In collaboration with GDI, Village Enterprise has announced the completion of its first round of funding for its Development Impact Bond (DIB), resulting in $3.5 million in capital raised. The DIB will fund Village Enterprise’s poverty alleviation efforts in sub-Saharan Africa. With the DIB’s funding, Village Enterprise will “provide first-time entrepreneurs who live in extreme poverty with seed capital, training and mentoring to start more than 4,600 small sustainable businesses in rural Kenya and Uganda by 2020.”
The Village Enterprise DIB ties funding to impact results that are pre-agreed upon and subsequently verified. Avnish Gungadurdoss, Managing Partner of Instiglio and one of the partners in building the DIB, noted, “This DIB, which pays Village Enterprise for improvements in income levels of extreme poor households, is remarkable because of the ambitious outcomes it incentivizes. By tying funds to such ambitious outcomes and providing full flexibility for Village Enterprise to innovate on its program design and delivery practices, this DIB aims to enable a leap in the program’s cost-effectiveness.”
The DIB model isn’t new, but at GDI, we’re excited to be piloting a new twist on it by adding a “trustee” role to the Village Enterprise DIB, which could ultimately lower the costs and structural complexity that often plague DIBs and limit participation. As Trustee, GDI serves as the central “clearinghouse,” holding all cash inflows from outcome payers in escrow until we disburse funds to service providers, once payments are verified. GDI also contracts individually with all parties involved, minimizing the challenge of connecting organizations of different sizes and capabilities.
The longer-term goal of incorporating this role is to scale a poverty alleviation outcomes fund to increase the pool of capital available for poverty reduction and job creation programs while ensuring that measurable results are achieved. According to Alice Gugelev, who has led GDI’s work on this DIB, “Efforts are underway to scale the outcomes fund in order to address existing challenges with impact bonds such as high processing costs and complex documentation. In the scale-up, the outcomes fund plans to engage additional high caliber service providers like Village Enterprise and increase impact through this innovative and efficient mechanism.”
Learn more about this work on Village Enterprise’s website.