Expert Speak Young Voices
Published on Jul 26, 2019
Given the fiscal constraints confronting government agencies — the DIB opens up an alternative, valuable window of opportunity.
Utkrisht Development Impact Bond: A solution for financing maternal health

In an unfortunate paradox for the fastest growing economy in the world, India has a Maternal Mortality Rate (MMR) as high as 8.8% and accounts for a whopping 20% of global deaths of women dying every day of preventable causes related to pregnancy and childbirth. On an annual basis, 44,000 women in India die on account of preventable causes associated with pregnancy.

The latest MMR data as calculated by Sample Registration System (SRS) shows that, within India, the state of Rajasthan has one of the highest maternal and neonatal mortality rates at 18.3 %. While India's overall MMR is 130 per 100,000 births, in Rajasthan, it is 199 of every 100,000 births. The good news is that, like India as a whole, Rajasthan has advanced in reducing MMR.

The government of Rajasthan has achieved an increase in the number of institutional deliveries over the past 10 years. Over 25% of institutional births in Rajasthan occur in private sector institutions which is accessed by women across all socio-economic levels. Private medical institutions charge exorbitant fees for a poor quality of healthcare services delivered. As such, there is much to be desired in further enhancing survival of maternal and newborn outcomes.

An important avenue of improving maternal health outcomes is by introducing mechanisms like Development Impact Bonds (DIB); for instance, the Utkrisht Development Impact Bond, which is the world’s first health impact bond. Since its implementation in February 2018, its objective is to enhance and standardise the quality of maternal healthcare infrastructure in Rajasthan.

An important avenue of improving maternal health outcomes is by introducing mechanisms like Development Impact Bonds (DIB); for instance, the Utkrisht Development Impact Bond, which is the world’s first health impact bond.

The Utkrisht DIB is in line with the Sustainable Development Goal (SDG) of maternal health, to achieve the target of less than 70 maternal deaths per 100,000 live births by 2030. However, only three states — Kerala, Maharashtra and Tamil Nadu have been able to meet the target till date.

The Utkrisht DIB project is introduced to take place over three years, with a total investment of USD 9 million including USD 1 million which is set aside for verification of results. The Utkrisht Impact Bond intends to impact two to four lakh women annually, and to save the lives of up to 10,000 women and newborns over five years by addressing this lack of accountability and quality of facilities in private maternal care.

The market for impact bonds in India is growing rather quickly with the successful completion of the world’s first DIB, the ‘Educate GirlsDIB, which achieved 160% of the total learning target.

There are four parties involved in the operationalisation of the Development Impact Bond, one of which is the investor who provides upfront working capital to a service provider, the second party, for achieving stipulated outcomes. The third party, is the independent evaluator, who assesses the outcomes of the programme. Only if these outcomes are met, are the investors repaid their principal with some agreed upon interest by the outcome payer, who is the fourth party in the DIB.

How the Utkrisht DIB works?

An investor provides the working capital to invest in health infrastructure so that the service providers can begin their work with the private facilities in Rajasthan. This will support up to 440 Small Healthcare Organisations (SHCOs) to improve services and meet new government quality standards. The certification process for private facilities in Rajasthan is known to be tedious and time consuming — it takes an average of 14 months to get a private facility certified through the government approved healthcare facility certification process. The Utkrisht DIB aims to change this.

If the DIB is deemed successful by the independent verifier, the outcome payers USAID and Merck for Mothers — will pay back the investor the original amount invested, plus additional returns.

One of the main goals of a DIB mechanism is to attract private capital to social projects. Some researchers are of the opinion that investing in DIBs will help private companies create visibility. Companies often utilise their Corporate Social Responsibility (CSR) funds for social causes. But there is no concrete evaluation of the actual impact of these funds. Donations are given to charities or other social causes that have high moral value and the advantage of tax benefits, but the actual impact of the donation is invisible and not taken into account. The outcome measurability in DIBs will facilitate effective utilisation of the CSR funds. DIBs may open up room for portfolio diversification and can be seen as tools to help the companies to be able to invest in a good cause and increase the associated sense of pride and feel good factor.

However, the nature of the financial risk associated with DIBs is tricky for investors and probably also for credit rating agencies to fully comprehend, as the traditional methods of evaluating risk cannot be applied here; because even if the outcome funder is capable of paying back the investor, the payment depends on whether the pre-decided targets have been met. The DIB allows significant room for default by the service provider.

While the DIBs aim at linking payments to improve people’s lives, there is ambiguity on what it actually means to pay for “impact.” Hence, there is an immediate requirement to articulate a unanimously accepted set of standards on the construal, measurement, evaluation of impact and the formula on how impact is linked to payments.

While the DIBs aim at linking payments to improve people’s lives, there is ambiguity on what it actually means to pay for “impact.”

As this nascent field grows rapidly, the ecosystem within which DIBs will operate needs to be nurtured. The nuances of the structure of the DIB need to be demarcated in a well-defined manner. There is a need to establish a sound and robust regulatory regime for supervising the DIB ecosystem. However, as of now, the government is yet to signal its policy commitment for promoting this innovative funding mechanism.

One of the key observations from a study conducted on the global impact bond market, is the significant role of timely, usable and authentic data on the progress and impact of invested funds, and the need for service providers to respond to this data by improving outcomes. There is also a need to acknowledge these realities and, in turn, articulate a process of impact assessment at regular intervals during the tenure of the DIB.

In conclusion, it must be reiterated that, given the fiscal constraints confronting government agencies, the DIB opens up an alternative, valuable window of opportunity for financing social welfare initiatives such as education, affordable housing, sanitation etc. Leveraging this opportunity requires identifying factors that will either catalyse or vitiate the success of DIBs. The central as well as state governments must commission such research studies as an investment from the long-term perspective, since the maturity of the DIB market will only enable the government to optimise its financial resources.

Sanika Dixit is Research Intern at ORF Mumbai.

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