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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 crowd in private capital, optimizing the use of scarce public resources to advance development objectives. However, this leads to another challenge—how do we achieve inclusive development while remaining attractive to the private sector?
Results-based financing (RBF) approaches provide innovative financing solutions that link funding to actual results. By shifting the focus to results, RBF enables stronger service provider and/or implementing agency accountability and provides flexibility for innovation and thus efficiency in the means to achieve those results. While a variety of RBF instruments exist to achieve a multitude of objectives, these core features make RBF an important tool for addressing specific investment barriers and strengthening blended finance approaches.
RBF adds value to blended finance investments through:
- Reduction of repayment risk: RBF can leverage private investment by reducing the risk to lenders through performance/results-based grants paid to project implementers against pre-agreed results.
- Inclusion of the poor: As private capital providers have been reluctant to lend to projects primarily targeting low-income consumers, RBF can provide the incentive for them to do so.
- Complementing other de-risking financial instruments: RBF has successfully been used alongside other risk-mitigating instruments such as partial credit guarantees.
Over the past 15 years, the Global Partnership on Output-Based Aid (GPOBA) has been building evidence on the ability of RBF to mobilize additional resources through a diverse portfolio of projects involving a mix of private finance, results-based grants and guarantees to deliver basic services to low-income communities. The following examples provide lessons on how these projects can be replicated in other countries.
Maximizing Finance for Development for the Poor (Blended Finance Overview)
Extending Access to Clean Energy for Low-Income Households in Rural Bangladesh
Expanding Hygienic Sanitation in Rural Bangladesh with Microfinance
Expanding Electrification to Low-Income Households in Rural Ghana with Microfinance
Building the Market for Urban Sanitation in Ghana
Kenya: Using Private Financing to Improve Water Services
*Based on current estimates, it could cost as much as US$4.5 trillion a year to meet the SDGs.
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The objective of the activity is to support the design and implementation of OBA subsidy schemes that aim to extend water and sanitation services to the poor in SSA. This will be achieved by providing technical assistance (TA) for project identification, design and implementation support.
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This webinar presented an overview of the Ghana Solar Home Systems project and explored how RBF can be used to maximize financing for development in renewable energy.
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Dr. Bertha Darteh of Ghana's MInistry of Local Government and Rural Development describes how output-based aid (OBA) provided incentives for private sector providers to bid on sanitation contracts.
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Webinar organized by the World Bank's Global Partnership on Output-Based Aid (GPOBA) on the use of results-based financing in the Greater Accra Metropolitan Area sanitation project
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News Release no. 2008/8
In Washington:
Cathy Russell, tel. (+1) 202 458 8124 crussell@worldbank.org
In Accra:
Kafu Kofi Tsikata, tel. (+233) 21 214100 ktsikata@worldbank.org
Washington D.C., October 16, 2008 – The World Bank, acting as administrator for the Global Partnership on Output-Based Aid (GPOBA), signed a grant agreement with the Government of Ghana for US$4.35 million to support increased electricity access through renewable energy technology for poor households in remote rural regions of Ghana. Up to 15,000 poor households or 90,000 people are expected to benefit from the scheme, mainly through solar home systems (SHS) but also through solar lanterns.
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Accra, March 31, 2015 – The World Bank, acting as administrator of the Global Partnership on Output-Based Aid (GPOBA) has signed a US$4.85 million grant agreement with the Government of Ghana to provide sustainable toilet facilities in low income areas of Greater Accra Metropolitan Area (GAMA), Ghana’s largest metropolitan region.
Funding for the project is provided by the United Kingdom Department of International Development (DFID).
About 50 percent of households in the Accra metropolitan region live in single rooms of compound houses that often lack basic sanitation facilities. As a result, most urban poor have to rely on pay-for-use public toilets or open defecation. Ghana ranks close to the bottom of the list in terms of improved sanitation in sub-Saharan Africa and, in a survey of Accra residents, improving sanitation was the top priority out of seven basic services.
The project is complementing a US$150 million IDA grant from the World Bank Group to support the Government of Ghana in its efforts to provide low-income households with increased access to improved sanitation and water supply in the GAMA. Increasing access for the poor requires the construction and connection of toilet facilities to serve households in low-income areas. To help the poor afford the cost of the sanitation facilities, the GPOBA grant pilots an output-based approach that provides targeted partial subsidies to encourage households to construct facilities and service providers to serve low-income neighborhoods.
“This is an innovative, result-based approach that will help reduce barriers to access for the poor,” said Yusupha B. Crookes, Country Director for Ghana for the World Bank Group. “We look forward to supporting the Government of Ghana in its effort to improve sanitation in the low-income areas.”
The subsidy to service providers will be disbursed based on two main outputs; toilets that have been properly installed and operational for at least three months, and adequate facility de-sludging services being provided to ensure sustainability.
“While it is important to provide toilets for improved sanitation, it’s equally important to ensure sustainable operations,” said Carmen Nonay, Manager of GPOBA. “This project aims to incentivize providers to serve the poorest areas, which might otherwise be neglected.”
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Objective: to increase electricity access via solar photovoltaic (PV) systems to poor rural households in remote regions of Ghana where PV systems are the least cost technology option and grid service will not arrive for ten years or more. There were three components to the project.
1. Subsidies for solar PV systems: The project will fund output-based subsidies to private dealers for the sale, installation, and after-sale service for solar home systems of different sizes for rural households.
2. Transaction support: It is worth noting that the provision of technical assistance is consistent with emerging practices for off-grid electrification, which indicate that successful off-grid electrification projects require substantial accompanying technical assistance resources, both for the transaction and supervision, given that: (i) these are nascent markets, and (ii) governments typically lack experience and capacity to oversee these new transactions.
3. Project supervision by the Bank. Project supervision covers the work of the task team leader, the technical specialists, and the fiduciary and safeguards staff for the supervision of the Global Partnership Output-Based Aid (GPOBA) subsidies.
Outputs: The project increased access to off-grid electricity services in remote rural areas of Ghana through a blended financing scheme that facilitated loans to consumers. Using a dealer sales/consumer credit model, consumers accessed loans to purchase solar home systems and benefited from OBA subsidies, which made the systems affordable. The project supported the installation of 16,500 solar photovoltaic systems, 322 solar lanterns, and substantially increased consumer awareness of solar electricity options.
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Overview
Objective: The Urban Sanitation Facility for the Greater Accra Metropolitan Area sought to increase access to improved sanitation for low-income communities. The project was to partially subsidize the cost of access to new facilities and adequate services, incentivizing service providers to extend improved sanitation to low-income households. In addition, the project leveraged financial resources from micro-financing institutions and supports the scale up of business models that included soft loans for the provision of sanitation facilities in low-income communities.
Outputs: The facility overperformed by achieving 116 percent of its planned output, and the OBA approach was scaled up by the parent International Development Association (IDA) project and adopted by the African Development Bank for its activities in the country’s sanitation sector. The project installed 7,685 sanitation facilities in Accra’s lower-income communities and reached 47,190 beneficiaries.
Significant effort went into building the market for household sanitation, both on the supply and demand sides, before the project could build the toilets at scale within the agreed timeframe set at the design stage. The project’s first three years were largely focused on building the capacity of metropolitan and municipal assemblies and small and medium-sized enterprises, education of households, and engagement with the microfinance institutions. A combination of factors—competition among suppliers, increased scale, improvement in technologies, inflation, depreciation of the local currency, and fund reallocations inside the project—contributed to a larger number of sanitation facilities than projected.