The Power of Incentives: Lessons Learned from Designing and Implementing Results-Based WASH Programs

Source: Thrive Networks

This week we highlight lessons by UK Department for International Development (DFID), Bill & Melinda Gates Foundation, iDE  and Thrive Networks in designing and implementing  innovative results-based WASH programs. On September 20th in New York City, Improve International and IRC convened a conversation on innovations in grantee-donor relationships in WASH programs hosted by the Voss Foundation and the Wildlife Conservation Society at their offices next to the Central Park Zoo. This week on the blog we summarize key takeaways from the meeting.

Payment by results
Guy Howard from the UK’s Department for International Development (DFID) presented on the Water, Sanitation and Hygiene results programme. WASH Results is a 12-country payment by results program involving three supplier contracts. Payments are made by DFID following independent verification of results achievement. The program is supported by a monitoring, verification and evaluation component which provides independent verification of suppliers’ results achievement, and includes an evaluation component including a randomized control trial on program sustainability.

Background
DFID wanted to quickly reach 6 to 7 million people with water access, and so needed to expand its supplier base (previously, 60% of their water programs had been implemented by UNICEF).  This was the first time DFID tried payment by results at this scale.

Benefits
NGOs started using robust hybrid monitoring systems that were input- and output-based, with third party verification. All suppliers worked well, and liked this method.  PBR has expanded to other programs.

Challenges
Organizations need to have an asset base to take on risk because they only get paid at the end. Most large non-profits do have this, but it is set aside for contingency funding. DFID’s partners had to negotiate with their boards to be able to access these funds. Few people have the skills (WASH and auditing) to do verification. Also, because the results are time-limited they need proxies to measure the strength and sustainability of systems. (read more)

Results-based financing
Jan Willem Rosenboom of the Bill & Melinda Gates Foundation described these aspects of results-based financing: shared vision of success, flexible implementation, shared risk and reward, and more effective measurement.

Background
The foundation’s use of results based financing was driven by the realization that focusing on outcomes as the “shared vision of success” was more useful than just focusing on inputs. Development organizations have a habit of over-promising and under-delivering, and there is usually no penalty. Doing more of the same probably will not achieve different outcomes.

The key deal features risk sharing of various outcome investing typologies are shown in the table below. These methods work best when the grantee understands their business model well and has institutional desire, capacity and control to deliver the intervention; indicators can be defined and independently measured; and a performance based incentive can catalyze extra effort.

Outcome investing typologies:

Source: Jan Willem Rosenboom, Bill & Melinda Gates Foundation

Benefits
This led to strengthening grantees’ monitoring systems, improved value for money, forced clarity about desired results, and aligned incentives between grantee and the foundation. Another attractive benefit is the chance to earn unrestricted funding with excellent performance.

Challenges
Changing from input-based to outcome funding can be challenging for grantees. Some partners needed special approval from their boards to work in this way. Furthermore, these programs are challenging to design and monitor, but technology has been used successfully to track results. For example, initial targets are often unrealistic because there are no baseline data.

From the foundation’s perspective, there is tension between pressure to disburse and having payments conditional on results. Funders should leave room for early failure when innovating.

Power of incentives
Yi Wei of iDE described their Scaling up Sanitation Marketing program. She shared 10 keys to success, which included aligning with donors who understand the evolving, iterative nature of incentives; having a management team with experience in sales or business; and supporting behavior with coaching, training, and management. iDE budgets a pool of incentives that are used to reward positive performance by front-line field staff to senior management.

Benefits
At about 2% of the total program budget, incentives were a powerful, high return tool for driving performance. Donors (and ultimately investors) with different risk tolerances can contribute at different times.  Large-scale investments increased cost-effectiveness by driving rapid sales growth (see Figure below).

Source: Yi Wei, iDE

Challenges
Sometimes staff felt entitled to incentives, showed jealousy of others who received incentives, or tried to game the system. Verifying market transactions is difficult, for example, it can be difficult for a small business to answer how many toilets they sold to poor people a year later.  They are not used to keeping such records. They wanted a local, affordable agency so they did not “waste” funds on verification.

Output-based aid
Jeff Albert of Aquaya (formerly with Thrive Networks) described the “ecosystem” for delivering improved toilets to the poor (see 5-minute video). East Meets West (a member of Thrive Networks) facilitates the purchase and installation of an improved toilet by stimulating demand, “selling” toilets door-to-door by a sub-grantee with a national presence, linking households with trained commercial suppliers, facilitating credit access, and providing time-limited financial incentives. Households receive rebates (approximately 18-20 USD) after purchasing a toilet. The supplier gets paid for product/service provision. The sub-grantee earns a “payment”. East Meets West (the lead implementer) gets paid by the Bill & Melinda Gates Foundation for output delivery per latrine installed. Local government gets paid a lump sum upon 30% increase and achievement of 75% overall toilet coverage, respectively. (read more).

Benefits
Toilets started out with high prices but ended up about 50 USD each. Output-based aid drives accountability and efficiency.

Challenges
Need to focus on sustained behavior vs. sustained program. While for health benefits it is better to focus on achieving “herd protection,” (i.e., every household in a community uses a toilet – see Figure below), it is more cost effective to spread sales across several communities.

The red dots are households with toilets. Source: Jeff Albert

 

Key Questions and Takeaways from Discussion:

  • Is it fair to ask an NGO to carry the risk vs. a funder with deep pockets?
  • More understanding is needed of the contexts where results-based financing can be replicated.
  • All partners involved must share a vision of what success looks like. What is a clear definition of results and what is the time frame? How do you know if results are sustained?
  • Donor flexibility is critical in this process. It took one to two years to figure out the appropriate measurements, vision, and theory of change.
  • Implementers used financial incentives for employees, local partners, local governments, suppliers, and households.
  • How to access capital to get started? Some NGOs have been able to access contingency funds. DFID is exploring development impact bonds.
  • One foundation said co-funding a results-based program allowed them to use the robust monitoring already established and to further define their strategy for engaging in the WASH sector.
  • There are reasons to be cautious of subsidies because many government toilet building programs have failed miserably. However, targeted subsidies are likely needed to help poor people move up the sanitation ladder. These should also be results based.
  • How do we know people are using these toilets? Very poor people are paying a lot of money for a non-income generating asset, so they are probably using them.

Related Materials

Right Money, Right Time, iDE

Using Incentives to Reach Development Goals, iDE

Output-based aid (5-minute video), Thrive Networks

Results-based financing links masses of youth with employment in Nepal, Helvetas

Do WASH donors influence sustainability? Results from a 2016 survey (PDF), Improve International

What’s Next?

Participants of the convening have agreed that continued conversations about how funding relationships and mechanisms can influence sustainable water and sanitation services and systems are important.  Options for format include face-to-face meetings in various locations, quarterly webinars, and breakfast meetings during big WASH conferences.  Please email info@improveinternational.org if you are interested in participating, presenting your funder-grantee relationship, or hosting (providing space and/or financial resources for) an upcoming gathering.