A systematic literature review: What do we know about Impact Bonds in Education?

• In Event: Highlighted Session: Impact Bonds for Education: Does innovation in financing address equity and quality challenges?

Proposal

Over the last decade, approximately 30 out of 130 impact bonds have been launched or designed within the education sector. Given the financial stake in measurable results, most impact bonds have a rigorous evaluation generating evidence on the effectiveness of the initiatives financed through the mechanisms. A rich body of academic literature is emerging on the topic, engaging the global community in a vigorous debate on the benefits of impact bonds over traditional financing mechanisms. On the one side, proponents argue that the public-private partnership (PPP) structure of impact bonds engages private actors in tackling global education challenges by taking advantage of private sector approaches. Most importantly, impact bonds are perceived to be an improvement on traditional PPPs as it introduces the transfer of the risk of program failure to private investors from the public sector. Further, the results-based financing contracts are meant to concentrate all management efforts to achieve the pre-agreed results along with fostering a culture of measurement, allowing for increased service provider autonomy, and innovating solutions to achieve the results. The mechanism is overall meant to reduce the cost of education service delivery with higher management efficiency.

On the other side, critics of impact bonds caution against the widespread use of the financing mechanism questioning inherent structure and practices in the early use cases (especially in education). Introducing private investors gaining a financial return for social welfare projects has raised questions on public cost saving and social welfare responsibility. Selection of interventions and target populations served through impact bonds may exclude the hardest, i.e., costliest, to reach populations. In many early cases, the government or private philanthropies have provided guaranteed financial returns to attract private investors, which may increase the cost-of-service delivery. In other cases, researchers have pointed out that the only interventions with a strong record of success have been financed through impact bonds, leaving little room for program failure. In both scenarios, the risk transfer proposition has been questioned. Education experts have also criticised the excessive focus on quantifiable results as it may detract from the complexity of the education process.

As a relatively novel approach to financing education, there is limited empirical evidence for or against impact bonds' critical elements, assumptions, and implementation. Both proponents and critics of the approach welcome rigorous research to examine the benefits and challenges associated with impact bonds to improve education sector financing. To answer some critical questions on impact bonds, the research team has developed a comprehensive database with over 100 pieces of academic literature and grey literature associated with more than 100 impact bonds in education and other sectors. In this presentation, the researchers will present the findings from the analysis of this literature on debates, patterns of implementation and findings from impact bonds implemented within the last decade.

Authors

• Anaka Harish Ganesh, NORRAG, Graduate Institute

• Georgia Thorne, NORRAG