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GPRBA and the World Bank organized a knowledge sharing event in Addis Ababa, Ethiopia, May 15-17, 2019. We brought together partners, clients and donors to the field in Ethiopia (where PforR projects are prominent) to get their perspective on RBF and see what’s on the pulse of other organizations in terms of RBF. About 90 attendees participated in the forum, including staff from across the World Bank Group, key players in results-based financing (from organizations such as SNV Netherlands Development Organisation, the German Agency for International Cooperation (GIZ), Enabel, the African Development Bank (AfdB), the European Commission, the Brookings Institution, Instiglio, and the Social Finance and the Education Outcomes Fund) representing major organizations from around the world; clients from Ethiopia, Ghana, Kenya and Myanmar; and local representatives from the donor community.
Given our renewed strategic focus to provide greater flexibility in the financial instruments that we use, getting this insight from others was critical. The agenda included deep dives into the different category of instruments such as PforR, Impact Bonds, Performance-based Contracts, and sectors and themes where RBF is prominent (energy, water and sanitation, health, education) and challenging (fragile situations and climate change).
The event also included a site visit to Adama, Ethiopia, about 100km east of Addis Ababa. The project site represents results from a PforR project and served as a living laboratory for results-based financing. A half-day field visit to the Ethiopia Local Government Development Project II (a P4R operation) was also organized in collaboration with the Ethiopia Urban team which gave good exposure to the participants on RBF financing in a local government development context.
GPRBA will continue to be important as a leader in designing and testing new approaches in addition to being a convener for knowledge– stay tuned for annual events to continue the conversation.
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Photo: Dominic Chavez / World Bank
Future growth and climate-resilient development requires action at the city level. It also requires new ways for financing infrastructure in less-developed urban communities.
A record-breaking number of people live in cities, making them economic powerhouses accounting for some 75 percent of global economic output, while emitting over 70 percent of global carbon emissions.
The importance of cities will only grow. By 2050, the global urban population will exceed 6.7 billion; 80 percent of this growth will take place in low- and middle-income countries, predominantly in Asia and Africa.
Climate change with shocking temperatures and extreme weather pose significant challenges to cities’ critical infrastructure—such as transport networks, waterways, and electricity grids, all of which are essential to economic activity and development. City dwellers—such as the one in three urban residents who live in slums in developing countries—are set to be hit hardest.
But despite cities’ commitment to climate-smart growth, the sheer scale of the challenge subdues local budgets and many cities lack the institutional capacity and creditworthiness to fund the infrastructure needed.
The classic model of infrastructure financing that depends on aid without accountability and misses progress in the policy agenda towards creditworthiness is inadequate to address the challenges that lie ahead for cities. Therefore, finding new approaches to incentivize public and private investments is essential.
A new report by GPRBA aims to catalyze this dialogue with city officials and development partners by:
- Setting for the first time a framework for results-based and blended finance schemes for climate investments in cities;
- Presenting a toolbox analysis of financial instruments that have not been-tested or mainstreamed in development finance operations in cities; and
- Signaling the opportunity for partnerships in developing results-based financing solutions that deliver results with accountability for public institutions, service providers and financiers.
This report offers innovative ideas for cities and development partners to use their limited public funds and direct policy decisions to leverage private sector investments. The analysis shows how selected results-based instruments can help overcome investment barriers and make low-carbon and resilient infrastructure a bankable asset class for local and international investors.
Improving capital raising through increased creditworthiness, providing financial incentives to develop a pipeline of bankable projects, and deploying capital most effectively through results-based approaches will be key.
The report brings together experiences from investments in energy efficiency through auction facilities and specialized energy services companies, utilities that developed environmental impact bond schemes and pay-for-success schemes in municipal solid waste management such as the one developed by GPRBA in Nepal.
Without bold, innovative results-based financing approaches in cities that blend public and private funding we’ll not be able to deliver climate resilient and inclusive growth.
See also:
Changing our Name, Expanding our Mission
Publication: "New Perspectives on Results-Based Blended Finance for Cities: Innovative Finance Solutions for Climate-Smart Infrastructure"
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Over 75 bilateral cooperation agencies, multilateral development institutions, and private foundations participated in third annual Impact Bonds Working Group (IBWG) held in Washington, DC at the World Bank (February 26-27) and co-organized by GPRBA.
The IBWG meetings brought together major public and private sector donor organizations and development agencies to design strategies and concrete initiatives for enhancing the cost effectiveness and scalability of impact bonds and other outcomes-based commissioning instruments as a means to support countries in delivering the UN Sustainable Development Goals.
The conference featured plenary sessions and a mix of high-level panel discussions, dynamic breakout sessions, investor feedback clinics, donor-to-donor knowledge sharing, and workshop on operationalizing the Impact Bond Market Acceleration Partnership (IBMAP).
Among the topics covered were:
- Emerging deals and Outcomes Funds
- Knowledge Sharing and Lessons learned
- Operationalizing the Impact Bond Market Acceleration Partnership (IBMAP)
- Strategies for Scaling Outcomes-Based Commissioning
The third item in the list above, the Impact Bond Market Acceleration Partnership (IBMAP), was discussed in great detail and is an emerging initiative being developed and launched by the IBWG to seek more opportunities to apply the use of impact bonds.
For more information on the third IBWG meetings' agenda and discussions, visit http://www.ib-wg.com/ (go to DOCUMENTS and scroll down).
The IBWG Executive Committe Members are DFID, SECO and the UBS Optimus Foundation. The IBWG activities are managed by the IBWG Secretariat (Levoca Impact Labs).
Among the IBWG meeting attendees:
Inter-American Development Bank
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This World Bank-supported and multilateral donor funded unit is now the Global Partnership for Results-based Approaches. After 15 years of development experience using results-based financing, this name change reflects a wider emphasis beyond the original focus on output-based aid.
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The use of results-based financing (RBF) approaches has been growing among the development community. The Global Partnership for Results-based Approaches (GPRBA) has been at the forefront of supporting and using RBF mechanisms since 2003, when the program started promoting output-based aid (OBA) through the Global Partnership on Out-Based Aid (GPOBA). RBF approaches aim to enhance the delivery of services by tying payments or funds to demonstrated and verified results. Focusing on these results creates innovation, transparency and accountability.
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GPOBA is now GPRBA!
Worldwide, millions of people live without basic services, including reliable electricity, functioning toilets and regular waste removal services. As a result, income inequality persists and progress toward the Sustainable Development Goals (SDGs) stalls.
In many cases, governments at the national and local levels have every intention of ensuring these services reach everyone. But they don’t often have the budget or technical expertise to deliver, especially to low-income residents.
Furthermore, private service providers, such as an electrical or waste removal companies, don’t have the economic incentive to extend services to low-income communities, which likely can’t afford going rates for services.
For the last 15 years, an innovative development financing approach has been successfully knocking down these barriers to inclusive economic development. Nearly 50 projects in 29 countries have ensured that basic services are reaching some 10 million beneficiaries—in a sustainable way.
The approach? An innovative funding system that disperses payments only when actual results are achieved. It’s transparent, demands accountability and almost always delivers development successes.
Established in 2003, the Global Partnership on Output-Based Aid (GPOBA) has focused on output-based aid (OBA), a type of results-based financing (RBF) used in those specific cases when low-income communities are excluded from basic services because of affordability.
By offering government and the private sector service providers subsidies, as well as technical assistance, GPOBA reduces the high costs of delivering services to low-income communities. Some successes include
- The clean-up of municipalities across Nepal through vast solid waste management improvements.
- The supply of 32,800 people in low-income Zambian communities and 80,000 in poor Liberian districts with reliable energy sources.
- The access of 170,000 low-income households in rural Bangladesh to hygienic sanitation.
- In Ghana, close to 100,000 people benefitted from access to off-grid renewable energy.
As GPOBA had evolved and grown, it’s increasingly deployed RBF approaches beyond OBA. Through a renewed strategic focus, more and more projects are developed using a mix of RBF instruments that leverage donor resources to maximize private sector financing.
To reflect the new emphasis on using different RBF instruments and a broader range of RBF mechanisms, GPOBA is changing its name to the Global Partnership for Results-Based Approaches (GPRBA). The change from “O” to “R” is one letter difference, but it unleashes new opportunities for creativity and flexibility in the program’s unwavering efforts to help low-income communities live better lives.
“If the world’s poorest communities don’t have access to necessities, it will be impossible for us to achieve the Sustainable Development Goals (SDGs),” said Shobha Shetty, Practice Manager, Global Partnerships & Resource Mobilization. “GPRBA provides innovative financing solutions that link funding to actual results achieved. Our results-based financing approaches provide access to basic services like water and sanitation, energy, health and education for low-income communities that might otherwise go unserved.”
Results-based financing (RBF) is becoming an important part of the development finance solutions, especially as governments and partners strive to meet the Sustainable Development Goals (SDGs). In fact, in the last decade alone, at least $25 billion of development spending has been tied to results, an increase from just a few billion the decade before.
These innovative financing mechanisms have the capacity to bring together public and private sector funders to maximize resources and design effective incentives for service providers to reach underserved low-income communities. By working together, we can give everyone a chance for a better life.
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Given the significant financing gap to meet the needs of developing countries and achieve the United Nations’ Sustainable Development Goals, governments, multilaterals and other development partners are increasingly looking to the private sector to help fill this gap. This means applying innovative financing instruments which address investor risks to help mobilize private capital, optimizing the use of scarce public resources to advance development objectives.
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The map below demonstrates the climate-smart energy pilots supported by GPRBA, along with the estimated number of beneficiaries.
(Click on the link below the map for full resolution version, and adjust size via your browser)
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Results-based financing is a well-established financing modality in the health and education sectors but it is still in an early stage of deployment in the area of climate change. This report reviews 74 results-based climate financing (RBCF) programs implemented in developing countries with an objective to: assess the characteristics and overall volume of funding flowing through RBCF programs, describe the various approaches to designing and implementing RBCF programs, and compare practical experiences with applying RBCF with the existing theory and literature.