Increasing access to basic infrastructure and social services is critical to reducing poverty. However, increasing access remains a challenge because of the gap between what it costs to deliver a desired level of service and what can be funded through user fees, especially for the poor. OBA is a form of results-based financing (RBF) designed to enhance access to and delivery of infrastructure and social services for the poor through the use of performance- based incentives, rewards, or subsidies. OBA links the payment of aid to the delivery of specific services or “outputs,” such as connection of poor households to electricity grids or water supply systems, installation of solar heating systems, or prenatal care and safe delivery services for new mothers.
Under an OBA scheme, service delivery is contracted out to a third party—public or private—which receives a subsidy to complement or replace the required user contribution. The service provider is responsible for pre-financing the project, and is reimbursed only after the services or outputs have been delivered and fully verified by an independent verification agent (IVA). The subsidy is explicitly targeted to benefit the poor, which can be achieved through several means, depending on the context of the project and environment.
For example, geographic targeting can be used to focus on areas in which poor people live, or individual households can be selected though an income-based method, using existing social targeting mechanisms or proxy means-testing tools to determine wealth. An alternative mechanism, self-selection targeting, seeks out the poor by granting higher subsidies for more basic solutions (such as solar home systems with less capacity), or providing subsidies only some time after the service has become available, under the assumption that most wealthy households will have already connected.