Accelerating the design of impact bonds
Impact bonds are used across the globe to address a wide range of social challenges, achieving better results and keeping costs down. However, they have also gained a reputation for being complex and time-consuming to develop.
But this doesn’t have to be the case. Below, we share our experience of the Mine Fields to Rice Fields development impact bond (DIB) in Cambodia. The initiative proves such a reputation can be wrong as we designed, contracted, and launched the DIB in less than five months.
Designing the DIB
Mine Fields to Rice Fields is a partnership between the UK’s Foreign, Commonwealth & Development Office (FCDO), APOPO, Cordaid and three private family foundations. Launched in April 2023, it’s the world’s first impact bond for mine action. Uniquely, it also brings together two separate sectors: mine clearance and agricultural development.
The DIB aims to clear 3.8m square metres of mine-contaminated land in rural Cambodia using APOPO’s specially trained giant African pouched rats, which can quickly and accurately detect explosive residue. Once land is cleared, the DIB aims to support smallholder rice farmers to grow organic rice and boost their household income. APOPO and Cordaid are leading the mine action and agricultural interventions, with financing from three investors, who will be repaid by FCDO as and when verifiable outcomes are achieved.
Developing an impact bond can take a lot of time, but Mine Fields to Rice Fields is a great example of how to expedite the process without compromising on quality. The design phase spanned 20 weeks, from mid-November 2022 to March 2023, during which we focused on defining the DIB’s technical parameters. We considered various aspects, including the target population, the metrics that would trigger payments, and prices per outcome. Stakeholders identified and mobilised capital from three investors, and navigated contractual, budgetary, and administrative processes.
So, what were the key factors that made this speedy development possible? Let’s take a closer look:
1. Having an outcomes funder at the table and aligning around a shared vision
A shared vision is a key success factor for any project, particularly when stakeholders from different sectors and backgrounds come together. The DIB was built on a foundation of shared understanding among FCDO, APOPO, Cordaid, and Social Finance. We all agreed on the problem we aimed to solve, the broad outcomes we sought to achieve, the learning potential of trying a new approach, and the prospects for scaling. Establishing this common ground from the outset, particularly with an outcomes funder, set the stage for success and prevented any re-alignment or re-design later down the line.
2. A highly committed stakeholder group
Collaboration is core to DIB design, and working with partners who have ‘skin in the game’ can help expedite the process. Mine Fields to Rice Fields benefitted from a highly committed stakeholder group. Partners committed outcomes funding, brought cross-sector expertise to inform design, contributed resources to enable fieldwork and data collection, and tapped into their networks to help generate interest from investors. Key decision makers were engaged at critical points throughout the process, which ensured rapid problem-solving and prevented unnecessary delays.
3. Agile ways of working
DIB design is a non-linear process, which can be challenging to navigate. Mine Fields to Rice Fields overcame this by embracing agile ways of working – a methodology originating from software development to support ever-changing circumstances. FCDO, APOPO, Cordaid and Social Finance worked in two-week sprint cycles during the design phase to embed regular planning, feedback, and decision-making points. This structure enabled parallel workstreams, validation of the design with stakeholders as it was developed, and quick responses to any issues. It also strengthened relationships and cooperation across the partner organisations.
4. Leveraging existing data management systems
Data is essential to DIB design as it informs decisions relating to target population, payment metrics, and pricing of outcomes. However, accessing relevant data to inform design and establishing a suitable data system to support implementation can be time-consuming. We were fortunate that service providers had the technical skills and resources to collect baseline data to underpin the technical work in the design phase. Moreover, APOPO already had an advanced GIS (geographic information system), which could be used to integrate agricultural data to prepare for implementation.
5. Flexibility to adapt existing contractual processes
Contracting can be a lengthy and frustrating part of DIB design. Here, we simplified the process by adapting stakeholders’ existing contracting processes and contract templates. The partners worked together to identify the specific legal clauses in existing contracts that could be adapted to fit an impact bond programme. This was possible because the teams within each organisation took a pragmatic approach and, in some cases, were already familiar with outcomes-based contracting. Moreover, they had a solid understanding of their own internal contracting procedures and how to navigate them efficiently.
Planning for the future
As more funders, service providers, and social investors start using impact bonds to strengthen the impact of their interventions, it’s critical to reflect on the factors that can facilitate the design and contracting of these programmes. Launching an impact bond doesn’t have to be a complicated or lengthy process, and the Mine Fields to Rice Fields DIB is a concrete example of how this process can be accelerated.
By applying the five factors mentioned above to their own programmes, future partnerships could enable the faster adoption of these innovative funding instruments. We should embrace collaboration, agility, data-driven decision-making, and streamlined processes to unlock even greater impact and transform more lives, not underestimating the value of having the source of outcomes funding identified as early as possible.