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A Guide to Results-Based Financing in Water Investments
Given the broad array of issues and the complexity faced by the water sector as a whole (from irrigation to flood protection, to water conservation and hydropower), there is great demand for future exploring the potential of RBF and tackling the questions still unanswered about many of its operational dimensions.
Results-based financing (RBF) is an effective approach for achieving better quality and timely delivery of services in development projects. RBF has been mostly used for water supply and sanitation investments but some questions remain unanswered on the operational dimensions of RBF in other water sub-sectors, such as irrigation, flood protection, water conservation and hydropower.
The Applying Results-Based Financing in Water Investments study takes a closer look at some of the practical aspects of implementing various RBF schemes in water-related investments, from access to water services and household sewage connections to irrigation and deforestation. This study contributes to a better understanding of RBF instruments, based on reward-delivery-output/outcome-incentive, and the conditions for success or failure of such approaches.
The study provides an analytical framework to explore if and when RBF can be a viable option and some key factors that are necessary for this approach to work. It offers a selection of case studies based on actual projects implementing RBF instruments and some of the key challenges in designing an RBF scheme in the water sector.
Chapter 2 provides an analytical framework to explore if and when RBF can be a viable option, shedding light on some key factors and preconditions that are necessary for RBF to work--with the understanding that it can be used either as an alternative or a complement to a more traditional input-based funding scheme.
Chapter 3 then revisits the concepts discussed in the analytical framework through the analysis of various case studies of RBF approaches in different water-related areas. Some of the case studies are based on actual projects already implemented or ongoing, while others are an illustrative elaboration, given the lack of practical cases to use as sources.
Chapter 4 presents some conclusions and lessons learned. The key challenges that are likely to be encountered in designing an RBF scheme deal with: the clarity and level of certainty of the relationships from input to output to outcomes (causal links); the ease and availability of measurable indicators; and, consequently, the optimal determination of the necessary incentive(s) to align the goals of the principal with the agents' deliverables.