Output-based Aid for Sanitation
Results-based financing (RBF) has emerged as an important new way of financing public services in general and basic services in particular. One type of RBF known as output-based aid (OBA) tends to be used to target subsidies for poor customers by providing service providers the incentives to serve areas of greatest need. Unfortunately, experience with OBA in sanitation is limited. This paper, commissioned by the World Bank Group, looked into how OBA could be applied to sanitation, with certain advantages over traditional (input-based) financing.
How sanitation gets financed is an important factor in the level of service that urban dwellers receive. Typically sewerage connections are not only subsidised but the ongoing costs are hitched to the piped water bill. For on-site sanitation such mechanisms are usually not possible, hence some creativity needs putting in place when it comes to dealing with up front payments, subsidies and the overall balance of payments for the service (covering the entire sanitation chain).