Surviving the storm of the pandemic – lessons from the Village Enterprise Development Impact Bond

Launched in 2017, the Village Enterprise DIB aimed to raise income levels for households living in extreme poverty in Kenya and Uganda, making it the first development impact bond for poverty alleviation in Sub-Saharan Africa. Implemented in 241 villages, the DIB model harnessed private risk capital so that outcome funders, the UK Foreign, Commonwealth and Development Office (FCDO) and United States Agency for International Development (USAID), paid only for the achievement of agreed-upon outcomes.

As independent, third-party evaluator of the DIB, IDinsight conducted a four-year randomised controlled trial (RCT) to measure the causal impact of the Village Enterprise programme, collecting data on a total of 9,888 households. According to the evaluation, the programme had an enormous impact on the lives of many, exceeding its original targets. This includes a positive and statistically significant impact on monthly consumption for households that were offered the programme (6.3% more per month than the controlled group) and on household net assets (5.8% more than the controlled group). Two years after it ended, the Village Enterprise programme continued to have a positive impact on the livelihoods of its recipients.

What makes these findings particularly interesting is that despite the pandemic, beneficiaries of the Village Enterprise programme were still able to increase their consumption and assets. While 87% of households reported being negatively affected by Covid-19, no differences in treatment effects were reported in those that reported being negatively affected and those that reported a positive or no effect, suggesting that these approaches might provide households with some resilience when hit by large shocks. So, how did the programme manage to achieve such results during the storm of the pandemic?

Flexibility of the DIB structure

Covid-19 brought a lot of challenges. Lockdowns and ongoing restrictions stopped partners from meeting face-to-face and pulled the brakes on in-person training, a key part of the programme. Partners were forced to be creative and adapt, while keeping a human-centred focus. Zach Hoins, Chief Operations Officer of Village Enterprise, argued that the structure around the DIB itself was instrumental in allowing Village Enterprise the flexibility to adapt the programme and shift activities in pursuit of the targeted outcomes. Since the contracts were based on final outcomes and not tied to specific inputs, they were able to provide additional mentorships and services for those struggling under the pandemic without having to go through a lengthy bureaucratic approval process, which may have been more challenging in an activity-driven contract.

Douglas Emeott, Project Manager at Instiglio, added that the nature of the outcomes fund meant that multiple outcomes payers were pulled together under one outcomes payment agreement, which avoided having to alter multiple contracts with several outcomes payers when changes needed to be made.

Keeping an outcomes focus 

According to the stakeholders, the outcomes approach of the DIB mechanism provided higher security of funding during the pandemic, making it more resilient under pressure. Charlie Morgan, Senior Policy Advisor at FCDO, saw a number of other programmes, particularly bilaterally grant funded programmes, close down due to budget cuts and a constrained funding environment. She believes this programme succeeded in part due to the long-term commitment that outcomes funders and the rest of the stakeholders had made to the projects. She also argued that the DIB model gave funders control over what they were paying for without getting overly involved in how the outcomes were achieved. This placed power and decision-making in the hands of those closest to programme and those benefiting from the services delivered – arguably more so than inputs-based grant funded programmes.

A stronger team with shared incentives

Under financial pressures and unprecedented circumstances, teams and partnerships can fall apart. But since the partners of the DIB were aligned in their incentives from the offset, maintaining strong relationships was easier to manage. Working on other concurrent projects with traditional funders, Zach felt a very strong difference in the alignment between stakeholders and quality of communication during the pandemic. With everyone tied under the same outcomes contract structure, it felt like a collective group working together to come up with creative solutions, reducing administrative costs and keeping the programme moving forward.

Overall, the stakeholders agreed that the DIB structure’s flexibility and focus on outcomes, along with the strong partnerships it forged, all helped build resilience in the programme and contribute to its success. For many of them, the next step is to understand how to scale these projects in the region. To do this, they would need the influence of central government and more of a push towards an outcomes approach at an institutional level.

Lessons for the sector

Under the extraordinary circumstances of the pandemic, the IDinsight evaluation was able to measure the impact of the Village Enterprise DIB programme on the lives of its beneficiaries, producing a very positive and encouraging set of results that hold valuable lessons for those working in the field. It is worth noting that while the evaluation focused on the impact of the intervention, it did not specifically assess the "DIB effect" – that is, the impact or additional value achieved from delivery the programme as a DIB. However, having worked on the DIB during the pandemic, the key stakeholders involved agreed that its resilience and ability to pivot under stress was in part due to aspects of the DIB mechanism itself.

The energy was optimistic in the webinar. The speakers felt that this financial structure may offer a promising way to fund graduation programmes and that adapting a greater focus on outcomes, be it within an impact bond or any other type of project, can bring more flexibility and resilience in the delivery of a programme.