Introducing Performance Based Tokens — Next Generation, Blockchain-Powered Performance Based Financing
This article has been written after the latest of several workshops that took place over the last year in Ethiopia and The Hague. This last event was hosted by the International Institute for Primary Health Care in Ethiopia and took place in Addis Ababa between 21st-23rd November 2018. Facilitated by the Netherlands Embassy in Ethiopia, the event was attended by a diverse group of development agencies including the Ethiopian Federal Ministry of Health, The Ethiopian Health Insurance Agency, Proof of Impact, Cordaid, The Fairchain Foundation, Zenysis, The World Bank and others.
Over the last year or so, under the leadership of The Ethiopian Government and The Netherlands Ministry of Foreign Affairs, and in close cooperation with several partners in the public and private sector, Proof of Impact has developed a specific type of impact tokens for of the Ethiopian Health Sector. Throughout this year, The Ethiopian and Dutch Governments have been working to articulate concrete opportunities for the Ethiopian health sector to use blockchain technology to improve financing and delivery of health impact.
One of these opportunities is related to Performance Based Financing. More specifically, a Performance Based Financing project supported by Cordaid in two Provinces in Ethiopia.
Root problem: Data Quality
The quality of information on what works and what doesn’t in Health delivery is relatively low, across the world. As is generally true, the accessibility and extent of information correlates strongly with the efficiency of resource distribution. Same as in any market, a lack of information also leads to arbitrary and inefficient spending in the development sector. This means that spending decisions — by the Government or by Donors — risk to be taken with insufficient information. A related problem is the irregular inflow of donor funds, restricting long-term project preparations.
Despite these difficulties, along with a low per capita expenditure ($28) on health in 2014, the Ethiopian government saw unprecedented results in achieving the sustainable development goals (SDG) compared to any other country in the world (some of whom spend up to $80 per capita). However, an average of 33% of health costs is still paid out of pocket, forcing people to sacrifice their financial security to stay healthy. The World Health Organization (WHO) reports that globally, 100 million people a year are pushed into poverty because of out-of-pocket expenses.
Improving data quality through Performance Based Financing
A few years ago, Cordaid pioneered Performance Based Financing (PBF) in Ethiopia. The PBF approach is in line with the objectives of the Ethiopian health sector transformation plan (HSTP), aiming to improve equity and quality in health care, to reinforce the Information Revolution, to work on a district (woreda) level, and to foster a caring, respectful and compassionate workforce.
The primary function of PBF is the linkage of payment and results by verifying the activities on-site. Facilities are incentivised by being paid per verified activity (what we term an Impact Event/ Outcome*). The approach has seen improvements in service delivery, infrastructure, staff ownership and quality (of service) scores in the Borana Region. In addition to this, they have seen drastic improvements in the quality of the data being recorded in facilities. The PBF verification approach is thorough and delivers reliable information, where incomplete or incorrect reports results in the activities not being verified.
But, high quality verification comes at a price. The PBF program -including verification, training, policy engagement, etc- costs between $2 and $3 per capita. Also, there is a delay between the event occurrence and its verification by an Auditor.
We believe that Blockchain is an ideal tool to address these inefficiencies. A distributed ledger allows for the data stored in it to be indelible and transparent. However, this digital ledger is merely a glass box. As with Cordaid’s PBF project, the data it contains still needs to be verified to avoid the Garbage-In-Garbage-Out (GIGO) trap. Eventually, we can roll out better, tech-based ways to verify events, such as sensors, Biometrics and the wider Internet of Things (IoT):
If medical equipment can send a timestamped notification that it has performed a desired task in a certain capacity, impact events can be measured in real time. Connecting auxiliary equipment provides additional data and higher credibility through triangulation. When we can add indelibility and transparency to the data through the blockchain, we can attach a proof to each event in the form of a token — a Performance Based Token (PBT).
Increasing funding directly to communities
A Performance-Based Token can be bought by a donor, a government, an investor or charitable individual or anyone interested in having impact attribution. Because the token corresponds to a unique, verified event, the buyer is attributed 100% of the delivery of that Impact Event. Being able to trace money from donor to activities on a microscale allows thorough and comprehensive evaluation of development policies that form the backbone of international partnerships.
From the point of an Impact Event being verified, the associated PBT is owned by the facility. Donors / funders / investors then purchase these PBTs for attribution. At this point, the PBT could remain with the buyer and simply represent attribution. However, there are opportunities to take the PBTs to a secondary market. Through securitising the PBTs, they can be traded on an international exchange where anyone could purchase it.
Global Impact Exchange
The trade of tokens can be conceptualized in several ways.
- The tokens could be traded between investors & funders who require or desire impact attribution; OR
- The tokens can be structured as impact-bonds where governments or institutions can underwrite the offering, conditional to a high level outcome/ development goal (reducing maternal mortality rate by X% in 2020, for example). Local communities or impact implementers can sell a token for Impact Event that correlate strongly with the development goal (ANC visits correlate with reduction in maternal mortality). The selling price of the event could be 80% of the value and underwritten by the organization for 100%. When the goal is met, buyers can sell the token with a 20% profit because it is guaranteed by the distributor. Development promises can be highly specific and verifiable with this system.
- Compound Indexes where an index tracks several categories of outputs that correlate jointly with a high level development goal. A practical application is the Ethiopian SDG fund (ETHIO-SDG), selling tokens that are linked to that fund allows organisations and individuals to directly contribute to SDG’s in Ethiopia and be attributed for it.
Supported by the Ethiopian and Dutch Governments, Proof of Impact is now working with Cordaid to develop ideas for assisted delivery and other indicator tokens by using the PBT approach to obtain high quality data & generate traceable, tokenized impact attribution.
*An impact even in this instance is a Health Outcome, for example, an assisted delivery. These outcomes contribute to intermediate impact goals, such as the reduction in maternal mortality.
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