Designing an outcomes fund for education results

Upon launch, the fund will aim to ensure students have equitable access to education and opportunities for retention and achievement. We’re pleased to share the lessons learned around the role of the governments, donors, and non-state actors to support the development of outcomes funds and how these vehicles could contribute to ecosystem building.

Also in this series:

The role of government
The role of non-state actors
The catalytic role of donors
Outcomes funds as drivers for ecosystem building

This piece was written by Social Finance team members Marta Garcia and Maria Alejandra Urrea based on their work with Global Affairs Canada and other stakeholders from May-December 2020, and an interview with Maarten De Groot, Claire DeVries, and Federico Salcedo in July 2021.

Global Affairs Canada (GAC) is one of the most important bilateral donors in Colombia. It provides assistance to the government’s strategic decisions and funds a variety of projects in relation to education, agricultural development, gender equality, microfinance and the peace agreement, among others. In this context, GAC has identified an opportunity to execute its Official Development Assistance (ODA) through payment by results (PbR) mechanisms, as a way of promoting innovation and higher outcomes across its various projects.

This journey started in 2019, when GAC launched a pioneering PbR project in the cocoa sector, at a time when the country was not yet familiar with these approaches. Through this experience, the GAC team gained insight into how these mechanisms operate and succeed, and it is now putting this knowledge to good use as it leads the design of an ambitious outcomes fund for Education Results (OFFER).

This interview with Maarten De Groot (Deputy Director of Operations), Claire DeVries (First Secretary for Development), and Federico Salcedo (Development Officer) at GAC Colombia reflects the critical points of this journey from a single PbR project to a system-changing outcomes fund. 

Please tell us about GAC and the work you do in Colombia and internationally. 

GAC’s work in Colombia follows Canada’s Feminist International Assistance Policy principles, which acknowledge that gender equality and women’s and girl’s empowerment constitute the best path to achieve a more peaceful, inclusive and prosperous world. The work of our organisation in Colombia has been focused on four key areas: sustainable growth for the whole population, education and youth, migration, and the implementation of peace agreements.

What prompted and enabled your use of PbR in Colombia?

GAC’s interest in using payment by results mechanisms originated in 2017, after Canada’s Treasury Board issued a mandate to encourage the use of experimental approaches across different government areas and programs. These guidelines unleashed conversations among GAC’s team in Colombia, which had traditionally been characterized by its openness to innovation, to find opportunities to incorporate payment by results mechanisms in the local portfolio.

Colombia is a middle-income country with a robust institutional framework and solid public, private and non-profit actors, so it seemed the perfect setting to test how our ODA could be transformed to encourage innovative solutions.

Tell us about GAC’s first experiences with PbR mechanisms.

The first project was in the cocoa sector (Agroemprende Cacao, as per its name in Spanish), which aimed to improve the living conditions of cocoa producers across multiples regions in the country. This CAD $36M project was funded by GAC and a number of private enterprises, which matched GAC’s financial contributions using corporate social responsibility funding to pay for achieved results. The project sought to deliver outputs and outcomes across five areas: gender equality, agricultural sustainable management practices, improved business environment, cocoa productivity, and co-financing attained.

What led you to use PbR in this sector?

GAC had a strong trajectory supporting Agroemprende Cacao before it turned into a PbR project. In previous years, the implementing partner (SOCODEVI) had demonstrated solid delivery capabilities and the intervention had proved to have positive outcomes. In this context, we wanted to introduce PbR mechanisms to open an avenue for innovation and creativity, focus the funding on the most critical social issues, such as gender equality, and increase contractual incentives to promote better outcomes.

In addition, Agroemprende’s private sector funders realized the potential of introducing PbR in the project as well, as it could lead to broader and more sustained impact in the regions where they focused their corporate social responsibility initiatives.

What challenges did you face during the project design and implementation?

All the stakeholders engaged in the project faced considerable challenges in using PbR mechanisms for the first time. From GAC’s perspective, this project challenged the internal regulations and administrative procedures used in our regular programs.

The most challenging issue for most funders related to the uncertainty of the cashflows needed to pay for outcomes. For the implementing NGO, whereas having multiple outcome payors with different risk profiles and funding sources was critical to the project materializing, it created the need to deal with several contracts and the administrative requirements imposed by each funder; this, in turn, put pressure on the operations, as the service provider had to devote part of its attention away from achieving results. 

Tell us about your partners and how their engagement influenced the project?

The design of this PbR project was driven by a small group of stakeholders (i.e. GAC, private sector funders and the local implementation partner). Selecting the service provider upfront influenced the project’s design, as the definition of the outcomes and targets was carried out according to the capacity and experience of the service provider. If we had defined the outcomes and targets before selecting the service provider, we could have landed on a project with different goals.

The engagement of other funders also conditioned the project’s scope. By having private sector partners using corporate social responsibility funding to pay for outcomes, the intervention had to be targeted on the regions where they focused their corporate social responsibility strategies. If we had worked with other partners with fewer restrictions to allocate their funding, we could have concentrated on other regions in the country with more significant needs.

After the first three years of implementation, how do you think PbR has added value to this project?

The main benefits of the PbR mechanism have been evidenced during its implementation in the context of Covid-19. Unlike traditional programs, the cocoa PbR project offered contractual flexibility for the provider to adjust its operations to the pandemic.

For instance, the contract allowed the NGO to modify, at its discretion and without the approval of the funders, the services provided to the target population. It also offered flexibility around the timelines to achieve the expected results, which means that the service provider will be able to catch up and claim on upcoming years the outcomes they were not able to deliver during the pandemic. As a result of this wiggle room, the program’s implementation has continued uninterrupted where many others have had to pause or stop altogether.

What led you to the decision to develop an outcomes fund? 

Although the cocoa PbR project provided important learnings about different areas of design and implementation (such as target definition and outcomes verification), the opportunities to contribute to systemic change through this project were constrained. A single PbR project has a limited number of implementation cycles and involves only so many stakeholders which, in turn, reduces the opportunities to innovate and gather the level of evidence and learnings that contribute to systemic change.

We felt it was time to pursue another strategy that could unleash the potential of PbR mechanisms and, at the same time, facilitate more efficient and sustained involvement from GAC. An outcomes fund – a structure that can commission multiple PbR projects in series or parallel – could accomplish these objectives by undertaking both individual PbR projects and systemic change strategies (i.e. a robust learning agenda or the strengthening of stakeholders’ capacities) simultaneously, while using a more traditional administrative structure that would better fit into GAC’s standard operational procedures.

Why did you choose the education sector as the focus of the OFFER? 

We have a strong track record working in Colombia’s education sector. Different programs funded by GAC have demonstrated favourable results for beneficiaries across the most disadvantaged regions in the country. Nevertheless, the interventions we’ve used have been complex and, ultimately, have not been mainstreamed into education policy or private sector practice.

GAC identified an outcomes fund as an opportunity to support a sector that had limited evidence of the cost-effectiveness or level of outcomes of previously funded interventions, a sector where PbR mechanisms could help build the evidence base and increase the impact of the available funding.

How did the cocoa project influence your approach to the OFFER design?

The OFFER’s design aimed to complement and overcome some of the operational challenges and the limitations to systemic change that we had observed whilst working on the cocoa project. In the first instance, GAC needed to find a mechanism that would create cash flow stability when paying for outcomes; this could be solved by setting up a separate outcomes fund and having a fund manager in charge of administering the outcomes funding.

The vehicle would also simplify the administrative burden faced by service providers when dealing with multiple funders, since the fund manager would have responsibility for managing all the contractual relationships. Separately, the OFFER would create the right conditions to contribute to systemic change in the education sector by engaging the government in shaping the fund strategy from the outset; setting up a stable governance structure fit for its long-term ambitions; and creating a wide-ranging learning and communication strategy that leveraged multiple PbR projects.

Please tell us about the OFFER (scope, goals, targets, size, partners, etc.) and its current state of progress.

The OFFER is envisaged as a CAD $30–50M outcomes fund set up to ensure that all students in Colombia have equitable access to education and equitable opportunities for retention and achievement. To fulfill this vision, the OFFER will carry out two types of activities throughout its lifecycle. Firstly, it will facilitate the design and implementation of payment by results projects in education to develop an evidence base that enables the sector to advance. Second, it will pursue system-change strategies to generate and disseminate knowledge, influence public policy and practice, strengthen the educational ecosystem and promote positive perceptions of payment by results practices and their role in improving educational outcomes.

Having completed the design of the fund together with its partners (Fundación Bancolombia, Fundación Empresarios por la Educación, Fundación Nutresa y Fundación Sura) and the Ministry of Education, GAC is currently working to procure the fund manager that will be in charge of the fund’s operations.

What does success look like for the OFFER, and what do you think will be the key ingredients to achieve it?

From GAC’s perspective, the OFFER will be successful if its strategic objectives around direct impact on students, ecosystem strengthening and its own sustainability are achieved. The PbR projects launched under the fund should deliver positive, robust and meaningful results for different groups of students in Colombia, in particular for girls and young women. Collectively, these projects should also create enough evidence to encourage other stakeholders to adopt PbR practices in the way they conduct their core activities.

Aside from these, we hope that the OFFER will secure additional resources from new public or private funders and find a sponsor willing to own this initiative in the long term. Finally, the fund ought to demonstrate that the same type of structure can be used to improve outcomes in other issue areas in Colombia, or to tackle educational challenges in different contexts outside the country.

How does the OFFER contribute to GAC’s overarching strategy? 

The OFFER has an enormous potential to contribute to our strategy. In middle-income countries, such as Colombia, where Official Development Assistance is declining, donors must test new approaches that enable them to use existing resources more effectively and which help them attract additional funding. If a local public or private organisation takes up the OFFER after GAC’s exit, the outcomes fund will become GAC’s legacy of investment in the country.

The strategy we’ve used in Colombia, if successful, could also be replicated in other contexts. For instance, there is emerging interest in exploring the use of outcomes funds in counties like Haiti or Peru. The evidence provided by the Colombian experience could be used as the proof of concept required to develop similar initiatives elsewhere.

How different was the government’s engagement in both projects and what have you learned from it?

The cocoa PbR project and the OFFER engaged the government in different ways due to differences in the institutional frameworks of each sector. The Ministry of Agriculture does not actively design and implement programs in the cocoa sector, instead playing more of a regulatory and strategy setting role, so its engagement in the PbR project was marginal.

On the flip side, since the Ministry of Education sets the country’s education policy and oversees the implementation of all educational services, the OFFER involved this public authority in the project from the very start, getting early buy-in from the government to develop the outcomes fund.

Two crucial learnings emerged from these different experiences:

• First, engaging the government as outcome payor or learning partner may be easier in sectors where the public authorities actively design and deliver social programs.
• Second, mainstreaming learnings that emerge from an outcomes fund or a PbR initiative is likely to be easier when working with government departments which are viewed as accountable for the results achieved in the sector.

How different was the private sector’s participation in both projects and what have you learned from it? 

GAC’s PbR initiatives involved different types of non-state partners. The cocoa project engaged private sector corporations that used corporate social responsibility resources to pay for outcomes. Meanwhile, the OFFER engaged social investing and philanthropic partners with a strong trajectory in the education sector.

There were some critical differences between them. The corporate partners’ decisions were driven by the potential impact of the project on particular geographic areas of interest to them, and not by a strategic view of where impact was most needed; and the project itself faced resource constraints, as funding was dependent on both the partners’ revenues and their investment cycles.

The OFFER’s social investing and philanthropic partners, on the other hand, had more explicit social objectives, were more stable organisations and had less financial volatility. Their nature, mandate and robustness allowed them to be more strategic in their decision-making, focusing on the long-term impact they wanted to achieve as an alliance across the country.

What have you learned from the experience of doing one single PbR project vs. an outcomes fund? 

Based on our experiences with the cocoa project and the OFFER, we have realized that outcomes funds have crucial advantages over single PbR projects. They provide more and greater opportunities for learning, both because of their extended lifespan and because they procure multiple PbR contracts over time, which together enable iteration and adaptation. If these opportunities are guided by a well-designed learning strategy, their impact on the sector can be multiplicative.

When working on a single PbR contract, as with our cocoa project, the opportunities to generate evidence are more limited. outcomes funds also open up the possibility of working with multiple market players over time, which, in turn, helps strengthen the ecosystem as a whole and generates a wider set of learnings on a specific issue area. The OFFER is a case in point, seeking to engage multiple service providers and investors to develop a variety of market-based solutions to education challenges. Our cocoa PbR initiative, by contrast, was designed around a pre-selected implementing partner and their intervention, which limited the project’s scope and influenced the type of outcomes and learnings that could be achieved throughout the project.

For these reasons, we believe that outcomes funds are able to make a more substantial contribution to systemic change than single PbR projects can, by generating more solid evidence over time and by engaging a broader group of stakeholders in the ecosystem.