Performance-Based Agreements as a Management Tool

This case study is a part of a series published by CGAP to highlight important lessons and share innovative tools and approaches from specific organizations that can be replicated and used in other organizations. This study discusses performance-based agreements (PBAs) and how the UNCDF uses them to monitor projects. All grants or loans made by UNCDF require use of a PBA. PBAs provide a system to ensure results are on track with the initially approved proposals, and, if not, the process triggers review mechanisms at key milestones, including ‘cut loss’ mechanisms to prevent wastage of funding. Key lessons learned from UNCDF’s use of PBAs include:

• Structure the incentive system for staff in such a way that it is easier to suspend financial service providers (FSPs) for non-performance than to process a waiver;
• Develop a guidance note that describes the system and update it annually, as needed;
• Engage all staff responsible for implementation in discussions and address their concerns and incorporate their suggestions before finalization of the system;
• Identify clusters of FSPs working on similar issues and use the PBA system as a foundation for lateral learning across FSPs and as a basis for creating knowledge products from programs.