British Asian Trust is a non-profit that’s always done things a little differently. Launched 10 years ago by successful entrepreneurs and business leaders, together with the Prince of Wales, British Asian Trust aims to work with the private sector to bring about positive change across South Asia.
Richard Hawkes is CEO of British Asian Trust and he’s no stranger to innovative finance or working with the private sector. Before Richard took the helm of British Asian Trust over three years ago, he was CEO at Scope where he launched the first social investment bond in the UK on the Luxembourg Stock market. He brought this experience to British Asian Trust to launch its first blended finance transaction, an $11 million Quality Education India Development Impact Bond (DIB).
The Quality Education India DIB was conceptualized and designed by British Asian Trust, UBS Optimus, and the Michael and Susan Dell Foundation and aims to improve learning outcomes for 300,000 primary school children in India.
We spoke to Richard about the challenges of setting up a DIB, how he found his way to blended finance, and advice he has for other non-profits that want to enter the space.
Why did British Asian Trust enter the blended finance space?
We realized that traditional approaches to development are not going to achieve the SDGs by themselves. When I started at British Asian Trust three years ago, I brought with me experience in blended finance and social investment and believed that blended finance could influence the wider ecosystem, influence the way funders fund things, the way delivery organizations work on the ground, and ultimately bring new money into the system. This, combined with British Asian Trust ethos of embracing innovation and doing things differently, made it possible for us to launch the Quality Education India DIB.
Can you tell us about the structure of the Quality Education India DIB?
UBS Optimus is providing the risk investment, so the up-front capital, which will be returned to them plus an 8% interest rate (capped) depending on the result. Three local NGOs (Gyan Shala, Kaivalya Education Foundation, and Society for All Round Development) are service providers who are using the risk investor’s capital to fund the delivery of their programs. And then there are a number of outcome funders, who will make payments if the outcome objectives are achieved, these include the Michael and Susan Dell Foundation, British Telecom, Ellison Foundation, Mittal Foundation and Comic Relief. Tata Trusts are knowledge partners on the DIB and DFID provides funding for technical assistance.
What stage are you at now with the DIB? And what’s next?
The DIB is a 4-year program with interim outcome measures at the end of each year. Right now, we’re nearing the end of the first year. Once we get the results, we’ll analyze them, which will then trigger the first round of outcome payments, which will go back to UBS Optimus. In effect, UBS Optimus don’t need to put in the whole $11 million capital up front, instead they put up investment capped at $3 million, because the capital recycles on an annual basis after the trigger of the outcome payments.
As a non-profit in the blended finance space, what are some challenges you had to navigate to set up the DIB?
There were three main challenges. First of all, funders. Most funders aren’t set up to fund based on results. What most of them do is provide funding in advance, usually focusing on inputs and activities, and then organizations spend that money and report back on how they spent it. DIBs are a totally different way for funders to work. It’s basically saying, we want your commitment, but you’re only going to have to give your money at the end, and only if it’s successful. So, trying to identify funders that were prepared to do this was quite a challenge.
The second challenge was the NGOs doing delivery work on the ground. Similar to the funders, most NGOs aren’t set up to deliver on results. They’re set up to do the activities that donors have paid them to do. When you want NGOs to focus on delivering results, you’re giving them the freedom and flexibility to work in the best way possible, but identifying the delivery NGO’s that can actually deliver an outcomes-focused program wasn’t easy.
And the third challenge was about access to knowledge and information. There wasn’t one knowledge centre we could go to for information on DIBs, about how they work, about who the interested parties are, about legal advice, about all the different things you need to do to set something complex like this up, and especially for South Asia. There’s a gap there and a need for someone that can provide that information, so other organizations that want to get into this space can do it relatively easily.
What advice do you have for other non-profits who may be interested in entering the blended finance space?
I really encourage people to try to embrace it, because the more organizations that do it, the more chance we have collectively of making a serious impact on that much wider world of development and achieving the SDGs. Such instruments increase accountability in the development sector by tying funding to results, thereby increasing the value of each $ which goes into development.
But no organization should see blended finance as magic money. It’s not just a new fad in fundraising – it’s a new way of doing things. So, you’ve got to be prepared to change the approach of your organization and really look at doing things in a different way, and that means everybody’s got to buy into it, including your trustees, your directors, everyone across the organization.