Many Paths Up the Mountain of Strengthening Systems through Outcomes-Based Finance

This is the second of two cross-posted blogs sharing insights from a learning group on innovative finance in education, co-facilitated by the Education Finance Network and The Education Outcomes Fund. The group has brought together experts from 34 organizations in five discussion sessions over a period of nine months for an earnest exchange on opportunities and challenges around using innovative finance mechanisms in education. This blogpost is part of NORRAG’s Financing Education blog series.

Outcomes-Based Financing (OBF) is a form of innovative financing which has gained traction among funders in education and across SDGs in recent years because of its potential to foster innovation, efficiency, accountability, and sustainability of interventions.

A key aspect of OBF programs is that they do not only aim to achieve specific outcomes but also to catalyze changes in the underlying systems that shape social service delivery, thus bringing about long-term and broader impact.

In this blog, we shed light on how such system-strengthening effects can be realized through OBF programs in education by exploring examples shared by OBF experts in a learning group on innovative finance in education, co-facilitated by the Education Finance Network and the Education Outcomes Fund.

How Can OBF Build Pathways for System-Strengthening?

Drawing on seminal works by Louise Savell and Emily Gustafsson-Wright et. al. we define system strengthening in this context as the lasting effects of OBF programs that extend beyond their duration and improve the capabilities and ways of working of the organizations involved in the OBF initiative.  Pathways to system-strengthening effects can include, for example, fostering a culture of monitoring and evaluation, improving data management systems, driving performance management, promoting innovation in delivery, and incentivizing multi-stakeholder collaboration.

In the following, we share some promising examples of how different OBF programs in education have tried to strengthen systems for long-term impact.

Improving Data Management Systems

Delivering quality social services requires identifying and gathering essential data, which includes leveraging existing administrative systems, and translating this data into actionable insights. Since OBF programs rely heavily on data for accurate measurement and verification of outcomes, enhancing data management systems is often a key component of OBF design.

The Empleando Futuroworkforce development Social Impact Bond (SIB) was launched in 2017 to tackle unemployment amongst vulnerable groups in Colombia. In addition to tackling the socio-economic challenges underlying unemployment, the SIB also aimed to address the limitations around the employment data infrastructure, which made it difficult to assess and address these challenges effectively.

The SIB tied outcome payments to job placement and 3- and 6-month job retention for over 700 vulnerable individuals, marking the first official use of labor retention as a success indicator in Colombian employment programs. The program was coordinated through the Departamento de Prosperidad Social, a government agency responsible for designing and implementing social policies aimed at reducing poverty and promoting social inclusion. However, since employment data was not available through this agency, a creative solution was found in verifying the outcomes through the use of the social security contributions information system of the Ministry of Labor, which was not otherwise engaged in the SIB.

This solution to using public data resulted in a new information system specifically designed for employability programs, which stands as a key achievement of the SIB. By generating insights into the effectiveness and efficiency of different approaches to employability programs, this system supports better policy making and has offered quality inputs to improve the structuring of future employability programs in terms of price, costs and payment metrics.

Increasing Multi-Stakeholder Collaboration

The structure of OBF programs generally requires the various parties involved to work together to design and structure the ‘deal’. The stakeholders must agree on, for example, outcome metrics, thresholds and pricing, and a method for verifying outcomes for payment. This can foster collaboration at multiple levels, including between public, private, and third sector, and across government agencies or levels of government.

In 2018, Proyectá Tu Futuro (PTF), the first SIB in Argentina, was launched in Buenos Aires, aiming to simultaneously tackle the low graduation rates in secondary education and unemployment among young adults. One of the successes of the PTF was the involvement of multiple stakeholders, that do not normally interact, to jointly address these interrelated problems. The SIB’s partners included the Government of the City of Buenos Aires as commissioner, one performance manager, four technical assistance partners, five private investors, four service providers, and one independent evaluator, as shown in the diagram below.

Figure 1: PTF’s SIB structure. Source: NORRAG, 2021: Proyectá Tu Futuro: A Social Impact Bond for Education and Employability Training in Buenos Aires

The identification of a SIB ‘ambassador’ figure in the government was critical in facilitating a mapping of the key stakeholders that needed to be involved in the DIB and bringing them around the table at the design stage. This helped build trust and foster collaboration among and between both government and non-government parties. The continuous dialogue and collaboration among these stakeholders were key factors that enabled the SIB to overcome subsequent challenges, which included difficulties with recruitment, a 100 percent currency devaluation, and a global  pandemic.

Paving the Way for Future OBF Programs

Even in OBF programs where the government has limited or no involvement, these programs can impact the education ecosystem by stimulating interest in future OBF programs and generating evidence of effective interventions.

The Educate Girls Development Impact Bond (DIB), the first impact bond in a low- or middle-income country, was launched in 2015. It aimed to benefit a target population of 15,000 children and demonstrate the replicability of impact bonds in similar settings. Following the successful validation of this proof of concept through positive results released in 2018, the Quality Education India (QEI) DIB was launched. This new initiative aimed to reach 200,000 children and demonstrate that impact bonds can be implemented on a larger scale.

By including a range of interventions by multiple service providers, the QEI DIB was able to compare outcome performance for different education models within the same assessment framework. The evidence generated through this approach has provided important learnings about the effectiveness of different types of education models, a valuable contribution to the education sector in India, where high-quality data is limited. The results from the program can now serve as an evidence base for other organizations and government bodies seeking to improve learning outcomes.

The learnings from the QEI DIB, both around how to structure and implement impact bonds and around the effectiveness of different interventions, helped pave the way for future OBF programs in the education sector in India. This includes the launch of the LiftEd DIB in 2024, which aims to reach 4 million children, and where government engagement is an important feature from the design stage.

A similar experience of an OBF program contributing to an increased uptake of future OBF programs include the Colombia Empleando Futuro SIB, which contributed to the design of a second SIB, taking place with the Cali Municipality. Another example is from Sierra Leone, where the first outcomes fund, launched in 2022, focused on foundational learning. Its success led to the creation of a second outcomes fund, centered around early childhood education, which is scheduled to be launched by the end of 2024.

How Do We Continue to Learn from Each Other?

For OBF programs in education and across sectors to truly contribute to long-term system-strengthening, pathways for such strengthening must be planned from the very beginning, not as an afterthought. This requires a deliberate and strategic focus on sustainability, capacity-building, and systemic change from the outset, as evidenced by some promising experiences mentioned earlier.

Sharing knowledge and learning from each other around how to do this is key. Exchanges like those held within this learning group are incredibly valuable – how can we continue to foster this type of continuous learning, within and beyond the education sector, and how can it be documented and shared more widely? We would love to hear your thoughts and ideas, either by using the comment section here on LinkedIn, or by emailing us at educationfinance.network@dalberg.com.

Authors:

The Education Finance Network is a community of practice convening diverse education stakeholders, including foundations, donors, researchers, impact investors, and practitioner networks. It aims to drive equity, inclusion and improved access and learning outcomes for disadvantaged learners through private-sector innovation.

The Education Outcomes Fund is an independent fund hosted by UNICEF with a mandate to champion outcomes-based financing for education. EOF builds partnerships across public, private, philanthropic, and social actors, mobilising funding, evidence, and innovation to improve learning and employment outcomes for disadvantaged children and youth.

We wish to express our gratitude to the individuals who have contributed their valuable insights to the learning group and this blog.