Since the early 2000’s, and at different stages, the Bank has experimented to various degrees with the use of results-based mechanisms in its programs and projects, particularly in the areas of health, nutrition, population, education, and social protection.

As part of a larger trend within the development community, the World Bank has in recent years sought to expand its use of results-based financing.  In 2012, the Bank launched the Program-for-Results (PforR) instrument in direct support of government programs, tying disbursements to achievement of intended program results.  Initially up to 5 percent of Bank-lending could go towards these programs; in 2015, this aggregate limit was raised to 15 percent.

The Bank is not alone in this regard. Only last week, the UK’s Department of International Development announced plans to expand the use of results-based development aid to cover up to 30 percent of its funding, following a comprehensive review that assessed the performance of DFID’s main multilateral and bilateral development aid partners. Other donors such as the USAID and the Asian Development Bank are also in the process of implementing similar results-based financing models.

So what do we know about the effectiveness of this new approach, relative to other more traditional development aid approaches?

In a recent IEG evaluation, we assessed the early World Bank’s experience with the program-for-results instrument. While it’s still too early to draw any definite conclusions, there are some important lessons and insights that could inform the work of the World Bank, other development partners and governments looking to use the ‘pay-for-results’ model.
 

Does results-based lending lead to better program outcomes?

As of March 31, 2016, the World Bank had approved a total of 39 PforR operations, providing $9.4 billion of Bank financing to support a total of $49.9 billion in government programs, with an additional 21 operations under preparation (having completed the concept stage), totaling US$5.4 billion in expected Bank financing.

Given that none of the operations in the Bank’s PforR portfolio has closed, it would have been premature to try and assess their development outcomes. However, in terms of program design, strengthening results frameworks, ensuring borrower ownership, capacity building, partnering with other donors, and improving upfront program preparation quality, PforR programs compare favorably against the World Bank’s other instruments.

Based on the experience so far, PfoR operations cost about the same as other lending instruments to prepare, and they cost significantly more to supervise. These costs may well come down over time, as Bank staff and government counterparts gain more experience with the instrument.

The PforR Portfolio (percent of operations)
By Region (By amount as of March 31, 2016)

How to strengthen PforR lending

IEG’s evaluation identifies a number of opportunities to strengthen further the performance of PforR operations, based on the World Bank’s early experience with its PforR instrument. We highlight three of them below.

• Strengthen the design of the results frameworks and establish a clear line of sight to development results. Most PforR operations tend to have reasonably good results frameworks, consisting of a program development objective, supporting outcome indicators, and intermediate results indicators. However, IEG found that in some cases program development objective is not fully addressed by the indicators, or the objective itself is incomplete in relation to the program discussion or the indicators. Also, objectives that lead to clear results at the outcome level are rare and PforR objectives are mostly institutional or focused on outputs or early outcomes.
   
• Establish a clear line of sight between the project development objectives and the disbursement-linked indicators. Given that disbursements are tied to program results, it is critical to ensure that the disbursement-linked indicators are the right ones. In practice, this is easier said than done and requires close attention upfront. In order to ensure a higher likelihood of achieving the ultimately desired development results, operations must consistently link the disbursement-linked indicators to key activities necessary to achieve the outcomes, rather than to routine and repetitive actions. One should keep in mind that disbursement-linked indicators are not the results of PforR operations, but steps to contribute to the achievement of final outcomes.
   
• Strengthen program monitoring.  There has been a tendency in program monitoring to focus mainly on disbursement-linked indicators. To improve the effectiveness of program action plans and overall program implementation, it is critical enhance the capacity and performance of implementing agencies, and to mitigate risks by devoting greater attention to monitoring implementation and providing clear and timely guidance to program teams (in the Bank and governments) on how to address implementation risks.

Read full IEG evaluation, including both the findings and recommendations, click here

Image Credit: from video, Improving the Quality of Teachers in Bihar State (a PforR Project)