessarily mean replicating full bond structures. Instead, it may be more effective to deconstruct them, identify the principles that led to better outcomes, and create simpler, more adaptable OBF tools. For example, in Skill Impact Bond, we have distilled specific drivers of higher outcomes - incentive structure, outcomes costs, performance management, and practices that work for women’s employment. All these aspects can be adopted by government and private funders. We also see a small but growing pool of service providers who are capable and willing to bear performance risk on their balance sheet, so do not necessarily need an IB.

As the country gears up for the next generation of OBF, the future is likely to involve simplification and mainstreaming by applying core OBF principles within more flexible structures while strengthening domestic OBF ecosystem to bring efficiencies. In disseminating evidence from what works (and what doesn’t), we aim to embark on a shared learning journey towards ensuring that every rupee, pound, peso or dollar spent on development leads to social change.