Private investors provide upfront funding and earn a return from donors or governments if targets are achieved
By Rina Chandran
MUMBAI, July 5 (Thomson Reuters Foundation) - A new funding model for development programmes in India which gives private investors a return on their investment has helped get marginalised girls in Rajasthan into the classroom, its backers said.
The world's first "development impact bond" provides upfront funding from private investors, who earn a return from donors or governments if targets are achieved.
UBS Optimus Foundation, a grant-making foundation of the Swiss bank, made an undisclosed investment to a programme by charity Educate Girls in rural Rajasthan for three years.
At the end of the term, the foundation should receive the funds back with interest of up to 15 percent, depending on whether the children's learning targets are met.
"While this is designed to improve the quality of girls' education in Rajasthan, the concept could be attractive to funders across a range of issues who want to make investments with both financial and social returns," Kate Hampton, chief executive at the Children's Investment Fund Foundation - which will pay back the investment and interest - said in a statement.
The model is seen as a way for governments and donor agencies to transfer risks to investors, and increase efficiency in implementation of programmes.
Critics however, say measurement can be tricky and that the model absolves governments of their responsibility of providing basic services to their citizens.
"It's based on the premise that school education cannot be done by governments, but only by micro institutions, and that you can improve accountability and achieve targets with rather weak measurements and monetary incentives," said Jayati Ghosh, a professor of economics at Jawaharlal Nehru University in New Delhi.
"There is definitely a gap in education, but to think you can fix it with a 15 percent return is just wrong. The government is completely reneging its responsibility," she told the Thomson Reuters Foundation.
India enacted the landmark Right to Education Act in 2009, giving children from poor and other disadvantaged backgrounds the right to free and compulsory education to the age of 14.
But funding for the programme has declined in the past two years.
In Rajasthan, one of the poorest states with among the lowest levels of literacy particularly for girls, activists say enrolment is still high under the RTE Act because its ceiling on annual household income that qualifies children for RTE is higher than in many other states.
The aim for the development bond is to improve education for 15,000 children in 140 villages in Bhilwara district. The numbers of girls enrolled in primary education and their progress in English, Hindi and mathematics are being measured.
So far, the programme has enrolled 44 percent of all out-of-school girls identified in the first year, and achieved 23 percent of the target for learning progress, according to the statement.
(Reporting by Rina Chandran, Editing by Ros Russell. Please credit the Thomson Reuters Foundation, the charitable arm of Thomson Reuters, that covers humanitarian news, women's rights, trafficking, corruption and climate change. Visit news.trust.org to see more stories.)
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