Fund explores next generation financing models
The Global Fund is cautiously exploring the idea of introducing one or more next generation financing models. These are models where the basis for payments to implementers is changed from expenses (the way the Fund currently operates) to outputs, outcomes, or impact.
The Global Fund co-chairs a working group on the Next Generation Financing Models in Global Health along with the Center for Global Development. In late 2015, the working group issued a 68-page final report which Rachel Silverman from the CGD characterized in a blog posting as “a practical guide to the design and roll-out of Next Generation grants.” Ms Silverman was one of three authors of the report, the others being Mead Over and Sebastian Bauhoff, also from the CGD.
The report discussed the limitations of The Global Fund’s current systems of incentivizing performance; explained contexts where a move to next generation grants could improve impact or provide other benefits for the Fund; described the technical elements and design choices required to make next generation grants happen; and illustrated how the next generation designs could work for the Fund, using four hypothetical country case studies.
Examples of next generation financing models include fixed price models, such as “cash on delivery” and “verified service delivery” and modified mechanisms such as the “fixed price/cost reimbursement” and “shared surplus.”
The final report addressed the “how” of next generation financing models –i.e. the steps needed for The Global Fund to change the basis of payment of its grants from expenses to outputs, outcomes, or impact.
The report said that
“a move toward next generation financing models includes real risks. Yet those risks must be understood compared with the very real risks of maintaining the status quo: the risk of not achieving maximum impact, the risk of not having full visibility on whether Global Fund monies ultimately reach their intended beneficiaries, and the risk that ultimate goals will never be attained if The Global Fund and the recipients of its funds do not fully align around shared objectives.”
The report mentioned that The Global Fund has explored new financing models – including pilots in Rwanda, the Solomon Islands and Mesoamerica. These have involved the use of small payments disbursed against evidence of progress in lieu of full grant amounts to performance targets; enhanced independent verification of data; and a focus on outcomes rather than inputs. The report said that the piloting process has led to greater clarity about the potential stumbling blocks for next generation grant designs.
“Country teams are at times unprepared and under-resourced to take on the demands of next generation financing grant design, with few technical resources within the Secretariat that can be called on to help,” the report said. “Getting the right people and expertise in place – and equipping country teams to call on that expertise when needed— will be a prerequisite for scaling next generation grant designs.”
The report said that a move towards next generation financing models requires a paradigm shift in grant administration.
Although the application of next generation grant designs is currently limited to a handful of pilots, the report said, The Global Fund is using this experience to determine the extent to which they can be used to address portfolio, disease, or grant challenges. “Expansion of the use of next generation grant designs, should it happen, would be part of a broader move toward differentiation based on strategic considerations and grant and country characteristics.” The report added that to this end, The Global Fund is currently developing a payment for results framework.
The report recommended that next generation grants be included as a priority in the new Strategy (which will be presented to the Board in April). It said that changes would have to be made to the allocation methodology, the counterpart financing policy, key performance indicators and other policies and initiatives to allow for the introduction of next generation grants.
The report included a disclaimer which said that while all members of the working group had had the opportunity to review the report, “working group members, including staff of The Global Fund, do not necessarily endorse all components of this report, nor do the contents of this report constitute a policy commitment by The Global Fund or any other party. Views expressed herein can be attributed to the authors alone.”