Getting to Scale: How to Bring Development Solutions to Millions of Poor People

4. Scaling Up Impact: Vertical Funds and Innovative Governance

103 4 Scaling Up Impact: Vertical Funds and Innovative Governance david gartner and homi kharas The challenge of scaling up for development requires innovative institutions with the capacity to leverage the contributions of diverse stakeholders , to support truly country-driven strategies, and to closely link financing to results. This chapter addresses the question of whether large-scale development impact can be achieved by channeling aid resources through vertical funds and, if so, what properties of vertical funds are critical to enabling this success. Vertical funds with more participatory governance structures and a closer link between performance and funding seem to be demonstrating more success in the areas of resource mobilization, learning, and impact. In this chapter we highlight the dramatic expansion of vertical funds over the last decade and analyze institutions in the areas of global health, education, and agriculture. Vertical funds are global programs for allocating official development assistance that focus specifically on an issue or theme. According to the World Bank’s definition, they are “partnerships and related initiatives whose benefits are intended to cut across more than one region of the world and in which the partners: (a) reach explicit agreement on objectives; (b) agree to establish a new (formal or informal) organization; (c) generate new products or services; and (d) contribute dedicated resources to the program.”1 They contrast with more traditional channels for development assistance, which focus on the needs of 1. World Bank (2004a, p. 2). 104 David Gartner and Homi Kharas each partner country through country-based, horizontal, funding allocations. Although vertical funds have a long history, only since the late 1990s have they become the international community’s funding vehicle of choice. There are now approximately twenty-seven multilateral vertical funds, of which thirteen have been created in the last fifteen years. In addition, there has been verticalization within the assistance programs of several Development Assistance Committee (DAC) countries, most notably the President’s Emergency Plan for AIDS Relief (PEPFAR) in the United States. Proponents of vertical funds point to several explanatory factors: one, the innovations that can be introduced by a new agency unencumbered by outmoded bureaucratic processes; two, a results focus, which has a clear causal chain between resources, interventions, and outcomes and which rewards partner-country contributions and effectiveness; three, transparency; and four, an appeal to the public and to political leaders through clear goals.2 But vertical funds also have detractors, who view them as contributing to the fragmentation of the international aid architecture and as increasing coordination costs for partner countries. With the clear focus of these funds on specific areas, their success at resource mobilization is sometimes viewed as coming at the expense of draining resources from other areas. Amidst this ongoing debate between proponents and skeptics of vertical funds, there is relatively little analysis of the comparative advantages among vertical fund institutions. In this chapter we examine vertical funds across three sectors: global health, education, and agriculture. Significantly, the institutions we focus on vary in terms of their institutional home and degree of autonomy, their level of participation in governance, and their adoption of performance-based approaches. In the global health context, the Global Fund for AIDS, Tuberculosis and Malaria combines a governance structure that includes diverse stakeholders with a fairly strong country-driven process and a close link between financing and performance on program objectives. In the realm of global education, the Global Partnership for Education includes a global structure of diverse stakeholders but is hosted within the World Bank, is working to strengthen its country-level processes , and is in the early stages of implementing a closer tie between performance and results. Within the field of agricultural development, the International Fund for Agricultural Development (IFAD) is an institution established in an earlier era within the United Nations, while the Global Agriculture and Food Security Program (GAFSP) is a new institution, housed in the World Bank, which incorporates more inclusive governance but not performance-based funding. The next section reviews the literature on global funds and documents the dramatic emergence of a new generation of vertical funds over the last decade. 2. Isenman and Shakow (2010). Vertical Funds and Innovative Governance 105 In a later section we analyze the innovative governance structures of these institutions . Following that, we compare the performance of vertical funds in health, education, and agriculture in scaling up development impact.3 Performance is reviewed along three dimensions: the...