top of page

Harnessing the Potential of Outcomes-based Financing to Improve Early Childhood Outcomes

This is the third blog in the insights series from the Working Group on Innovative Finance for Early Childhood Development (ECD), co-convened by the Education Finance Network (EFN), the Education Outcomes Fund (EOF), the Brookings Institution and the Early Childhood Development Action Network (ECDAN). Over a period of seven months, the group brought together experts from twenty-five organisations for five in-depth discussions on the opportunities and challenges of applying innovative finance mechanisms in ECD interventions.   


Now more than ever, funding for the youngest children across the globe must be invested efficiently, effectively and equitably. With dramatic cuts to development aid hitting already insufficient spending levels to achieve desired early childhood development (ECD) outcomes, governments and donors must make smart decisions when it comes to investing in programs that support early childhood education, responsive caregiving, health and nutrition. One form of innovative finance, outcomes-based financing (OBF), offers the promise of aligning interests and improving cooperation across stakeholders around agreed upon outcomes as well as driving performance and strengthening ECD ecosystems. Since payments are made contingent upon the achievement of results, the mechanism has the potential to ensure that governments and donors spend effectively. Further, equity can be addressed by creating incentive payments for successful achievement of outcomes amongst vulnerable groups (as explored in the first blog in this insight series, as well as the recent NORRAG blog here).


OBF could be an especially promising solution for early childhood given the challenges faced in the sector, including the regulation of quality amongst non-state providers and its fragmented, multi-sectoral nature. Impact bonds, one form of OBF in which external investors provide risk capital to service providers and have the opportunity to earn a return if agreed upon outcomes are achieved, might be particularly beneficial in ECD. Thus far, OBF has been used minimally in the early childhood sector in low - and middle-income countries relative to other types of interventions, but a few programs stand out as strong examples for the application of learnings to future projects. This blog shares three themes that emerged from the in-depth discussions of one working group session and provides concrete examples of how these themes played out across one development impact bond and three outcomes funds. 


OBF for Early Childhood in Action 

In Cameroon, the Kangaroo Mother Care Development Impact Bond (KMC DIB), launched in 2018, was a partnership between government, international and local partners, supporting ten public hospitals in five regions to introduce and scale the KMC model. This model promotes skin-to-skin contact between infants and caregivers and exclusive breastfeeding when possible. By 2021, more than 1,200 babies had received quality care – around 28 percent more than planned – ​​and almost US$2.5 million in outcome payments were triggered once indicators such as breastfeeding rates and weight gain were verified. The DIB built clinical capacity, strengthened facilities and embedded the model in public facilities, showing how an outcomes-based approach can expand access to essential newborn care while supporting long-term integration into national health systems. 


Governments in Rwanda, South Africa and Sierra Leone have partnered with the Education Outcomes Fund (EOF) to use outcomes funds that put OBF into action for early childhood care and education (ECCE). Across all three countries, these outcomes funds link funding to independently verified improvements in quality of ECCE services and in children's holistic development, with a special focus on access expansion in Sierra Leone and South Africa. These funds build 'outcomes partnerships' between government, other funders and non-state service providers committed to improving outcomes, tying funding to proven results, and giving implementing partners flexibility to innovate and adapt while remaining accountable. 


In Rwanda, the Nkuza Neza program launched in October 2025. This $13 million outcomes-based fund will invest in community-based early childhood centers, with a focus on strengthening quality, inclusion and school-readiness for more than 25,000 children aged between three and five, including children with disabilities. A key innovation of the program is this introduction of financial incentives for the inclusion of children with disabilities. The design includes child screening to identify developmental needs early, adapted infrastructure and inclusive learning materials, and incentive mechanisms that double payments for each child with disabilities who attends and learns in ECD centres. These features aim to shift the system—ensuring that children who are often unseen or unsupported in the early years are recognised, included, and empowered to thrive. The program builds on Rwanda’s strong policy foundation for inclusive education and represents a critical step toward universal access to high-quality early learning. 


In South Africa, this December saw the launch of the world’s largest outcomes fund in ECCE. The US$29 million program, delivered in partnership with the government and aligned with their 2030 ECD Strategy, will expand access for over 115,000 children in three provinces where early learning remains limited. The fund will support both the establishment of new centers in underserved areas and improvements across more than 2,000 centers. 


A third program in Sierra Leone is planned to follow, focusing on opening new community-based early childhood centers by repurposing existing infrastructure in vulnerable areas. It has the potential to reach up to 50,000 children in their early learning years and will help establish centers in communities with the greatest need, encourage regular attendance, and strengthen quality through inclusive, child-centered approaches aligned with national standards.  

 

Through the design of these three outcomes funds and the implementation of the KMC DIB across the African continent, important learnings can be harnessed for stakeholders considering designing projects in the future. In particular, three key themes emerged around the design of OBF projects to ensure resilience, sustainability and equity. 


Design for resilience  

OBF projects should be designed to be as resilient as possible to potential shocks to the system such as economic, geopolitical, environmental crises or unexpected contextual idiosyncrasies. In theory, OBF provides much more flexibility than traditional grant-based funding given the focus on results rather than inputs. Nevertheless, with payments being contingent upon targets and set timelines, challenges can arise in practice if things don’t go as expected. Harnessing local evidence and building flexibility into the contracts can help design projects to be more resilient to contextual factors and crises. For example, in the KMC DIB, flexibility in budget allocation allowed for targeted problem-solving and robust multi-party governance mechanisms enabled rapid consensus-driven decision-making during the COVID-19 pandemic. EOF has employed risk-mitigation strategies such as adaptive governance, scenario planning, and fit-for-purpose legal contracts in their projects to date. In South Africa, some targets will also be jointly defined between government and  implementing partners based on the real conditions of the centres and the learnings that will be derived from the first year of implementation. 


Design for sustainability  

While not all factors are within the control of an OBF project’s stakeholders, there are several design aspects that can help to increase the chances that the gains made in the project persist beyond its end. First and foremost, sustainability can be facilitated by early and deep engagement with government and other  local actors. In the case of outcomes funds in Rwanda, South Africa and Sierra Leone, close collaboration began with identification of government priorities in ECCE as well as an exploration of which types of implementing partners could be best placed to deliver services in each of the three countries. In the examples of South Africa, Rwanda and Sierra Leone, the outcomes funds prioritized alignment with national strategies and policy roadmaps—such as the ECCE universal access goal for 2030 in South Africa. For the outcomes fund in Sierra Leone, there is a focus on expanding community-based early childhood centers and empowering local communities in governance, enrollment, nutrition strategy, and sustainability. In the KMC DIB, committed government champions at the senior level helped anchor the program within the public system. Notably, this can easily be shattered by administration shifts making it crucial to embed engagement at multiple levels of implementation – from national policy teams to local delivery sites – as well as in structural elements such as training, curricula, government data systems, and governance mechanisms.   


In addition to engaging the government, it is important to harness expertise from civil society, for instance, through a technical advisory board. EOF, in the designing of targets, utilized both robust international evidence and country-specific evidence, while also allowing for the flexibility to adapt to local contexts.   

Sustainability is also supported through capacity strengthening of service providers. The OBF model is both a mindset shift and a practice shift which can be challenging though fruitful. The shift in focus away from monitoring inputs and activities allows for more flexibility, but it also can require the creation and use of systems for learning and adaptation as well as shifts in power dynamics to ensure outcomes are achieved. If service providers aren’t already working in this way, support that embeds performance management into the organizations, often provided through intermediaries, is critical.  

  

Design for equity  

One of the potential benefits of using OBF is the mechanism's ability to support equitable service delivery. The built-in flexibility and longer implementation horizons of OBF is especially well-suited to addressing behavior-dependent outcomes of which there are numerous in the early childhood sector, the KMC intervention being an excellent example. To start, it makes sense to focus broadly on populations for whom the current system isn’t working but within a given project, equitable access and quality can be explicitly designed into the project by providing higher payments for outcome achievement among disadvantaged populations. In the outcomes fund in Rwanda, for example, this mechanism is applied through a financial premium for children with disabilities, with implementing partners receiving double payments when improvements in development outcomes are achieved at the cohort level.  


There may be challenges to achieving equity, however, if services in a project aren’t accessible due to cost constraints. In the case of the KMC DIB, although the services were provided in a public facility, in places there was still a cost associated with using them which prohibited younger and less-educated mothers from accessing them. In this case, leaning into advocacy for targeted health financing was critical to ensure that marginalized populations were served. 


Looking ahead 

Investments in the early years are crucial for young children and economies to thrive. With today’s highly constrained budgets, paying for meaningful early childhood outcomes is common sense. OBF offers an opportunity to spend effectively and equitably. Smart design decisions can help to harness the full potential of the mechanism so that many generations of children can benefit. As further learnings are captured in the coming years as the most recently launched programs unfold, undoubtedly processes will become more efficient adding to the effectiveness and equity that the mechanism has already shown to drive. 

 

This blog was authored by Emily Gustafsson-Wright, Senior Fellow at The Brookings Institution with contributions from Louise Albertyn, Senior Associate at Education Outcomes Fund and Louise Savell, Co-founder and Director of Social Finance.

 

Disclaimer: This blog reflects insights shared within the working group and the personal opinions of the co-authors.

ree




At EOF we're exploring using AI to create audio versions of our publications. 

Try out this tool and let us know what you’re using – we’re always looking for

ideas on increasing accessibility.

 
 
 
bottom of page