Development Finance: The IBSA Fund and Development Impact Bonds

Abstract

Achieving the Sustainable Development Goals (SDGs) will demand a significant growth in the volume and effectiveness of development resources, mostly in Asia and Africa. In that regard, the India, Brazil and South Africa Facility for Poverty and Hunger Alleviation (IBSA Fund) and the concept of Development Impact Bonds (DIBs) are innovative multi-stakeholder initiatives of development cooperation. On the one hand, the IBSA Fund is a unique Southern initiative under the United Nations, constituting an institutional framework that allows for low cost and high impact projects. On the other hand, DIBs are projects in which the private sector gives the capital upfront and, in the case that the agreed upon impact is achieved, costs are paid back with interests by a donor agency avoiding bureaucratic and ineffective management. This paper aims to briefly analyze these initiatives, as a means to show some of the diversity and complexity of development cooperation. This paper argues that impact has to be planned, measured, monitored and reported. But even beyond that, in the context of developing countries and institutions, the capacity to learn and react quickly to adjust, correct or adapt is also essential. They need to be a complimentary part of the same process, most probably because development situations always include some unplanned or unseen. The possibility of rearrangements in inputs and learning by doing are demanded by the dynamic nature of development cooperation projects, to which traditional cooperation arrangements are less able to respond.