September 28, 2023

Outcomes-Based Financing: Models of Success

Acquire growth capital without compromising on mission.

Earlier this month, Global Health entrepreneurs and investors united for the panel discussion “Outcomes-Based Financing: Models of Success." The panel, convened by Innovations in Healthcare and the Bayer Foundation, explored innovative financing strategies to meet the needs of mission-based investors, funders, and ventures alike. 

This blog highlights key takeaways following the session, including the advantages of outcomes-based financing, expressed challenges, and recommendations moving forward.  

 

Understanding Outcomes-Based Financing 

In their early stages of growth, organizations working in communities with limited economic means often struggle to find investors. Outcomes-based financing provides impact-driven ventures access to growth capital without compromising on mission, while providing assurance to impact funders that they are paying for the social impact metrics that they support. 

Key Components of Outcomes-Based Financing 

The objective of this financial structure is to drive more and better results. Key components include: 

  1. Outcome metrics: Clear and measurable impact metrics are established to determine if the intended results are achieved.  

  1. Pay-for-performance: This model shifts from the typical emphasis on inputs and activities to outcomes, making payment contingent upon achievement of those outcomes. 

Advantages of Outcomes-Based Financing 

  • Increased accountability; 

  • Improved program effectiveness; and 

  • Access to private capital for social initiatives.  

Challenges of Outcomes-Based Financing 

  • Prohibitively complex and costly mechanisms; 

  • Robust, and sometimes seemingly unnecessary data collection and evaluation systems; and 

  • Mistrust among the different types of players within the model. 

Recommendations Moving Forward 

  • It is necessary to identify performance indicators that are measurable, that are closely aligned to impact and that are also under the control of the implementer. 

  • Organizations should consider the cost of delivering services in order to price results accurately and set realistic performance targets. 

  • Entrepreneurs should have strong performance management systems in place. This will enable better, more accurate impact data and results. 

  • The outcomes-based financing model will benefit from scaling into bilateral and multilateral organizations. Philanthropy has an important role to play in demonstrating to governments how these innovative approaches can be adopted. 

  • We must continue to deploy more outcomes-based financing structures in order to increase trust among key players. Much of the cost and length of time to design has come from mistrust among the different players. More experience can potentially solve this issue.  

Outcomes-based financing is a promising approach for impact-driven ventures to acquire growth capital without compromising on mission. As more organizations and governments explore and refine the various outcomes-based financing models, this innovative method holds to potential to play a pivotal role in creating a more accountable and results-driven financing system. 

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