DIBs are similar to Social Impact Bonds, but instead of a local government paying for achieved results, an aid organization or philanthropic foundation usually does so. Development impact bonds are also only used for projects in low- and middle-income countries. Social impact bonds, on the other hand, are used to pay for social programs in high-income countries.
As an example, impact investors might agree to give money up front to an eye hospital in Africa that will use the money to do a certain number of cataract surgeries on low-income patients within a certain amount of time.
Then, the charity agrees to pay back the investors’ principal and a set rate of interest if, and only if, the eye hospital is able to perform this number of successful surgeries in this amount of time. In this way, the philanthropic organization only pays for the specific development outcomes (the cataract surgeries) that have been achieved, and the risk of not reaching this goal is taken on by the private impact investors, who get a financial return above and beyond the cost of the surgeries (in addition to the “social” return on the financed intervention) in exchange for taking this performance risk.
