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Africa’s Development Impact Bond aids in poverty alleviation in East Africa during pandemic

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The first-ever development impact bond tackling extreme poverty in Africa exceeded its targets sustainably by improving the livelihoods of over 95,000 East Africans and shielding them from the worst of the pandemic’s economic impacts.

The Village Enterprise Development Impact Bond (DIB), funded a ‘graduation out of poverty program run by a non-profit Village Enterprise.

The program enabled more than 14,000 first-time entrepreneurs in Kenya and Uganda, 75 per cent of them being women, to start small businesses and form business savings groups.

Under the impact bond model, investors provide upfront funding for the work, with ‘outcome payers’ repaying the investment according to the results achieved.  

An independent randomized controlled trial of the program conducted by IDinsight, a research and advisory organization, found that “six months to 2.5 years after the conclusion of the program, the Village Enterprise program continued to have a positive, statistically significant, and meaningful impact on the livelihoods of its ultra-poor recipients,” according to the report. 

“We found that families who participated in the program were eating more food and spending more money on things like mobile airtime and healthcare, relative to families who did not participate in the program. They also had more wealth, such as livestock, household furniture, savings, and business supplies.” said Jeff McManus, Senior Economist at IDinsight and one of the researchers who conducted the study.

Village Enterprise Development Impact Bond
Business mentor David Eseru with Agnes’ business savings groups

Based on the recorded increases in consumption and spending of around six per cent IDinsight estimated the program would generate lifetime impacts for the communities of over US$21 million, roughly four times the overall costs of the project.

These positive economic impacts were observed despite major challenges brought on by COVID-19 with lockdowns restricting the movement of entrepreneurs and program staff alike.

 

Village Enterprise’s VP of Africa Operations, Taddeo Muriuki said the DIB model had a catalytic effect in helping the households to achieve higher incomes and savings.

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“Using the results-based approach instead of delivering set activities, our field team worked closely with our business owners to set savings and business health targets. We trained teams to use powerful adaptive management tools and dashboards to track the entrepreneurs’ progress and problem-solve in real-time to ensure their businesses were profitable and they achieved their saving goals,” he said. 

“Before the DIB, we thought we were focused on results and innovation but not enough to achieve our ambitious mission of ending extreme poverty in rural Africa. The DIB helped us foster a results-driven culture, drove digital innovations and contributed significantly to increasing our impact at scale,” said Village Enterprise’s CEO Dianne Calvi.

The success of the program validates Village Enterprise’s existing poverty graduation model and means the non-profit and the original impact investors in this development impact bond received the maximum amount possible as an ‘outcome payment’ (US$4.28 million) that can now be reinvested into other social impact programs.

Michele Giddens, Partner and Co-CEO at Bridges Fund Management Ltd, and trustee for the Bridges Impact Foundation, one of the upfront investors in the DIB, said: “Village Enterprise’s outcome-based delivery model has proven to be an incredibly powerful tool for alleviating poverty in Kenya and Uganda.”

“I was lucky enough to visit some of the entrepreneurs in Kenya to see first-hand their passion for their businesses and the transformative impact it was having on their families. The program is a great example of how this more collaborative, more flexible and more accountable app

roach to delivery – coupled with a passionate, high-quality team that can help to improve more lives and achieve value for money within vital public services,” she addded.

 

Village Enterprise Development Impact Bond
Agnes Alepo and her children

The results  add to the evidence base showing how results-based financing can offer a more effective and accountable model for development funders in a time of shrinking aid budgets, giving them more confidence that their dollars are being used for maximum impact, and in the longer term, potentially attracting new kinds of investments into development programs.

 

Avnish Gungadurdoss, managing partner and co-founder of Instiglio, the firm that sourced the DIB partners, fundraised outcomes funding, designed the DIB structure, and managed the DIB, said: “In addition to contributing rigorous evidence of the transformative power of results-based finance, the DIB enabled the participation of major aid funders USAID and FCDO, which we hope will pave the way for mainstreaming right-fit results-based finance in the billions of aid dollars spent on development programs annually.”

“With 700+ million people living in extreme poverty, being able to reach the maximum households with cost-effective approaches is critical,” Village Enterprise’s Dianne Calvi said.

The UK Foreign, Commonwealth & Development Office (FCDO)’s Minister for Africa, Vicky Ford,  said: “The FCDO is committed to supporting innovation and using evidence to drive positive and sustainable change for people living in extreme poverty.”

“We are proud to have contributed USD $2million (~GBP £1.6m) in support of this project, which has helped 95,000 people in Kenya and Uganda improve their livelihoods and remain resilient to future economic shocks. The success of the project demonstrates that the private sector can, and does, play a vital role in our pursuit of Sustainable Development Goals. We hope that it can be a blueprint for similar programs across Africa and beyond,” She concluded.

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