Performance-based funding, also referred to as performance-based financing or results-based financing, comprises a broad variety of mechanisms. It includes donor-to-country disbursement mechanisms designed to improve aid effectiveness, intergovernmental transfers, donor-to-supplier disbursement mechanisms, and a range of tools that national governments can adopt. The vast majority of the literature focuses on the latter two mechanisms, in particular in the area of health care. There is very limited literature on donor-to-country arrangements. Of the literature that exists, the two mechanisms that receive the most attention are the Millennium Challenge Corporation (MCC) and the European Commission Governance Initiative Tranche (ECGIT). As such, this helpdesk report focuses on these two performance-based funding mechanisms. A detailed description of each mechanism is provided at the beginning of their respective sections. There is more literature on the MCC as it has been in operation since 2004, whereas the ECGIT was launched in 2007. In addition, the MCC has produced more publicly available information than the European Commission on the GIT.
The MCC and the ECGIT provide an interesting comparison of performance-based funding as they differ in their approach. The literature is generally complementary of the MCC and there is evidence that it has been effective in motivating countries to engage in reforms. In contrast, the ECGIT has been criticised for poor design and weaknesses that limit is ability to promote reform.
