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Using Impact Bonds to AchieveEarly Childhood Development Outcomesin Low- and Middle-Income CountriesEmily Gustafsson-WrightSophie Gardinerj a n u a ry 2016

CONTENTSAcknowledgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12. Social and Development Impact Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73. What Could Impact Bonds Do for ECD? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104. Why Might Impact Bonds Be Particularly Well Suitedfor the ECD Sector? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155. The Landscape of Impact Bonds for Early Childhood . . . . . . . . . . . . . . . . . . . . . . 196. Design Considerations for Impact Bonds for ECD inLow- and Middle-Income Countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.1 Stage 1: Feasibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.2 Stage 2: Structuring the Impact Bond Contracts . . . . . . . . . . . . . . . . . . . . . . . . .6.3 Stage 3: Implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.4 Stage 4: Evaluation and Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6.5 After the Impact Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2627345356607. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62Appendix 1: Contributors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67Appendix 2: Inventory of Early Childhood Interventions with Evaluations . . . . . . . . . . 68Appendix 3: Outcome Measurement Tools . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81Outcome Metrics for the Social Impact Bonds for Preschool Educationin the United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81Outcome Metrics for Early Childhood Development (Global) . . . . . . . . . . . . . . . . . . . . . . 82International, Regional, and Cross-National Education AssessmentInstruments and Initiatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87Appendix 4: Innovative Financing Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90Using Impact Bonds to Achieve Early Childhood Development Outcomes in Low- and Middle-Income CountriesGlobal Economy and Development Program – BROOKINGSi

LIST OF FIGURESFigure 1. Impact Bond Mechanics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8LIST OF TABLESTable 1. Basic Benefit Package of ECD Interventions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3Table 2. Innovative Financing Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4Table 3. Payment by Results Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5Table 4: Impact Bonds Reaching Children Under Age Five . . . . . . . . . . . . . . . . . . . . . . . . 21Table 5. A Legal Roadmap for Social Impact Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Table 6. Outcome Metric Consideration Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Table 7. R igorous Impact Evaluations of Early Childhood Interventions inLow- and Middle-Income Countries on Later-Life Outcomes.(numbers of evaluations) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Table 8. Impact of Early Childhood Interventions on Later-Life Outcomes . . . . . . . . . . . . . 37Table 9. Select Potential Outcome Metrics and Tools for ECD Impact Bonds . . . . . . . . . . . 41Table 10. Introducing Performance Management in Educate GirlsDevelopment Impact Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55Table 11. A Comparison of Potential Benefits, Challenges and Costs forPayment by Results Mechanisms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65LIST OF BOXESBox 1. Targets Related to Early Childhood Development in the SDGs . . . . . . . . . . . . . . . . . 2Box 2: Does Results-Based Financing Improve Quality in ECD? . . . . . . . . . . . . . . . . . . . . 12Box 3: Impact Bonds for ECD in High-Income Countries . . . . . . . . . . . . . . . . . . . . . . . . . . 21Using Impact Bonds to Achieve Early Childhood Development Outcomes in Low- and Middle-Income CountriesGlobal Economy and Development Program – BROOKINGSii

Acknowledgmentsresearch, design, and editing assistance as well astheir contribution to organization and logistics. Inparticular, we would like to thank Katie Smith forher contributions to the research. Finally, we wouldlike to thank the Bernard van Leer Foundation forits support of this research.The authors would like to thank numerous peoplefor their contributions to this study. First and foremost we would like to thank our colleague Tamar Manuelyan Atinc, who instigated this researchand provided invaluable input throughout the entire project. We are grateful to all of the individuals who participated in the interviews and agreedto make public the references to their respectiveimpact bonds. We also would like to thank themembers of our Advisory Panel (listed below) andin particular the chair, Johannes Linn, who provided thoughtful recommendations throughout theresearch process. In addition, we would like tothank Louise Savell, Humphrey Wattanga, Mauricio Santa Maria Salamanca, Janis Dubno, SophieNaudeau, Peter Holland, and Kate Anderson forthoughtful comments and recommendations onthe paper. We are appreciative of those peoplewho participated in the events that we have heldover the past year and a half at the Brookings Institution and elsewhere. Each of these conversations added to the discussion here. We would alsolike to thank our colleagues at Brookings for theirThe Brookings Institution is a private non-profitorganization. Its mission is to conduct high-quality, independent research and, based on thatresearch, to provide innovative, practical recommendations for policymakers and the public. Theconclusions and recommendations of any Brookings publication are solely those of its author(s),and do not reflect the views of the Institution, itsmanagement, or its other scholars.Brookings recognizes that the value it providesis in its absolute commitment to quality, independence, and impact. Activities supported by itsdonors reflect this commitment, and the analysisand recommendations are not determined or influenced by any donation.Advisory Panel MembersJ. Lawrence Aber, Professor, New York UniversityOrazio Attanasio, Professor, University College LondonOwen Barder, Senior Fellow and Director for Europe, Center for Global DevelopmentClaudia Costin, Senior Director for Education, World BankMaria del Rosario Sintes, Regional Vice President, Latin America, United Way WorldwideRobert Dugger, Founder and Managing Partner, Hanover Provident CapitalJohannes Linn, Non-resident Senior Fellow, Brookings InstitutionJoan Lombardi, Senior Fellow, Bernard van Leer FoundationCamilo Mendez, Investment Officer, Pro MujerAmie Patel, Principal and Director, Emerging Markets, Imprint CapitalAndrea Phillips, Vice President, Urban Investment Group, Goldman SachsMauricio Santa Maria Salamanca, Former Director of National Planning and Former Minister of Healthand Social Protection, the Republic of ColombiaMary Wickersham, Director of the Center for Education Policy Analysis, University of Colorado, DenverUsing Impact Bonds to Achieve Early Childhood Development Outcomes in Low- and Middle-Income CountriesGlobal Economy and Development Program – BROOKINGSiii

1. INTRODUCTIONThe Sustainable Development Goals (SDGs, orGlobal Goals) and their associated targets setout by the United Nations in 2015 explicitly seekto address some of the largest challenges facingchildren around the world. Current estimates indicate that 200 million children globally under theage of 5 are at risk of not reaching their development potential.1 With these goals, the global community has a tremendous opportunity to changethe course of history. Investing in the youngestchildren—though interventions such as breastfeeding promotion and high-quality early childhood education—has demonstrated high potentialto help achieve the SDGs related to child development (see Box 1). Furthermore, over time, earlychildhood development (ECD) interventions havebeen found to improve adult health and educationlevels, reduce crime, and raise employment rates,all of which will be paramount to achieving globaleconomic, climate, and physical security.Indicators are falling short across these sectors—165 million children are stunted worldwide(90 percent of them live in Africa or Asia)3 and inlow-income countries, the maternal mortality rateis between 10 and 20 percent.4 These global statistics are disturbing in and of themselves, yetthey hide wide disparities both between and within countries where the poor and vulnerable arefaced with even greater disadvantage. Under-5mortality in low-income countries, for example, is13 times that of high-income countries,5 and whilepreschool enrollment in low-income countries isjust 17 percent, it is now 84 percent in high-income countries.6Though these statistics are troubling, great progress has been made in the past 25 years, particularly in child survival and nutrition. Child mortalityfell from 90 deaths per 1,000 live births in 1990to 46 deaths per 1,000 live births in 2013.7 Childstunting declined from 40 percent in 1990 to 24.5percent in 2013. Pre-primary enrollment increasedglobally from 27 percent in 1990 to 54 percent in2012; in sub-Saharan Africa and South and WestAsia, it more than doubled. Despite this progress,ECD interventions span the nutrition, health, waterand sanitation, education, social protection, andgovernance sectors, and include interventionsfrom conception to age 5 (see Table 1).2Grantham-McGregor et al. (2007).Note that some frameworks consider up to age 8, which aims to capture child development up through school entry.3United Nations Children’s Fund (UNICEF), World Health Organization, World Bank (2012).4World Bank (2013b).5WHO (2012).6World Bank (2013b).7 Despite progress, it is unlikely that the Millennium Development Goal target for 2015 of 30 deaths per 1,000 live births will be metwhen data become available.12Using Impact Bonds to Achieve Early Childhood Development Outcomes in Low- and Middle-Income CountriesGlobal Economy and Development Program – BROOKINGS1

Box 1. Targets Related to Early Childhood Development in the SDGs2.2 y 2030, end all forms of malnutrition, including achieving, by 2025, the internationally agreedBtargets on stunting and wasting in children under 5 years of age3.1By 2030, reduce the global maternal mortality ratio to less than 70 per 100,000 live births3.2By 2030, end preventable deaths of newborns and children under 5 years of age4.2 y 2030, ensure that all girls and boys have access to quality early childhood development,Bcare and pre-primary education so that they are ready for primary education6.1By 2030, achieve universal and equitable access to safe and affordable drinking water for all6.2 y 2030, achieve access to adequate and equitable sanitation and hygiene for all and end openBdefecation, paying special attention to the needs of women and girls and those in vulnerable situations10.1 y 2030, progressively achieve and sustain income growth of the bottom 40 per cent of theBpopulation at a rate higher than the national average16.2End abuse, exploitation, trafficking, and all forms of violence against and torture of children16.6Develop effective, accountable, and transparent institutions at all levels16.7Ensure responsive, inclusive, participatory, and representative decision-making at all levels16.9By 2030, provide legal identity for all, including birth registration17.3Mobilize additional financial resources for developing countries from multiple sources17.17 ncourage and promote effective public, public-private, and civil society partnerships, buildingEon the experience and resourcing strategies of partnershipsexternal donors or nongovernmental organizations (NGOs). But these investments, too, remainlimited: A recent study found that the World Bankmade only 3.4 billion of investments in ECD between 2001 and 2013, equivalent to just 4.4 percent of the overall portfolio of the human development network over that period, though investmentsin ECD rose to 11 percent of the human development portfolio in 2013.9 Furthermore, many of theECD services in developing countries fall terriblyshort of providing the quality necessary to ensurethat children develop to their full potential.10the quality of child care and pre-primary programsand equity of access are still grossly inadequate andwill be among the biggest challenges going forward.8Achieving the ambitious early childhood-relatedSDGs will require substantial increases in the volume and effectiveness of resources. Thus far, despite the fairly compelling evidence on the benefitsof ECD interventions and the strong economic andequity arguments for investing in the early years,few large-scale programs in low- and middle-income countries (LMICs) are supporting the earlydevelopment of all children. Data on financing forearly childhood are quite sparse, and for the fewdeveloping countries for which data are available,the amount of resources directed toward ECD programs is often insufficient.While domestic resources and international aidhave grown significantly over the past decade,they will be insufficient to meet the estimated costof achieving the SDGs. No complete estimation ofthe financing gap to achieve the ECD SDGs exists, largely because it is challenging to combine required spending across all sectors of ECD. EffortsPrograms catering to the very young are typically operated at small scale and often financed byUNESCO (2015).Sayre et al. (2015).10 Araujo et al. (2013); see also the “report card” on ECD in Berlinski, and Schady, eds. (2015), The Early Years: Child Well-Beingand the Role of Public Policy.89Using Impact Bonds to Achieve Early Childhood Development Outcomes in Low- and Middle-Income CountriesGlobal Economy and Development Program – BROOKINGS2

NutritionTable 1. Basic Benefit Package of ECD InterventionsPregnancyBirthCounselingon adequatediet -folic acidfor pregnantwomen12 months24 months36 monthsComplementary feeding48 months60 monthsSupplemental feedingCounseling on optimal feeding practices and nutritionTherapeutic zinc supplementation for diarrheaGrowth monitoring promotion (prevention and treatment for acute malnutrition)Micronutrients and fortificationAntenatal visitImmunizationsHealthAttended deliveryDewormingDisease prevention (malaria, mother-to-child transmission of HIV, and other diseases)Planning for family size and spacingAccess to health care (including well-child visits, screening for delays and disabilities, injury and disease treatment)Prevention and treatment of maternal depressionWater andSanitationAccess to safe waterHygiene or hand washingAdequate sanitationParent support or training (early stimulation, growth, and mulationQuality early childhood and pre-primary programsTransition toquality primaryschoolBirth registrationParental leave and adequate child care or day careSocial assistance transfer programs (targeted income support, child grant or allowance, conditional or unconditional cash transfers)Child protection interventions (prevention and response to child abuse or special protection to orphans)Governance reflecting ECD interestsPolicy or regulation in nutrition, health, education, and social protection (child protection regulation)Source: Denboba et al. (2014).are underway, however, to improve the availabilityof information on ECD costs.11 One estimate suggests that countries should be spending 0.5 to 1percent of their GDP on early childhood education and 0.3 to 0.5 percent on maternal and childhealth, though spending recommendations arehighly context- and quality-specific.12 The currentscale of inadequate outcomes is, however, sufficient justification for creative solutions to increaseand improve the efficacy of investment in ECD.The development landscape has begun to shiftdramatically with new actors and financing mechanisms playing an increasing role in financing for utcha and van der Gaag (2015) and forthcoming work on costing by the Brookings Institution and the World Bank StrategicPImpact Evaluation Fund.12Vargas-Baron (2008).11Using Impact Bonds to Achieve Early Childhood Development Outcomes in Low- and Middle-Income CountriesGlobal Economy and Development Program – BROOKINGS3

four and 24 initiatives, respectively, out of 348 (forwhich sector data were available), according toone study.15 The average size of the innovative instruments used for health, however, was relativelyhigh compared with other sectors16 and may actually increase substantially in coming years due tosome large global initiatives in health.17development. Private and nontraditional financefor development has risen significantly, and thereis increasing recognition of the associated investment opportunities for the private sector in supportof the longer-term agenda of the SDGs. Donors,private actors, and domestic stakeholders areincreasingly exploring innovative mechanisms13to leverage new sources of finance and to link financing and results. In the last 15 years, a number of innovative financing mechanisms for international development, which address the volumeof finance for development, the effectiveness, orboth, have been designed and implemented. Themechanisms include innovative sources and innovative delivery mechanisms; the latter categorycomprising of non-contingent and contingent disbursement mechanisms (see Table 2). Innovativefinancing is estimated to have mobilized nearly 100 billion and grown by approximately 11 percent per year between 2001 and 2013 (see Appendix 3).14 While there is no explicit breakdownon the use of innovative f

Using Impact Bonds to Achieve Early Childhood Development Outcomes in Low- and Middle-Income Countries Global Economy and Development Program – BROOKINGS 1

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