UBS Brought the Bond Market to Philanthropy and It Paid Off

The world’s first development-impact bond to fund girls’ education in India performed better than expected.

UBS Brought the Bond Market to Philanthropy and It Paid Off
A sign sits illuminated above the entrance to the UBS Group AG headquarters in Zurich, Switzerland. (Photographer: Matthew Lloyd/Bloomberg)

(Bloomberg) -- The world’s first development-impact bond to fund girls’ education in India performed better than expected, suggesting the tools of the fixed-income market can be harnessed to supercharge philanthropy in emerging markets.

UBS Group AG’s Optimus Foundation launched the first-of-its-kind $270,000 Educate Girls Development Impact Bond in 2015 to fund a program in a remote district of Rajasthan to improve schooling opportunities for girls. The program outperformed its goals and the foundation earned a 15 percent internal rate of return, said Phyllis Costanza, chief executive officer of the UBS Optimus Foundation.

“This could potentially be a really powerful financing tool,” Costanza said in an interview Thursday.

Development-impact bonds are a twist on a growing effort to use financial structuring to back projects that address broader societal goals. About 108 social-impact bonds have raised $392 million since 2010 for causes such as reducing prisoner recidivism, fighting obesity in at-risk populations and helping refugees find employment, according to U.K. nonprofit Social Finance.

The development bonds work with nonprofits and aid agencies rather than governments. Five of the bonds implemented so far have raised $38 million from investors, estimated Amanda Glassman, chief operating officer of the Center for Global Development, a Washington-based nonprofit.

Working Capital

In a development-impact bond, a philanthropic investor fronts the working capital for a project. The bonds let the donors more easily measure whether their money has actually fulfilled a charitable goal and offer incentive payments based on that performance. The returned principal can also be recycled into future efforts.

In the India program, the goals were to get 92 percent of the region’s 837 out-of-school girls into class and deliver learning outcomes 75 percent better than those of a randomized control group, Zurich-based UBS said. The number of girls enrolled in school beat the target by 116 percent and their learning progress outperformed by 160 percent, Costanza said.

UBS said it wants to bring more transparency to philanthropy and use investment capital to lower the risk that nonprofits take on in running programs -- freeing up their resources to pursue even more projects.

“When people make philanthropic investments, especially international ones, there’s a lot of risk with that, but in a development-impact bond the investor is the one taking the risk,” Costanza said.

UBS spent more than a year setting up the bond and helped the nonprofit establish a tracking system measuring progress on outcomes such as attendance and proficiency in Hindi, English and math. The time and expense to set up a second, larger bond targeting maternal health-care improvement in Rajasthan were cut in half, Costanza said.

The impact bonds could be used to help bring capital to fund the United Nations’ sweeping set of Sustainable Development Goals, according to the CEO. It could take $3.9 trillion in investment annually, according to the World Bank, to meet those 17 goals including clean energy, education and gender equality in developing countries by 2030.

--With assistance from Tiffany Kary.

To contact the reporter on this story: Emily Chasan in New York at

To contact the editors responsible for this story: Jacqueline Simmons at, Josh Friedman, Dan Reichl

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