Results based financing

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Results based financing

  1. 1. EHSD/UNICEF/CONIWAS Meeting 16 – 18 January, 2012Scaling Up Sanitation andHygiene through ResultsBased Financing
  2. 2. Results Based Financing -Background  With RBF, funding is provided if pre-specified results have been achieved.  Premise-  Traditional Financing has not been sufficient in advancing sanitation goals – hardware subsidies have resulted in “wasted investments”. Efficiency of software spending yet to be adequately tracked.  Funding based on an input basis means that there are limited incentives to reduce the cost of providing services  Assumption- payments for performance can foster improved and more cost-efficient delivery and pro- poor targeting
  3. 3. Results Based Financing –Macro LevelInstruments  RBF refers to a broad family of financial instruments  Macro-Level – RBF influences policy makers to prioritize sanitation sector investments through an incentive scheme  e.g. CASH on Delivery for mutually agreed outcomes (MDBS , FOAT ),  local level rewards to communities or local governments through performance based inter- fiscal transfers
  4. 4. COD for Sanitation – NirmalGram Puraskar in India Central Government provides one off payment to local government based on a set of criteria  100% Sanitation coverage  LGA completely ODF  Award of US 1,250- 12, 500 depending on population for improving environmental sanitation  Key Challenge: Weakness in performance verification system
  5. 5. COD for Sanitation Define a critical indicator that provides an incentive for government (local/ central ) to invest in a sustainable and measurable manner in sanitation Develop simple performance measures that do not generate perverse incentives
  6. 6. Results Based Financing –Supply SideInstruments  Supply Side – RBF Instruments target suppliers to provide them with an incentive to provide services to the poor  Output based Aid to small scale providers. OBA ties the disbursement of funds to clearly specified results that directly support improved access to basic services  Full amount of the funds is paid to the service provider only when results have been achieved and verified by a third party.  Subsidies are provided to encourage provision of basic services to the poor in areas that are not commercially attractive  Can we consider OBA for latrine enterprises?
  7. 7. OBA in Senegal for OnsiteSanitation at Household Level Objective was to create incentives for “sanitation operators” to emerge, contractors in charge of building latrines as well as ensuring continuous operation and maintenance e.g. attend to pit emptying , user education etc
  8. 8. Results Based Financing –Supply SideInstruments  Supply Side – RBF Instruments target suppliers to provide them with an incentive to provide services to the poor  Advanced Market Commitments for research and innovations also targets service providers just as OBAS but used where new products and innovation are required  Can be applied to software in sanitation e.g . achieving sustainable ODF villages  - ODF  ODF plus  ODF School  ODF *****. A guaranteed market is provided, eg. Successful firms get a new allocation of communities to move from stage 1 to stage 2 or are given the entire area council or district to manage
  9. 9. What is Results Based Financing (RBF)?  Demand Side- RBF incentives for households to change their behaviour through instruments such as:  Conditional Cash Transfers to households  Targeted subsidies  Government transfers funds to persons who meet certain criteria and have adopted certain behaviours e.g. School enrolment, vaccination etc.
  10. 10. CCT- GROW-UP WITH A TOILETPLAN IN CAMBODIA Support to poor households with children under 5 years Targets poor mothers on the birth of their first child – U-5 are a risk group for diarrhoea Assistance provided to mother to improve sanitation over a period of 5 years  Year 0- $15 voucher for construction  Years 1-5 - $10 a year based on ff. criteria  Toilet usage (verified)  Village toilet coverage(verified)  Completion of hygiene course  Presence of handwashing facility
  11. 11. Designing RBF Instruments To note:- A number of challenges have been identified in all RBF instruments and most analysts conclude that great care must be taken in their design to achieve higher performance than through traditional financing and avoid introducing perverse incentives
  12. 12. Steps in Design Process Define objectives and evaluate applicability of RBF i.e. identify market failures that need to be corrected e.g. Few ODF villages, limited scale up of CLTS, few improved latrines, un-sustained latrines etc Identify which entity needs to be incentivised to achieve objectives (Government, Service providers, Households etc)
  13. 13. Steps in Design Process Evaluate how much risk can be transferred to entity being incentivized Define the payment trigger – input, output or outcome Develop the performance verification system/mechanism- payment trigger must be verifiable by a third (independent) party- SNV in Kenya Define the payment amount and payment schedules Define the fund transfer mechanism
  14. 14. Final Word RBF instruments have the potential to improved the sanitation sector’s focus on results and performance verification. RBF instruments are new and largely untested particularly in the sanitation sector. Going forward we need to invest great care in the design of the instruments and evaluate the costs and benefits of such schemes in comparison to traditional forms of financing

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