Changing lives in India through innovative finance
The CEO of British Asian Trust explores how the worlds of business, government and social good are working in tandem to deliver new social impact models in India.
Never before have the worlds of business, government and social good been so closely integrated. The days of societies being defined by the balance between the three distinct sectors of “private”, “state” and “charity” are long gone as increasingly we see the emergence of social businesses, public private partnerships, social enterprises and the need for private companies to understand their social impact.
It is exactly the same with the funding of “good causes”, especially in the international space. In the past, development initiatives were either funded by governments or by a traditional approach of philanthropy and grant-giving. Increasingly in the future, programmes will be funded by a mixture of financial instruments – including impact investment, debt, equity and other approaches.
The British Asian Trust is right at the heart of these changes. Founded 10 years ago by His Royal Highness, The Prince of Wales, and some of the most successful British Asian business leaders and entrepreneurs, it has always been in our DNA to challenge the accepted way of doing things. At our core is the determination to think boldly and ensure we always apply business principles to the ways in which we tackle poverty and disadvantage.
We have seen significant growth in recent years and have quadrupled the income of the organisation. This is enabling us to rapidly scale and extend our programmes across South Asia. As a fundamental part of our programme strategy, we are convinced that only by applying business approaches to philanthropy can we ever meet the needs of the greatest number of people.
This is why we are so excited about the world of innovative finance and the $10m Development Impact Bond (DIB) we have been working on for education in India.
Over the last 18 months, we have been working alongside UBS Optimus Foundation and the Michael and Susan Dell Foundation on a truly innovative and ground-breaking initiative that will improve education and learning for more than 300,000 children in Rajasthan, Gujarat and Delhi. This DIB could have a real impact on the future of philanthropy. It is a creative and innovative finance instrument that brings together the worlds of finance, investment, development and education to achieve results at scale.
The model is simple. Risk investors provide the capital that enables the local NGO service providers to deliver the programme. An independent evaluator then assesses the results and, when the outcomes have been achieved, the people and organisations who are paying for the results (outcomes funders) hand their money over. The risk investors get a small return on their investment, the service providers get paid for the successful work they have delivered and the donors only pay once positive outcomes have been achieved. Payments are only made once these results have been independently verified.
The British Asian Trust has been responsible for raising the required $10 million of outcomes funding, and we are delighted that we have secured the support of an exciting and diverse group of organisations – including Tata Trusts, Comic Relief, British Telecom, the Mittal Foundation and DFID (supporting technical aspects).
We are confident that the success of this DIB will demonstrate a better way of raising and spending development funds and achieving UN Social Development Goals than traditional grant-making. Public money can deliver a far greater impact by focusing on outcomes, working cross-sector with private and charitable organisations. The DIB is a vehicle to actively nudge the culture of philanthropy and development towards this outcome-based funding model, potentially unlocking vast new sums from governments as well as private investors and foundations. Ultimately, this pot could total as much as $2 trillion.
India is arguably the best country in the world for demonstrating the potential of outcome-based-funding models to transform the development approach. Indian society and economics have undergone enormous change since the 1990s. The country’s increasingly dynamic and innovative climate is spreading to the development sector and there is growing opportunity for a more pioneering and effective approach to improving lives. This entrepreneurialism, coupled with the growing willingness of state and national governments to work with business and other third parties, makes India ripe for new ways of funding to increase the impact of development initiatives.
There has been a longstanding commitment from both the international community and Indian governments to improve education in the country. The Millennium Development Goals set ambitious targets for increasing the number of children attending school on a daily basis. These goals were met and in the past five years, India has achieved a 99% rate of school access. Attention has now turned to improving the quality of education. Government primary schools in India face significant challenges in improving literacy and numeracy levels for most children. A typical Indian student is at least two grades behind the level that is expected for their age in these key subjects. By Grade 5 (age 10), fewer than 50% of children can read to a Grade 2 level (age 6). The United Nations’ Sustainable Development Goals have set ambitious targets to meet this challenge. Outcome-based funding models, including DIBs, are ideally suited to driving up quality, and this requires a more targeted and complex assessment than previous strategies which focused solely on increasing access.
Historically, development has been funded by grants from governments, trusts and foundations, plus corporates and individuals. NGOs traditionally spend the money on delivering services and interventions. The primary focus of funding decisions and NGO interventions is often in addressing a particular cause, issue or an identified or perceived need. But frequently, funders have no idea what results are ultimately being delivered by their investment. The theory of outcome-based funding models is that they transform this approach, so that funding decisions and NGO interventions are made on the basis of what outcomes will actually be achieved. This ensures maximum impact for the amount of money spent.
Sharing the learnings and outcomes of our approach is critical as it has huge potential to nudge other funders to adopt the same approach. Accordingly, we could see a dramatic shift in funding culture which is based on delivering results that are identified from the outset. This could lead to systematic changes with governments and policy-makers setting desired outcomes and then commissioning more innovative and flexible actors in the private and charitable sectors to deliver the outcomes.
The British Asian Trust is convinced that the emergence of innovative finance and approaches such as Development Impact Bonds can enable major positive change at scale by transforming the way that international development works. Traditional approaches have led to many successes, but there are still hundreds of millions of people living in extreme poverty, not receiving quality education and at risk of preventable diseases. In 2018, this should not be the case. A different way of working is required, and we are delighted to be at the forefront of driving such change.
Richard Hawkes is the Chief Executive of the British Asian Trust, one of the fastest growing charities in the UK, blending philanthropy and social impact investing to deliver impact at scale across South Asia.