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Designing outcomes funds: The efficiency argument

How can the design of outcomes funds maximize their impact within each program? This question was at the heart of a recent panel discussion hosted by the Government Outcomes Lab (GO Lab) at the University of Oxford which brought together academics and practitioners from around the world to engage with the latest research and share insights from the global outcomes fund landscape. Joining the panel of fellow experts for the session, Miléna Castellnou, Program Team Principal for the Education Outcomes Fund (EOF), described EOF’s approach and highlighted some of its recent work.

A focus on impact is the driving force behind EOF and was baked into the design of the organization, Ms. Castellnou explained, with the institutional set-up prioritizing technical expertise and efficient legal and procurement systems in order to maximize the impact of EOF’s programs.

Although legal and procurement considerations rarely feature in discussions around outcomes funds, getting these key elements wrong can drive up transaction costs and often cause "long delays that can discourage [partners], and you can end up having to work with templates that are really not fit for [the] purpose [of results-based financing]." The challenge of adapting existing templates is one that EOF is working to overcome as they continue to implement their program in Ghana with the World Bank, Ms. Castellnou told the audience.

In particular, EOF has "spent a lot of time working with UNICEF’s legal team to create a specific set of templates, both for procurement processes and contracts, which then can be used and replicated in different contexts," said Ms. Castellnou. The aim of this work is to remove the need to reinvent the wheel every time a program is launched, to improve efficiency and lower transaction costs in the longer term.

These issues will be explored in greater depth in a forthcoming paper prepared by Ms. Castellnou, alongside Daniella Jammes, Associate at Freshfields Bruckhaus Deringer LLP and Hilary Sienrukos, Senior Director in the Program Acquisition and Assistance group at the Millennium Challenge Corporation.

Moving onto programs, Ms. Castellnou explained a key element of EOF’s approach is having multiple implementers on separate contracts for each program. This approach improves impact as involving multiple partners with varying strengths and areas of expertise can increase a program's ability to reach beneficiaries. A larger number of implementing partners also has the potential to generate more and better innovation opportunities, whether in design or in terms of service delivery. Having several different partners and implementers also provides more opportunities to observe what is and isn’t working—allowing Governments and donors to ‘learn’ and scale up the most cost-effective interventions. Ultimately, scale can also play a role in tackling an often-criticized aspect of impact bonds; transaction costs.

Infamous for their "long and complicated and costly" design process, transaction costs incurred in the design of outcomes funds and impact bonds can be lowered by having more partners and implementers from the beginning, which can enable larger growth of funds and programs, said Ms. Castellnou.

Despite EOF’s design choices supporting greater efficiency, outcomes funds don't come without their challenges. Working with national governments with a view to ensuring sustainability after the initial implementation period, for example, can put tight budgetary constraints on program funding. To overcome this challenge, funds need to be creative in their approaches. Ms. Castellnou described EOF’s approach when working with the Government of Sierra Leone where the maximum cost per child was set at USD$ 35, enabling the initial program to be fully funded and ensuring that successful interventions could be scaled up by the government in future.

Concluding her contribution to the discussion, Ms. Castellnou shared her key recommendation with the audience: ensure you are always thinking about the larger scale impacts, even when trialing a pilot. Too often donors and governments want to test a program with small pilots. These can be very useful, but small-scale interventions will not necessarily manage to achieve the same level of impact when implemented at a much larger scale, or the implementer market may not have the capacity to take the interventions to scale. Problems such as the learning crisis require solutions at scale to achieve impact for millions of children and youth so in addition to defining an exit strategy in terms of funding and financing mechanisms, stakeholders should always have clarity over how their initial programs will be scaled up.

Watch the panel discussion, part of GO Lab’s Engaging with Evidence series, here.


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