Outcome-Based Financing for Nutrition: Innovative financing for Development

What is the need and scope for diversifying financing in nutrition ?

There is a long-standing need to diversify funding for furthering investments in better nutrition. In the development sector, there is a need to increase our understanding of innovative models for creating social impact. Whereas traditional granting models focus on funding inputs and activities performed in the course of executing social development projects, innovative financing for development initiatives can be Outcome-Based Financing with a focus on outputs, or development bonds focused on intermediate or final outcomes. These innovative approaches link the disbursement of financing or funding to the achievement of independently verifiable results or outcomes.

The Outcome-Based Financing (OBF) model, for instance, is structured with three key players: the service provider, outcome funder(s), and investors (private financiers). The outcome funder could be a government or private funding entity, who in partnership with other donors makes a commitment to disburse funds and pay the service providers and/or financiers when the intervention outcomes are achieved. The service providers implement the intervention, either through their own capital or sourced through external investor(s) who could be commercial banks, private investors, other philanthropists, or microfinance institutions etc. The beneficiaries access the intervention, and an independent verifier (evaluator) reports on the outcomes achieved. The funding disbursement based on the outcomes achieved is activated by the results verification report submitted by the independent verifier. Development Impact Bonds or Social Impact Bonds are popular innovative financing instruments that help enable such interventions.

It is worthwhile to note that OBF instruments are creatively structured in a manner to incentivise service providers to achieve or exceed committed results, and disincentivise delivery models that are not outcome focused. The focus here is on the end outcomes, and there is considerable flexibility afforded to the service provider on structuring the intervention inputs and activities.

OBF makes the organisation increasingly accountable for the coverage, whatever be the metric set for social impact. This is achieved through a tripartite contractual arrangement between an outcome payer, an investor, and a service provider (implementor), with agreed independently verifiable metrics used to validate the outcome.

Are innovative financing modes like outcome-based financing gaining in popularity, for ushering food systems transformation? 

These models have now been tested in various contexts, in maternal and newborn health programs for instance, and other public health programs, but not much in nutrition-related outcome settings yet. But there is tremendous opportunity! For instance, in workforce nutrition interventions, the private sector companies are invested in wanting to improve the nutritional status of employees, given the positive nutritional outcomes for the employee and resultant impact on organizational productivity.

In the tea sector for instance, there is scope to improve the nutrition levels of tea plantation workers through nutrition interventions with demand, access and enabling environment components. GAIN has ongoing workforce nutrition projects in Assam, India for example, though not yet covered under an OBF model, which could lend themselves to sector-wide replication at scale through innovative financing.

Innovative financing instruments can set precedents for responsibly producing tea while taking care of the nutrition and overall health of the tea plantation workers resulting in a ‘win-win’ for all. There are positive outcomes for the individual tea estate worker and his/her household. There are positive outcomes at the enterprise level for the private sector tea estate producer, who also benefits from better industrial relations, less absenteeism, and increased worker productivity. The spillover effects are compelling.

OBF can similarly support scaling up nutrition interventions, say for the ready-made garment manufacturing sector like in Bangladesh, where GAIN currently is working with partners for providing nutritional benefits to workers in garment manufacturing factory settings, while increasing manufacturing productivity and profitability. These offerings can be attractive for investors, beneficiaries, evaluators alike.

What are some of the clear advantages that outcome-based financing has over the more traditional modes of nutrition financing?

Traditional grants that focus on intervention designs that are input and activity-focused work well, but the quantum of need for devising impactful interventions for better nutrition at population level in LMICs requires exploring the niche role that innovative funding, more particularly OBF can play. And this needs to involve credible initiators and implementers who can design programs that create quantifiable outcomes for target populations.

OBF can open up an exciting arena of new funders and funding options that more traditional implementing organizations may not yet have explored. This is a compelling option to potentially diversify a delivery-focused organisation’s funding pool. Innovative funding approaches like OBF can help narrow the funding gap by increasing the cost-effectiveness of existing funding and unlocking financing from the private sector.

Each stakeholder in such an arrangement can be better focused on their area of interest and expertise. The outcome funder for instance, stays focused on the impact achieved against funding provisioned, within a set timeline. The service provider (implementor) can be innovative and flexible in intervention delivery through making timely changes, if required, to adapt to changes in the external landscape within which the intervention operates, in order that committed outcomes are not compromised, but achieved or exceeded. This is different from traditional funding routes, where inputs and activities leading to intermediate and final outcomes are more rigidly defined and continuously monitored and reported in a way that funding tranches are released contingent upon the successful completion of pre-agreed activities.

Do you think the private sector is more risk averse when it comes to novel propositions like Outcome-Based Financing in nutrition ? Are there specific interests of the private sector that can be more responsive to trying new methods of financing for nutrition?

We’re still in the early stages of understanding and landscaping the outcome-based finance universe and organisations with a potential interest in food systems and nutrition.  We are aware of successful examples from other contexts such as maternal and newborn health, management of severe acute malnutrition, microfinance, to name a few. Also, the fast-emerging focus on ESG reporting on such indicators by the private sector augurs well for generating interest in private investors on potential social impact projects within the workforce. It is very much in the interest of businesses today to be robust in ESG reporting and social impact achieved can be a significant contributor to this.

As an example, limited access to markets and poor market infrastructure negatively impacts nutrition outcomes for the rural poor in hard-to-reach areas. A point in case is an innovative market-based supply chain model that was tested by GAIN in Assam, to improve the nutrition outcomes of the tea estate communities. This model demonstrated a concept of neighborhood retail shops, or “Healthy Line Shops”, to improve the last-mile reach to select nutritious foods, previously inaccessible to these households living on the tea estates. The pilot model was designed for 12 retail shops across four tea estates in 2020, and subsequently scaled to 32 shops across eight estates in 2021 and now expanded to 110 shops. This project created an ecosystem with a potential to positively impact health outcomes with increased healthy diets within the community, especially for women and children, improved livelihoods and employment opportunities for the local population; better productivity at the tea estate production units, among others.

OBF if applied in such a setting, could afford the opportunity to broaden this intervention design to incorporate components for addressing anemia and menstrual hygiene amongst women workers as well. In fact, a broader intervention design could potentially be of interest to a larger cross-section of outcome payers and investors across Assam in India and in other geographies.

So, with novel ways of financing nutrition outcomes, we can see there is potential to be creative in project design, wherein you can broaden the offerings, increase the creativity of locally responsive interventions, and attract several interested investors with varied risk appetites. We can be more intentionally investing in nutrition with the public and private sector actors converging to work on enhancing the community’s nutritional status.

Does the policy environment make a big difference for enabling such novel financing mechanisms?

The quality of governance of the OBF mechanism makes a difference to the extent that all stakeholders are assured of their interests being protected. The key lies in the way the OBF instrument is designed, through smartly incorporating a robust risk management and credibility building mechanism within the instrument itself.

Is it more challenging to have private sector investors relate to the urgency of investing for better nutrition?

Though the benefits of nutritional adequacy are more easily apparent and visible at the individual beneficiary level, the private sector is getting increasingly sensitized to the potential benefits of workforce nutrition on the quality and quantum of production, reduced absenteeism, better industrial relations, reputational upsides, all leading to increased long-term profitability. Challenges related to quantifying outcomes with specificity and direct attribution of increased productivity and profitability at the enterprise level to better nutrition at the worker level, however remain. Curating stories and case studies from the field, including anecdotal references that tell the trajectory of change, can help bridge this gap and help to report factors like reduced absenteeism, reputational upsides, and consequential increases in productivity. Additional research studies to back such positive impact of interventions in nutrition on enterprise productivity and profitability need attention and investment.

Outcome-Based Financing is an important subset of the social impact funding universe. There is a need to understand it better and start participating in it more actively. The question we need to collectively try, and answer is: How do we make ‘nutrition’ attractive to social impact funders and investors who may have competing investment priorities?  Also, how can we make the benefits from such investments more tangible and measurable, and therefore investor-friendly.

Read impact stories from GAIN India and Bangladesh interventions in Workforce Nutrition :

• Seeds of Prosperity in India
• Empowering adolescents for healthy eating in Bangladesh
• Market-based home fortification: The Bangladesh micronutrient powder programme
• Improving the nutrition status of readymade garment workers in Bangladesh

Learn more about financing nutrition:

• N3F: A blended finance model to increase the consumption of nutritious foods
• The Power of Nutrition: Unlocking innovative finance for nutrition 
• Blended finance: A Promising Approach to Unleash Private Investments in Nutritious Food Value Chains in Frontier Markets
• Impact Investing Holds Promise for Nutrition If Guided by Evidence
• IFSS Guide to Finding Funding for SMEs
• GAIN Working Paper Series 13: Supporting gender equitable systems through access to finance for SMEs

Photos: Courtesy of GAIN and Tarun Vij