Sri Lanka Education: Pilot Testing Results-Based Lending

Feature | 16 October 2013

The need for measuring the effectiveness of development programs is giving rise to results-based approaches to development.

There is growing demand worldwide for governments and development agencies to deliver programs with measurable results in improving people's lives. This has significantly shaped financing in recent years and given rise to results-based approaches to development.

ADB uses results-based approaches in its own development activities, and it supports its developing member countries to do the same. Among the initiatives that ADB has taken is to pilot results-based financing to support government-owned sector programs.

Education in Sri Lanka: ADB's first

A $200 million loan to revamp Sri Lanka's secondary school system marks the first results-based lending program approved by ADB. This means that payments are linked to the achievement of results, such as the rollout of a full curriculum in schools, upgrading physical and learning facilities of secondary schools, and training school principals. The program, which was approved in June 2013, will help the Government of Sri Lanka to strengthen its education sector to meet the growing needs of its economy.

"We responded to the government's request to adopt a sector-wide approach and link disbursements to results since they already have a commitment to following a results-based approach in education and have demonstrated solid achievements and results in the basic education sector," says Sofia Shakil, social sector specialist at ADB.

Sri Lanka has adopted various measures to make results-based lending possible, including a medium-term sector framework. The program also builds on ADB's extensive experience in Sri Lanka's education sector.

What is results-based lending?

Results-based financing links disbursements directly to the achievement of program results and not to evidence of program expenditures. Results are measured by clearly defined disbursement-linked indicators.

"Results-based lending provides an added tool for ADB to better meet the needs of its developing member countries and improve development effectiveness," says Principal Planning and Policy Economist Xiaoqin Fan at ADB.

"Results-based lending provides an added tool for ADB to better meet the needs of its developing member countries and improve development effectiveness," says Principal Planning and Policy Economist Xiaoqin Fan at ADB.

The international community, including multilateral development banks (MDBs), has reached a consensus on the aid effectiveness agenda through successive development fora over the past 2 decades.

"Adopting results-based lending modalities is one step forward in this development journey," says Fan. "Momentum toward this step is gathering among MDBs. ADB approved piloting results-based lending for programs in March 2013. The World Bank approved its program for results financing in January 2012."

Results-based lending, which complements ADB's existing investment lending and policy-based lending modalities, is expected to increase accountability and incentives for delivering and sustaining results, improve the effectiveness and efficiency of government-owned sector programs, promote institutional development, and enhance development effectiveness.

Results-based lending is especially suited for sector programs and projects that have many small-size contracts. It is not feasible for ADB to monitor and oversee each contract.

Lessons learned

Three major lessons are emerging from rolling out the results-based lending program for Sri Lanka.

First, consultation with stakeholders is critical for ADB to design a robust program with the right results and to create understanding among program stakeholders, including the ministry of finance, education, provincial staff and school communities.

Second, it is important to undertake robust assessments and due diligence of the program's soundness, including expenditure framework, fiduciary and safeguards risks to ensure that funds for the program are used efficiently and economically, and that potential environmental and social impacts of the program are addressed. Adequate risk mitigation actions, including capacity building, then form part of the RBL program.

"Since results-based lending is a major shift for institutions like ADB that is used to holding governments much more directly accountable to the way money is used, it is very useful to involve colleagues who can help with in-depth assessments," Shakil says.

Third, one has to focus on implementation even before the program is approved.

"While identifying disbursement-linked indicators, you should not set the bar too high to fail. They have to be doable and achievable yet meaningful to make a difference toward overall outcomes of the program," she says.