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A type of funding that links incentives to results has been adapted by social enterprises, but it is not a good fit for all.

Piggy bank

A type of funding that links incentives to results has been adapted by social enterprises, but it is not a good fit for all.

Finding ways to fund a social business can lead you down a rabbit hole of endless options. One lesser-known route that has proven to work for some social ventures is results-based financing (RBF). Simply put, incentives are linked to results in RBF. Recipients are held closely accountable for meeting performance benchmarks and delivering on agreed-upon quantifiable results. When matched with the right kind of program, RBF helps ensure that it runs efficiently and successfully. So what are the advantages and disadvantages of this kind of funding?

The Benefits

In some instances RBF can be an extremely viable funding option for social enterprises, which often take place in developing countries with little established infrastructure. Many funding organizations—including governments in developing countries such as Rwanda, Uganda, India and Zimbabwe; NGOs such as The World Bank, DFID, and USAID; and philanthropies such as The Bill and Melinda Gates Foundation and Clinton Foundation—have experimented with RBF in an effort to improve the impact of social programs. RBF injects projects with clarity of purpose, accountability and organizational discipline. It helps the program map out goals and maximize efficiency. It can also create a pathway to more funds: As results and performance goals are delivered, potential funders can easily track projects and see that the businesses are not a risky investment.

The Drawbacks

One of the biggest challenges of RBF is defining viable quantifiable milestones that enterprises can realistically meet and document. Not all programs lend themselves to this funding model because outcomes, while often positive, cannot uniformly be measured. The steps toward social change are not only difficult to predict, but they can also be nearly impossible to quantify. Not to mention that a focus on results can distort the overall big picture, causing more harm than good. RBF can undermine the priorities of some programs—such as the development of local procurement systems and primary education—that may not produce results that can be responsibly and accurately captured in the short term. And even if everything goes according to plan, a results-based program takes away flexibility—an asset that every business needs upon launch.

RBF at Work

Despite the criticisms, worldwide organizations have successfully implemented RBF. The urgency of meeting the World Health Organization’s Millennium Goal to improve maternal and child health by 2015 has driven many countries to adopt RBF. According to the WHO and the World Bank, ineffective use of available resources, lack of infrastructure and managerial capacity are among the many reasons significant improvements have not been made. The World Bank has stated that for health projects funded by RBF, “success is measured in terms of the quality and quantity of actual services that health facilities deliver to people and not in terms of the inputs such as medical equipment or supplies.”

Kicked off last year, an RBF-fueled program called Salud Mesoamérica 2015 aimed at fighting obesity, diabetes, malnutrition and anemia has already seen some preliminary success in Central America.The Gates Foundation, Mexican telecoms magnate Carlos Slim, the government of Spain and the Inter-American Development Bank (IDB) have funded the project. To understand the scope of these serious health challenges, the team conducted the first large-scale health surveys of 20,000 of the poorest one-fifth of the population in Panama, Costa Rica, Nicaragua, Honduras, El Salvador, Guatemala, Belize and the southernmost Mexican state of Chiapas.

The research data helped program donors and organizers agree on a series of milestones and incentives over the course of 18 months. Gates and Slim donated $142million, and local governments invested $54million in programs offered by eight different health agencies throughout the region. Participating countries that met the specified milestones received half of the funds they put into the program back for unrestricted use for health services. While many countries met their goals, others did not. Health officials from each of the participating countries are in the process of sharing their experiences and collaborating on how to improve health outcomes.

RBF is a complicated form of funding, but it can work. Since it’s difficult to understand how (and for which projects) to adopt RBF, the World Health Organization and other groups provide free training tools, classes and other resources to help support program teams that may want to learn about and apply for results-based financing sources.

No endorsement or connection is meant between those featured in this article and Chivas.

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