Aligning Incentives with Outcomes: Outcome-based financing (OBF) in India’s FLN programs

• In Event: Shifting Systems: Comprehensive and contextualized strategies for improving foundational learning in India

Proposal

Outcome-based financing (OBF) has emerged as a significant funding model that ties financial incentives to the achievement of measurable outcomes. OBF is enhancing the implementation of comprehensive Foundational Literacy and Numeracy (FLN) programs at scale by strengthening the outcome orientation of programs through a systematic approach, ensuring educational investments deliver sustainable results (NORRAG, 2024). OBF also has the potential to enhance collaboration and learning among stakeholders—funders, implementers, and beneficiaries
Unlike traditional funding models that emphasize inputs, OBF focuses on delivering measurable outcomes. Traditional financing models may lack robust accountability mechanisms, leading to inefficient resource allocation and limited impact (GPRBA Report, World Bank 2021). In contrast, OBF models motivate implementers to focus on delivering high-quality educational outcomes, consequently encouraging innovation with flexibility, and allowing programs to adapt to different contexts and needs. One limitation of OBF projects is that they are often focused narrowly on very specific short-term improvements in outcomes like student learning over a period of one to three years. In recent times, however, some OBF programs have begun to include components aimed at building the capacity of educational systems to promote sustainability of the gains beyond the project period.
LLF has played a pioneering role in implementing impact-focused programs in India. The Haryana Early Literacy Development Impact Bond (DIB) (2019-2022) was India’s first domestic corporate sector-supported DIB in education that targeted improved literacy outcomes for 164,000 children in grades 1 to 3 across 3,300 schools. The program achieved 3.5x learning gains over targets and met all six outcome goals. Following this success, the Haryana government invited LLF along with other nonprofit partners to support the state's FLN program under the NIPUN Bharat Mission. The LiftEd DIB (2023-2027) is supported by a consortium of public, private, and civil society organizations and aims to improve the foundational learning of 4 million children across five Indian states over five years as well as support system strengthening. LLF is an implementing partner of LiftEd in two states. At present, LLF is implementing outcome-focused programs with targets for achieving student learning gains for about 1.1 million children.

OBF programs have helped LLF prioritize an ‘outcomes focus’ in all its programs. Tracking progress towards identified outcomes and data-driven decision-making have been included in LLF’s regular ‘ways of working’. LLF has always maintained a focus on system improvement and mainstreaming learning from OBF projects to state-wide systems, even when the targets included for calculating payouts do not include a requirement of system strengthening or reform.

Author

• Sana Masroor, Language and Learning Foundation