Output-based Aid - How IT Works

How It Works

OBA targets individuals who lack the financial means to pay for basic services. It is specifically targeted for individuals in developing countries. The service provider will receive subsidies to replace costs associated with providing the service to people, such as user fees. Individual agents will verify that the service is being delivered and based on the performance of the service-provider, a subsidy will be granted. That is how it is 'performance-based'.

OBA generally works through a private firm, or another third party, acting as the service provider. The service provider is responsible for the initial financing of the project and, only after results have been verified, will the firm receive subsidies from an aid donor. In such schemes, it is the provider who bears the risk of loss, rather than the aid donor, and output-based schemes allow for the tracking of results because of the way they function. Integration of the private sector into aid schemes is common with OBA, since they often provide the initial financing for providing a service. The World Bank sees OBA as a means to improve upon the effectiveness of aid. This differs from traditional aid schemes that will usually focus on the inputs to service providers rather than the outputs. The donor is usually the World Bank, a government or an international organization or philanthropist that is part of the OBA scheme. Subsidies from a donor will generally serve to complement or reduce user fees. The subsidy is paid only after the particular service has been delivered to a community. The subsidies are targeted to poorer individuals, since OBA initiatives are carried out in regions with significant amounts of poverty.

In healthcare, vouchers are granted to patients who require medical attention and cannot afford or access it. These vouchers can be taken to hospitals or clinics, whether private or public, and they will be provided with the medical attention they require. The clinic or healthcare professional that provided the medical service will be subsidized for the delivery of the service by a donor.