EHSD/UNICEF/CONIWAS

Meeting

16 – 18 January, 2012

Scaling Up Sanitation and

Hygiene through Results

Based Financing

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

Results Based Financing –Macro Level

Instruments

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

COD for Sanitation – Nirmal

Gram 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

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

Results Based Financing –Supply Side

Instruments 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?

OBA in Senegal for Onsite Sanitation 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

Results Based Financing –Supply Side

Instruments

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

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.

CCT- GROW-UP WITH A TOILET

PLAN 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

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

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)

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

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