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With a flourishing social enterprise ecosystem and an appetite among NGOs and policymakers for testing new solutions, India is playing a leading role in its use of innovative financing for development. One such innovative tool is an impact bond, which is a type of outcome-based financing structure where upfront capital is given to service providers by investors. While evidence on outcome-based financing in education, and impact bonds specifically, is still emerging, there are key lessons to be drawn for the application of such tools to education in India.

Three impact bonds have been contracted in India to date, with two in the education sector. In the first— the Educate Girls Development Impact Bond (DIB)—the UBS Optimus Foundation provided upfront capital to Educate Girls to get out-of-school girls into the classroom and improve learning outcomes for boys and girls. After three years, the DIB had overachieved its enrollment and learning targets, and the investment was repaid by the Children’s Investment Fund Foundation (CIFF).

The second project in education, the Quality Education India (QEI) DIB brings together four service providers—Gyan Shala, Kaivalya Education Foundation, the Society for All Round Development, and Educational Initiatives (Mindspark)/Pratham Infotech Foundation—to implement a range of interventions with the goal of improving learning outcomes over a four-year period through 2022. UBS Optimus Foundation provided upfront capital for the interventions, and if metrics are successfully achieved, the Michael and Susan Dell Foundation, together with a group of outcome funders convened by the British Asian Trust, will pay for the outcomes.

This study seeks to place these two education DIBs in the context of the Indian education landscape, and to investigate the overall potential and limitations of outcome-based financing for education in India. While impact bonds are by no means the solution to all the challenges the education system faces, judicious use of the tool has the potential to focus financing on impact, promote effective interventions and service providers, and reinforce the use of data and evidence in decisionmaking.