Innovative Finance for Development: Assessing Strenghts and Limitations of Development Impact Bonds

Nicole Colmenares Pulido

Student thesis: Master thesis


Development Impact Bonds (DIBs) are an innovative financial instrument for development, in which funders delegate the pre-financing of an intervention to outside investors who are recompensed only when desired outcomes have been achieved.
The theory of change behind DIBs is rich. Financing aid through this instrument is believed to lead to better fund allocation and aid efficiency. DIBs should increase the financing of evidencebased interventions, foster cooperation and innovation. In addition, they are believed to be a good tool for bridging the funding gap for development. Due to the novelty of the mechanism, this theory of change has yet to be proven.
This multiple case study analyzes the first five DIBs to have ever been launched, to understand whether the theoretical rationale behind DIB adoption is reflected in the reality. To do this, the study analyzes the contracts that have been stipulated between the actors, and the transaction characteristics, and interprets the data through the theoretical lens of the Agency Theory. This is done to understand whether DIBs have succeeded in aligning the incentives of the different stakeholders and delivering on their promises.
The analysis concludes that DIBs are an effective instrument for aligning stakeholder interests in development interventions and introducing market mechanisms in the space, which help confirm the veracity of some the claims of DIBs’ theory of change. However, these same facts are also the cause of several adverse mechanisms which threaten to countermand DIB’s positive effects on aid effectiveness and the rationale behind their adoption.

EducationsMSc in Business, Language and Culture - Business and Development Studies, (Graduate Programme) Final Thesis
Publication date2018
Number of pages87
SupervisorsKai Hockerts