Results-based financing for sanitation: is there a case for it? Can it work?

In a workshop supported by the Gates Foundation, we explore the potential to apply RBF to sanitation. Whereas the potential for using OBA in sanitation has been evaluated in some detail in a paper published last year, applying other RBF instruments to sanitation has been less explored. 

Results-based financing (RBF) ties the disbursement of subsidies (or aid) to the delivery of actual results. Does that sound like this is what all aid should be aiming to do anyway? In the current climate in which donors are focused on value-for-money indicators, RBF has risen to prominence as the new way to structure aid projects, particularly in sectors such as health or education.

Results-based financing can mean different things to different people. There are no commonly agreed definition and international agencies use various terms to refer to similar concepts or instruments. Examples of RBF instruments at the macro level (what DFID refers to as results based aid) include Cash on Delivery Aid, a concept promoted by the Center for Global Development, a US think-tank on development issues. Through a COD Aid contract, donors would transfers funds, typically to the Ministry of Finance (MoF), in proportion to progress toward a mutually agreed outcome such as universal primary education completion or reductions in illness. It is a way to create incentives for “the government to address a problem of its own making” and leaving such government complete flexibility about the choice of instruments to meet these objectives. Such contracts are currently being drafted for education: in that case, ensuring that girls complete school may be achieved in different ways, not all which are controlled by the Ministry of Education. For example, it may entail building more roads, so that girls can get to school, as well as building more schools or hiring (and training) more teachers. No COD aid contract has been tested in water or sanitation, but clearly such principle could also apply. 

At a more micro level, RBF instruments can be used to support either the supply or the demand side of a given market. On the supply side, Output-Based Aid has now been tested in a number of sectors, partly through support received from GPOBA. Output-based aid (OBA) ties the disbursement of public funding (in the form of subsidies) to the achievement of clearly specified results that directly support improved access to basic services. Another form of RBF instrument is the so-called Advanced Market Commitment, used mostly for developing vaccines so far, but which could be of use where innovation is required to develop new products tailored to developing countries. For example, GAVI (Global Alliance for Vaccination and Immunisation) has entered into an AMC with pharmaceutical companies for the development of a pneumococcal vaccine that is suitable to developing countries. 

On the demand side, conditional cash transfers (CCTs) make welfare payments conditional upon the receivers' actions, usually pre-specified investments in the human capital of children. This means that the government only transfers cash to persons who meet certain criteria and have adopted certain behaviors. Some ideas have been explored, such as the "Grow up with a toilet" plan in Cambodia, but none have been implemented so far, as conventional CCTs tend to use mostly health and education indicators, despite the clear link between poor sanitation and endemic malnutrition, thereby impacting children's growth and cognitive abilities. 

So can RBF improve the targeting sanitation subsidies? The jury is still out on this, as experimentation and evaluation of RBF sanitation schemes remain almost non-existent. That it is worth trying seems an evidence, however, as RBF has in several cases in health meant that available funds could stretch that bit further.