Results-based financing for poverty alleviation October 30, 2018

Contents Results-Based Financing: Rationale, instruments, and market trends A Poverty Alleviation Outcomes Fund for Kenya

Results-Based Financing Tying funding to pre-agreed and verified results Verified outcomes Inputs and activities The vision 100% Status quo 0% Funding tied to… Business trainings Savings groups formed Job trainings Increased assets Increased consumption

How Can RBF improve results? Key drivers of greater impact Measuring and drawing attention to outcomes Aligning financial incentives with beneficiary welfare Grow effective approaches and organizations Providing flexibility to achieve results Improving accountability to beneficiaries

Growing resources in RBF $26.5 billion allocated to programs tying funding to results Launch of first Development Impact Bond World Bank’s Program for Results launched $1.5 billion Advance Market Commitment for Pneumococcal Vaccine Information of developing countries, defined as not high income countries in 2013 by the World Bank. Resources could be double counted if the money is used in two or more RBF contracts.

RBF in developing countries 78 developing countries have used RBF instruments Legend Impact Bonds Performance Debt Buy Downs Program for Results Results Based Aid Performance-based grants Performance-based contract Excludes Conditional Cash Transfers and Performance-Based Incentives (incentives to frontline workers). RBF in high-income countries are not listed. Developing countries are all the countries that are not classified as high income by the World Bank in 2013 (i.e. for WB FY2015 the country had a GNI per capita <12745). Multiple RBF instruments

Sector mapping RBF experience is concentrated in health Sector Peer organization Education DFID and World Bank Energy Global Partnership for output-based aid (World Bank) Health Health Results Innovation Trust Fund (World Bank) WASH

Classic grants pay out funds at the outset of a project Funders Implementer services data How can we make this evidence matter as much as possible? Independent Evaluator Beneficiaries data

But how will the implementer get started? If funds are paid in the end, they can be made dependent on evidence of success funds Funders Implementer services data But how will the implementer get started? Independent Evaluator Beneficiaries data

Impact bonds bring on board investors to help finance pay-for-success contracts funds Funders Implementer funds funds Financiers services data Independent Evaluator Beneficiaries data

The very first: Educate Girls Impact Bond in India Improving child learning and enrollment funds Funder Implementer Educate Girls funds Children’s Investment Fund Foundation Financiers funds UBS Optimus Foundation services data Independent Evaluator Beneficiaries IDinisght 15,000 children data

Educate Girls Impact Bond Educate Girls surpassed targeted results after three years Outcome Three-year target Final result Performance as percentage of target Aggregate learning gains for all students (grades 3-5) +5,592 ASER learning levels above control group +8,940 ASER learning levels above control 160% Enrollment of out-of-school girls 79% of eligible girls 92% of eligible girls 116% Aggregate Learning Gains (Treatment-Control) by Year Enrollments of Out-of-School Girls (Treatment) by Year

Impact Bonds Worldwide 6/108 are in low- and middle-income countries CA 04 01 SWE UK40 08 NLD 02 FIN 01 BEL 02 GER 02 FRA 01 AUT US20 01 04 SWZ PRT 03 JPN 02 ISR 02 SKR 02 IND 01 COL 01 NZL DRC, ML, NG 01 01 PER KEN UGA 01 Legend # impact bonds completed or in implementation: 5-10 <5 >10 08 AUS Nov 2017, database from Social Finance & Instiglio.

Contents Results-Based Financing: Rationale, instruments, and market trends A Poverty Alleviation Outcomes Fund for Kenya

Benefit/Cost Ratios By Trial Site in 6-Country Replication Study Graduation has been cost-effective – but impacts have differed greatly across sites Benefit/Cost Ratios By Trial Site in 6-Country Replication Study (using 5% real discount rate) (threshold)

What might explain this variation? There were only modest differences in targeting and curriculum Other factors likely play a role Which ones? Among them may be very subtle ones: The culture of the implementing organization The capability of mentors to relate to beneficiaries at a personal level Highly localized contextual factors “Secret Sauce” / “Magic Dust” / “Human Touch” / “Tacit Knowledge” This creates scaling challenges “Rolling out the right components” to “the right target populations” does not guarantee success We can’t fully define “all quality factors” or where they are in place “Quality” may correlate with scale How to route funding to those efforts where impact does materialize?

In principle, impact bonds are a great tool to route funding where there is impact But: 1. Funders don’t usually work like this; how to engage them? 2. How to make all of this cheap and routine? funds Funders Implementer funds funds Financiers services data Independent Evaluator Beneficiaries data

Trustee (outcomes fund) An outcomes (trust) fund makes pledges to allow all of this to function cheaply & routinely Funders funds pledge funds Trustee (outcomes fund) Implementer funds funds Investors services data Independent Evaluator Beneficiaries data

We tested a prototype poverty alleviation outcomes fund in Kenya & Uganda DFID USAID WPF funds pledge funds 9 GDI Village Enterprise funds funds Investors services data IDinsight 12,660 Beneficiary households data

There is donor interest in scale-up, and we hope to find where this model can add the most value Kenya comes with promising opportunities The Government of Kenya has already demonstrated a strong appetite for innovation through its performance-based management and contracting is already prioritizing and investing in social protection programming through its Vision 2030 plan the Big 4 Pillars the Sustainable Development Goals 1&2 its partnerships with the World Bank and IFAD A sophisticated ecosystem of 10 evidence-backed high-capacity service providers such as BRAC, One Acre Fund, BOMA Project are already supporting poor rural populations in Kenya with training or mentorship are already partners to the outcomes fund There are many possible synergies related to the scale-up of graduation approaches in local social protection policy

How best to partner? Government as learning partner Government as funder Government as implementer Or potentially a combination of the above

Q&A

The long term vision is to Linking cost-effective programs to government social protection Ecosystem of evidence-based poverty alleviation service providers Government social protection programs Outcomes Fund as a link The challenge This creates room to leverage coordination amongst governments, service providers, and donors. A proposed solution: - This creates a funnel from innovation to scale for cost-effective approaches, increasing the collective impact of government, donors, and service providers working to reduce poverty. Potential contribution of an outcomes fund An outcomes Fund can act as a pull mechanism for cost-effective programs and is an opportunity to connect evidence-based programs with large-scale government social safety net programs.