Paying for success

Impact bonds raise private money to help good causes. Can they help reshape development financing in the Middle East?

Ali Al Zabi and Tareq Amro live very different lives in very different countries. Ali, 35, is an Emirati with learning difficulties, who is part-way through a course and internship that he hopes will help him to secure a job in Abu Dhabi, assisting other people with disabilities. Tareq is a doctor from the West Bank, who studied medicine in Poland. He’s recently received tutoring to help him pass the Palestinian board exams, allowing him to practice in his home country.

Both are benefiting from training made possible by impact bonds, an innovative financing tool designed to provide fast funding for chronic social and economic problems.

These bonds enable private money to be funnelled into projects usually paid for by governments or charities – and their returns hinge on whether the projects achieve predetermined results. Investors may get nothing if programmes fail to meet their targets, or a premium payout if results are better than expected.

Over the last decade, development and social impact bonds – or DIBs and SIBs for short – have been rolled out across more than 30 countries, to the benefit of more than 2 million people.

Projects past and present have included improving maternal and child health in India and Cameroon; tackling joblessness in Colombia, South Africa and Argentina; reducing rough sleeping and prisoner reoffending in the UK; and supporting sustainable cocoa and coffee farming in Peru.

Take-up so far has largely come from philanthropists, foundations and impact investors.

Proponents say the bonds have the potential to revolutionise social service delivery, not only by opening up new sources of investment, but by focusing on results rather than services. With private money there is also more scope to experiment and, if successful, scale projects quickly for wide-reaching impact.

What is an impact bond?

Impact bonds allow private money to be channelled into projects usually funded by governments or charities. They bring together three key partners: an outcome payer, a service provider and an investor. In practice, these partners can be comprised of multiple organisations.

Investors provide cash upfront to pay service providers to deliver a project. If the project meets its goals, investors are repaid with a return by the outcome funder, usually public bodies or development banks. If the project fails, investors will not get a return and may lose part of their downpayment.

This ‘pay for success’ model has been used to raise hundreds of millions of dollars to fund projects ranging from tackling youth unemployment, to reducing hypertension among at-risk patients.

Impact bonds with government outcome-funders are called social impact bonds (SIBs). Those with non-government outcome funders, such as foundations or development banks, are known as development impact bonds (DIBs).

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Of the 40,000 youth who graduate from Palestinian universities each year, three out of five remain unemployed, according to the World Bank. Photo: Getty Images.

It is still early days for impact bonds in the Middle East, which has lagged behind the rest of the world in its use of the tool. But two are underway and third is due to launch in the coming months.

The first to be announced in the region was an initiative of the World Bank; a DIB seeking to better match skills to jobs in Palestine, where half of graduates – among them Dr Amro – are unemployed.

The second - and the first impact bond in the Gulf - is a SIB led by Abu Dhabi’s Authority of Social Contribution (Ma’an), a government agency. It provides social and workplace skills training to young people with additional needs, like Al Zabi, helping them integrate into the local labour market and gain more personal and financial independence.

Meanwhile, the third project, a DIB, which is part-funded by the IKEA Foundation, is expected to be launched this year. It aims to improve livelihoods and home-based business opportunities for refugees and vulnerable host communities in Jordan.

Under the terms of the Palestinian DIB, $1.8m is being channelled into training schemes to help professional graduates, such as doctors, engineers and teachers, match their skills to what is required in the local job market. In the case of Dr Amro, he needed help to learn the English medical terms required to pass the Palestinian board exam, a prerequisite for practicing in the country.

Another course is bringing Palestinian engineers up to speed with the latest health and safety codes, to make them indispensable to local firms who need their expertise to meet new government regulations for construction sites and industrial facilities.

“The DIB is trying to create jobs and training in a sustainable way, in an economy that has a lot of constraints,” says Heike Harmgart, managing director for the southern and eastern Mediterranean region at the European Bank for Reconstruction and Development (EBRD), one of four investors in the Palestinian bond.

“It’s about the interface between formal higher education and the skills needed in the job market – the technical and soft skills that employers are looking for. It definitely has potential to make a real difference for young Palestinians,” she adds.

Jalil Hazboun, executive director of the Finance for Jobs Consulting Service, an entity created to run the DIB in Palestine, says the bond funds niche training for a small number of people. The aim is to see a small number of people secure sustainable jobs, rather than providing general training for a larger group with no fixed goal.

“In the past, grant money would go straight to the 'inputs', the training or the activities, and that would be the end of it,” Hazboun explains. But in this case, he says, the World Bank is using the bond to ‘buy’ jobs, because the pay-out will only come if enough participants secure stable employment.

According to the bond’s current targets, of over 1,200 training places – of which 30 per cent will be allocated to women – more than 300 people must stay in a sustained job for six months.

“The private investors provide capital to run the training, but the outcome funder in this case… is holding onto its money and only paying when the desired outcomes are achieved,” says Hazboun.

Matching skills to jobs in Palestine

Name: The Palestinian Employment Development Impact Bond
Initial investment: $1.8m
Investors: European Bank for Reconstruction and Development; Dutch Entrepreneurial Development Bank; Invest Palestine, through the fund Semilla de Olivo; and the Palestine Investment Fund.
Service provider: Various
Outcome funder: The World Bank
Outcome value: $5.75m (which will cover the investor returns, the structuring of the DIB and the monitoring and evaluation)


In 2019, the World Bank unveiled its first development impact bond in Palestine, where it hopes to jump-start job creation.

The bond, which has been arranged by the UK-based Social Finance, is one tranche of the Finance for Jobs arrangement between the Palestinian Authority and the World Bank. It will fund targeted skills training for young Palestinians, to support their transition into sustainable employment.

If targets are met, DAI Global, on behalf of the Palestinian Ministry of Finance and Planning and with World Bank funds, will return the investors’ initial payment plus interest.

In Jordan, Ferd, a family-owned Norwegian investment firm, and a second social investor are providing $9.8m of funding in three annual tranches to pay for livelihood training for refugees and host populations living in Jordan.

The aim is to boost income generation, particularly among women, and reduce harmful coping strategies, such as taking children out of school to work.

The IKEA Foundation is set to be the main outcome funder, along with two other unidentified entities, one public and one private.

The training, which is expected to start early this year, will be run by the Near East Foundation (NEF), an international NGO working across the Middle East and Africa. NEF, which has operated in the region since 1915 and is financed by a mix of philanthropy and international aid budgets, already runs a successful micro-enterprise support programme in Jordan.

“Impact bond investors are actors interested in development. Basically, investors with a genuine interest in making the world a better place.”


Beatrice Delperdange, head of business development, Kois.

The DIB will allow NEF to triple its current training and support provision in Jordan to reach 4,400 people, as well as give applicants up to $850 in seed capital to start new businesses. The project will target refugees and Jordanians on a 30/70 basis, in line with the government’s recommended ratio for business development programmes.

In return for this money, NEF must ensure that at least 55 per cent of income-generating activities launched under the DIB are still running 10 months later.

After 24 months, evaluation teams will also survey household spending to determine whether incomes have increased, and gauge household resilience.

If all these targets are met, the investors can make up to a 5.15 per cent annualised rate of return over the project’s four-year duration. Altogether, the outcome funders are providing $13.4m, allowing $3.4m for management, evaluation, and investor profit, as well as a bonus for NEF.

Beatrice Delperdange from KOIS, an international impact finance firm which arranged the DIB, says while investors could make back 22 per cent of their capital over the four years, they could also lose up to 20 percent.

“Profit-seeking-only investors will not be interested because their risk will not be sufficiently rewarded,” she says. “Impact bond investors are actors interested in development and those we call philanthropic investors – basically, investors with a genuine interest in making the world a better place.”

Delperdange explains the aim of the DIB was broader than just livelihoods.

“It’s also looking to improve refugees’ ability to adjust to external shocks,” she says. “It’s acknowledging that they might go home one day, or that they might want or be forced to move to another place. It’s about their ability to react and rebuild after a new shock.”

In her view, using a DIB over traditional donor funding is also a way to overcome resistance to financing livelihoods initiatives in insecure locations.

“Livelihood programmes are traditionally development approaches for stable contexts: their habitual funders aren’t used to humanitarian contexts,” Brussels-based Delperdange says. “This is about bridging that gap and finding new funding and new ways to deliver programming to those who need it most.”

Andrea Crowley, NEF’s director of partnerships and philanthropy, says that what propelled NEF’s interest in the DIB was the access to multi-year funding, as well as the flexibility to use that money as required.

“Typical institutional grants are not only smaller in time and in value, but also much stricter in structure,” she explains. “But with a DIB, while you're accountable for achieving outcomes, you're allowed flexibility along the way. You can adapt your programme as you need to make sure that you're consistently on track to achieve those outcomes.”

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With limited access to formal employment, home-based businesses give refugees a means to support their families. Photos: Getty Images.

The dollar value of all three of the Middle East’s impact bonds is not that significant, nor the number of participants being targeted. But the size and scope of the programmes is only part of the story.

“We are creating innovative new pilots, building a new ecosystem. What we have is more than training,” says Faisal Alhmoudi, acting social incubator and contracting executive director, at Ma’an, the agency behind the Abu Dhabi SIB.

“The main target for the project is, of course, to secure employment for the participating students,” he says. “[But] ultimately want to help inform and shape inclusive educational and employment policies with a vast range of employers, identifying those who can offer meaningful opportunities for people of determination.”

For an organisation like NEF, taking funding from a DIB has thrust them into the spotlight. The heavy scrutiny involved, as well as the need to meet investor targets, carries significant reputational risk. 

“What’s valuable is the proof of concept. Everybody wants this to succeed.”

Jalil Hazboun, executive director, F4J.

But for Hazboun in Palestine, the biggest test relates to the mechanism itself.

“What the investors and the World Bank and all the parties involved want to do is set an example of moving away from traditional financing and grants, to show that to results-based or outcome-based contracts work,” he explains. “In the development world, what is few millions in the grand scheme of things, if we get to improve financing mechanisms?

“What’s valuable is the proof of concept. Everybody wants this to succeed, not because of the returns or the amount of money, but so they can prove this approach actually works and that it is possible to hold service delivery or service providers accountable for their claims.”

Crowley at NEF believes early success with impact bonds in the Middle East could unlock major new funding for development programming in the region.

“We hope that this experience will generate a proof of concept for these types of funding relationships to engage investors who have a philanthropic interest but want to do it with a business mindset,” she says. “It would be great to bring them more into the fold when it comes to this type of funding.

“Then, if project outcomes are successful and they achieve their return, they'll want to reinvest that into similar projects, so I think from that standpoint, the potential is really exciting.”

Empowering youth in Abu Dhabi

Name: The ATMAH Social Impact Bond
Initial investment: AED2m ($545,000)
Investor: Aldar Properties
Service provider: Aldar Education
Outcome funder: Department of Community Development Abu Dhabi
Facilitator: Authority of Social Contribution – Ma’an
Outcome validator: Zayed Higher Organization for People of Determination


ATMAH is a vocational training initiative aiming to equip 25 young people of determination in Abu Dhabi with the skills to secure permanent employment, in sectors such as office administration and hospitality. Unlike most impact bonds, where investors make a profit, in the case of the ATMAH programme, any returns generated for Aldar Properties will be recycled back into the company’s corporate social responsibility programme.

The Covid-19 pandemic has given fresh impetus to the need to find new sources of social and development funding. Impact bonds represent a way for cash-strapped governments to bridge financing gaps, while using private money to drive better social outcomes can to boost economic growth.

Critics of impact bonds, however, question whether they offer real value for money. Some are uncomfortable with the idea of private investors profiting from the delivery of public services.

There are also concerns that – far from trialling new paths and innovations – investors will stick with tried and tested approaches to guarantee payouts.

Although an advocate of SIBs and DIBs, Delperdange also urges caution. Impact bonds, she says, should be about paving the way towards more and sustainable funding.

“They cannot be about investors using their power as owners of capital to impose a solution in order to draw high returns, possibly to the detriment of the deep impact goals of the programme,” she explains.

Harmgart at EBRD, however, is hopeful the Palestine DIB could help trigger a new era of development financing in the Middle East.

“We’ve had a lot of interest from other organisations in the region looking at their own impact bonds for training and job creation,” she says, “it has huge potential. We are really interested in and enthusiastic about scaling and replicating.” - PA