As a result of its Result Based Finance programmes in numerous countries, Endev has issued a field report outlining five important factors on how verification can be carried out successfully:
1. Keep it simple
What makes Results-based Financing (RBF) attractive to the private sector are clear, transparent, performance-based, and quickly-disbursed incentives that leave maximum flexibility on business model and marketing strategies to the companies.
Obviously, a complex RBF set-up and verification process will at some point contradict this aim. Thus, the most important question to keep in mind, while designing an RBF project and its verification system is: “can it be done even simpler?”. In any case, it is important to note that the verification system must be set up, documented and transparently communicated to participating companies before implementation starts. When applying for RBF incentives companies must be fully aware of the project’s requirements and their responsibilities within the verification process.
The first step when setting up a verification system is to determine precisely what data is required to verify results (e.g. if the sales numbers claimed by companies are correct AND if all additional requirements have been met). It is helpful to distinguish between “core data” and “nice to have” data required to conduct verification. For all data, sources and traceability need to be clarified. Results are deemed traceable when linking them to a concrete customer is possible (e.g. a SHS to an individual client and location).
Data demand should also consider the current management practices and capacity of targeted companies. While most PAYGo companies can easily comply with high data requirements, such requests might exclude more traditional retail companies. But a moderate challenge can also be beneficial to companies. In several cases, companies appreciated the positive impact of RBF reporting requirements on the professionalisation of their management practices.
2. Balance rigour and feasibility
Over the seven-year implementation of the EnDev RBF Facility consisting of 17 RBF projects, companies claimed more than 1.4 million sales. RBF projects therefore developed lean verification procedures adapting claim size and frequency as well as sampling parameters to maximise process efficiency, while ensuring a high level of certainty about the achieved results.
Verification is most efficient with a low frequency (e.g. once per year) of high-volume claims. In this situation, the relative sample size greatly decreases with higher numbers, increasing customer density. Travel logistics required for field verification are thus, greatly reduced. But most RBF projects need a higher claim frequency for close monitoring of market uptake and quick adaptation of incentive levels and requirements.
Since companies need to pre-finance their business investments, their interest is to claim RBF incentives at the earliest opportunity, which results in lower claim volume at a higher frequency. To find a balance between these aspects, RBF Facility projects therefore experimented with quarterly, bi-annual or on-demand claim submission, (increasing) minimum claim volume thresholds, limiting the number of claims per year, as well as combinations thereof.
With market development as the overall objective, RBF Facility projects needed to keep track of market dynamics and always be ready to adjust their strategies flexibly. On the other hand, projects needed clear guidance documents on procedures that make risks calculable for companies. For this reason, most RBF project guidelines were ‘living documents’ that were adjusted while moving ahead. To avoid uncertainty, annual reviews were performed and transparently communicated to all the participating companies. Here, a steering group decided about necessary adjustments based on market trends, customer feedback and company performance.
The rationale of statistical sampling in RBF Facility projects was to randomly select a number of data sets from a claim to allow the verification findings for the sample to be generalised for the whole claim. With a high level of ambition, EnDev encouraged RBF projects to select sample sizes with ambitious parameters that are normally only used for scientific studies, thereby aiming for a 95% confidence interval and 5% error margin.
In the kick-off phase, and especially for their first claim, RBF Facility projects faced the challenge of very small claim sizes resulting in costly full claim verification or significant deviation from EnDev’s ambitious sampling targets. But once the claim volumes grew with the development of the market, verification became more efficient and most projects were able to limit the error margin to between 5% and 10%.
Read the other three factors in the study, free download here.