Innovative financing has taken center stage in global education discussions. The most recent sign: the Fortaleza Declaration issued by the UN-backed Global Education Meeting late last year, which called for more equitable and efficient investments using instruments like results-based financing and social impact bonds to address global learning gaps.
Outcomes-based financing, a form of results-based financing, has gained interest among education funders and social impact organizations in recent years. Beyond delivering measurable results, outcomes-based finance can foster innovation, efficiency, accountability, and, crucially, long-term systemic change in the delivery of social services such as education.
The immediate goal of outcomes-based finance is to meet targeted outcomes. However, its true potential is in creating pathways to lasting improvements within complex systems with entrenched challenges. By doing so, outcomes-based finance can shape a more resilient social sector where organizations build sustainable capacity and continue to deliver impact long after the funding ends.
A learning group on innovative finance in education, co-facilitated by the Education Finance Network and the Education Outcomes Fund, illustrates three pathways for how outcomes-based finance can strengthen public and nonprofit institutions, improve collaboration, and scale high-impact education solutions while contributing to lasting systemic change.
Better data
For any social service, data is foundational. Robust data systems allow organizations to monitor results accurately, learn from performance, and adapt effectively to changing needs. Because outcomes-based finance programs rely heavily on data to accurately verify outcomes and release payments, enhancing data systems often becomes a core part of their design.
Consider the Empleando Futuro social impact bond, or SIB, in Colombia. The program was launched in 2017 to address high unemployment among vulnerable groups. About $325,000 in upfront capital from three foundations — Fundacion Bolivar Davivienda, Fundacion Corona and Fundacion Mario Santo Domingo — financed skills training and employment support to vulnerable to more than 760 unemployed individuals in Bogotá, Cali, and Pereira. Its objective: achieve at least three-months of sustained employment in formal jobs for participants in the program. The program was successful; investors were repaid and the intervention was expanded.
The project’s design linked outcome payments to job placement and retention, demanding reliable data on labor market participation that initially wasn’t available. As a creative solution, the SIB partners turned to the Ministry of Labor’s social security contributions system to verify outcomes, which led to a significant upgrade in Colombia’s employment data infrastructure.
Today, this new system supports better decision-making on employability programs, helping policymakers improve price, cost, and payment metrics based on real-world performance data. Such a robust data foundation has laid the groundwork for future outcomes-based finance programs and contributed to more effective labor policies in Colombia.
Multi-stakeholder collaboration
Another advantage of outcomes-based finance programs is their ability to bring together a diverse range of stakeholders, from government agencies and private investors, to NGOs and independent evaluators. This collaborative design process often requires participants to work through complex issues, like setting outcome targets, establishing fair pricing, and determining transparent ways to measure success. The process can be slow at times, but it encourages inter-agency cooperation and shared accountability that wouldn’t normally exist.
In Buenos Aires, Argentina, the Proyectá Tu Futuro SIB launched in 2018 to tackle low graduation rates and youth unemployment. The first SIB in Argentina, the project secured $1 million in funding from the Bank of the City of Buenos Aires, the Bank of Galicia, IRSA Local Commercial and Exotrade, with backing from the Inter-American Development Bank, to provide critical soft skills training to 1,000 individuals. The project partners set four outcomes for repayment: individuals’ completion of secondary education, formal employment placement, and sustained employment for four and 12 months.
One aspect of the project was the identification of a SIB “ambassador” from the figure in the Buenos Aires city government, who was critical to helping map the key stakeholders that needed to be involved and engaging them at the design stage. The continuous dialogue and collaboration among these stakeholders were key factors that enabled the SIB to overcome subsequent challenges, which included a 100%currency devaluation and a global pandemic.
Evidence-based acceleration
Government agencies are often key backers (and off-takers) in outcomes-based finance programs for social services. But even in cases where governments play a limited role, these projects can still impact education ecosystems by generating high-quality evidence of effective interventions.
One example is the Educate Girls Development Impact Bond. The program, launched in 2015 with support from the UBS Optimus Foundation and the Children’s Investment Fund Foundation, set out to improve educational outcomes for 15,000 children in India and demonstrate the replicability of impact bonds in similar settings.
The initiative’s success prompted expansion to 200,000 children in 2018 through the Quality Education India (QEI) DIB. It set out to demonstrate that impact bonds can be implemented on a larger scale.
The QEI DIB’s design combined various education models within a unified measurement framework, allowing for a comparative analysis of which interventions could be most effective. The QEI DIB’s evidence base has been critical for the Indian education sector, providing insights that government bodies and NGOs can use to improve learning outcomes in a resource-constrained context.
The data generated from these projects has informed the launch of new outcomes-based finance programs, such as LiftEd in 2024, which seeks to reach four million children, supported by active government involvement.
Spurring lasting change
These examples underscore how early successes can create ripple effects, inspiring further investment and innovation within the education sector.
Innovation in education is more crucial than ever: the 2024 Education Finance Watch found that a global increase in education spending has failed to deliver equitable and effective resource distribution for children, especially in low-income countries. Governments face mounting debt pressures and shifting donor priorities, creating an urgent need for new approaches.
Outcomes-based financing offers a transformative solution, enabling investments that drive efficiency, accountability and systemic improvements. Investors have a critical role to play in scaling these innovative mechanisms, channeling resources into evidence-backed programs that strengthen education systems and deliver lasting impact and transformational change.
Jenny Berg is the Communications Manager for the Education Finance Network, on behalf of Opportunity International EduFinance, and has previously worked at Frontline AIDS and UNAIDS.
Inês Charro the Program Manager for the Education Finance Network, on behalf of Dalberg, and has previously worked at Maze, Nova School of Business and Economics, and the Boston Consulting Group.
