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Identifying the Potential for Results-Based Financing

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Although Results-Based Financing (RBF), an approach that allocates public funds based on the achievement of specified results, has had some practical successes in the health and education sectors, its use in the sanitation sector has been limited. Identifying the Potential for Results-Based Financing for Sanitation by Sophie Trémolet looks at the potential for application.

RBF can help realign where and how incentives for sanitation are targeted, increasing these investments’ effectiveness. Misaligned incentives (or market failures) can occur at all levels of the sanitation value chain—demand creation, collection, transport, treatment, disposal, and reuse—on both the supply and the demand sides. For example, collection services might be unavailable or households might not be able to afford them. With RBF, public funds go toward making incentive payments to address such market failures.

RBF offers an alternative to traditional household and supplier subsidies.Under a proposed “Grow Up with a Toilet”plan in Cambodia, for example, a mother would receive a voucher toward the purchase of a latrine upon the birth of her first child. Over the next five years, she would receive additional vouchers as the household demonstrates its commitment to maintaining improved sanitation. The program design highlights the need to target sanitation finance to improving sanitation among young children; recognizes that sanitation financing should promote ongoing sanitation development; and encourages more efficient demand-side financing.

Output-Based Aid to Improve Water and Sewer Connections. RBF incentives can also encourage service providers to provide services to the poor. In Morocco, for example, the Global Partnership for Output Based Aidprovided a US$7-million grant to three service providers to connect 11,300 households to piped water and sewerage. GPOBA paid the subsidy in two installments: the first when the services were connected and the balance after 6 months of verified sustained service. Although initial progress was slow, the pace of investment substantially picked up in subsequent years, with one supplier delivering the expected number of connections ahead of schedule.

This Working Paper is one in a series of knowledge products designed to showcase project findings, assessments, and lessons learned through WSP’s Scaling Up Rural Sanitationinitiative. This paper is conceived as a work in progress to encourage the exchange of ideas about development issues and is published  by the Water and Sanitation Programand the SHAREconsortium.

For more information about Identifying the Potential for Results-Based Financing for Sanitation, please contact Sophie Trémoletat Photo used by permission of Sophie Trémolet

Results-Based Financing can support a service-delivery approach to sanitation by providing public support for key services being delivered over the long term,” says Trémolet. For example, paying latrine emptiers to deliver the sludge at a designated point rather than charging them for it could give them an incentive to collect the sludge in the first place.

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