Increasing access to basic infrastructure and social services is critical to reducing poverty. Too often, there is a gap between the cost of delivering a service and what potential users are able to pay. As a result, service providers lack incentives to serve poor communities, and millions of people go without access to clean water, electricity, healthcare, and other basic services. Over the last two decades, there has been increasing recognition among donors, development partners, and governments that these development challenges require alternative approaches to service delivery. GPOBA was created to explore output-based approaches to these challenges, with results and lessons generated over 12 years’ experience as reflected in our portfolio of subsidy projects, technical assistance, knowledge activities and evolution as a Center of Expertise.
Output-based aid (OBA) is an innovative results- based financing (RBF) mechanism for improving access to basic services for poor populations. Unlike traditional aid, which disburses money against expenditures or contracts, OBA makes disbursements against demonstrated and independently verified ‘outputs’, such as the installation of solar home systems, the connection of households to water supply systems, or the provision of solid waste services. In an OBA project, service delivery is contracted out to a third party – a government or private sector entity – who pre-finances the project and, upon output verification, receives a subsidy to complement or replace user fees. OBA subsidies can be once-off, transitional, or ongoing, depending on the sector, project, and circumstances. By linking subsidies to performance, OBA can increase service quality, accountability, and transparency amongst service providers.
Whether GPOBA projects are stand-alone, or complementing traditional aid by working as part of larger schemes, they always use specific pro-poor targeting mechanisms. By bridging the gap between service cost and what users can pay, GPOBA subsidies encourage service providers to expand services to poor households or areas where otherwise no clear market incentive exists.
Since its inception, GPOBA has built up a subsidy portfolio of 44 projects in 28 countries, totaling $228 million, and has provided access to basic services for over eight million people . GPOBA’s portfolio also contains 177 OBA/RBF technical assistance and knowledge-related activities totaling $28 million. Subsidy projects and technical assistance activities take place in seven sectors, with the bulk of GPOBA’s work being in the energy and water sectors.
GPOBA’s work demonstrates that OBA is one of a range of development finance tools that can deliver results in a transparent and accountable manner. Through its direct experience in project implementation and its knowledge activities, GPOBA plays an important part in the growth of results-based approaches to international development and in the ongoing discussion about innovative mechanisms for service delivery.
The Role of GPOBA
GPOBA is a global partnership created in 2003 by the United Kingdom’s Department for International Development (DFID) and the World Bank, and administered by the World Bank. Originally designed to help prepare OBA projects and document and disseminate lessons learned, GPOBA began funding subsidy projects in 2006 through additional donor contributions. OBA projects have been implemented in urban, peri-urban, and rural areas, using public and private operators, public-private partnerships (PPPs), non-governmental organizations (NGOs), and community organizations as implementing agencies and service providers. GPOBA continues to develop as a Center of Expertise (CoE), building on the knowledge and experience acquired through project design and implementation, monitoring and evaluation, as well as knowledge exchanges that share lessons and best practices with development partners, practitioners, and governments that inform future projects, policies and activities.
This report reviews GPOBA’s progress towards its objectives during the last fiscal year, July 1, 2014 through June 30, 2015.