All the hype (and criticism) over foreign aid programs that pay for results got us wondering: how are these programs being implemented and are they effective?
CGD Policy Blogs
There is no denying that interest in Social Impact Bonds (SIBs) is steadily growing: with investments coming from big banks like Goldman Sachs and Bank of America Merrill Lynch and approximately 26 SIBs implemented in industrialized countries across the globe (see below for a more detailed listing), an evidence base is starting to accumulate on what works and what doesn’t.
In recent years, donors have been making greater use of performance-based payment approaches to fund development programs. The UK Department for International Development, using the broader term being used across the UK government, has added “Payment by Results” (PbR) to the development lexicon.
Development agencies are increasingly interested in making aid more transparent, stakeholder-led, and effective by expanding the use of payment by results (PbR) — rewarding those implementing projects on the basis of results delivered instead of paying for inputs. For payment by results to work, you have to get a lot of things right. It has to be for the right kind of programme targeting the right results, properly measured and rewarded in the right way. These issues, and more, are laid out in Stefan Dercon and Paul Clist’s 12 principles for payment by results (PDF).
If one thing was clear at the first High Level Meeting of the Global Partnership for Effective Development Cooperation, it’s that the 1500 people in attendance— representing the governments of developing, emerging and rich countries, multilateral institutions, business, philanthropy, and civil society—were not interested in how aid can be delivered more effectively from rich to poor countries but how the wide and growing range of actors who contribute to development can work together more effectively.
Innovative finance schemes are most likely to fail if the main aim is to bring in more money, and most likely to succeed if the aim is to create new ways of working.