Can SmartAid Improve Accountability within Funders?

Interesting lessons came out of the recent CGAP Aid Effectiveness conference where the SmartAid Index for Microfinance was featured.

There is a clear causal chain that starts with the funder’s own inputs and eventually leads to results on the ground, and SmartAid is designed to measure the internal systems which are the first part of this chain.

These internal systems include policies, staffing, knowledge management, and instruments. Most important, they also include accountability systems that help funders track and measure the performance of their projects.

In the past two rounds of SmartAid (2009 and 2011), funders have collectively performed weakest on their accountability systems. (See chart below or download the file.) At first glance funder accountability systems seem straight forward. The four accountability systems SmartAid looks at are:

• Project Identification System: Does a funder know what it is funding?
• Performance Indicators: Does a funder know the performance of what it is funding?
• Performance Based Agreements: Does the funder hold funding recipients accountable for performance
• Portfolio Reviews: Does the funder learn lessons from a substantial part of the portfolio and use these lessons to change?

What has me wondering is why accountability systems are so challenging for funders to develop and implement well. But, as participants at the Aid Effectiveness conference discussed, the first glance is not as simple as it seems.

First, there is sometimes considerable inertia in a funding agency. Conference participants were quick to point out that the traditional way of doing business is hard to change –the larger the agency, the more complex the task. A tool such as SmartAid is not sufficient to move large institutions, yet it can trigger changes, such as portfolio reviews, where a large segment of the portfolio is evaluated and the effectiveness of the funder role is given a critical look.

Second, there are “pre-conditions” for an agency to make changes at the broader institutional level. Change often comes with some new event, providing an impulse to review and improve systems. A change in leadership can be a driving force to commit to internal change and improve performance. A major re-work of a strategy can provide an incentive to move from focusing on disbursements to focusing results. A concerted effort for change lead by someone with credibility and enthusiasm to see it through can have a lasting positive effect. For example, creating a center for expertise within an agency can be a potent catalyst in improving internal systems, providing the momentum for change and a strong knowledge base to continue efforts as part of the normal way of doing business.

Third, systems for transparency and accountability within the funding agency, and to the public, are part of the fundamental accountability package. Participants discussed the competitive and complex nature of the aid environment that can have a negative effect on full transparency and disclosure, particularly when it comes to reporting results. Words of caution were offered: there are political elements that drive funding agencies. And others wondered how funders are able to “fail safely” when there are political expectations and pressures for budgetary efficiency.

Can SmartAid help funders improve their accountability systems? We have tales of challenges and tales of considerable progress. Participants noted that the focus and competitive nature of SmartAid create incentives for change, and to disclose results. Performing well on the SmartAid index or the robustness of a funder’s internal systems does not guarantee improved performance on the ground. Yet, SmartAid has been a helpful tool for some funders –but not all– to align internal systems to achieving better results.

The final word goes to Owen Barder, Senior Fellow at CGD. “Indices can have both a positive and a negative role in influencing funders. On the positive side, they help to simplify issues and allow the sharing of good practices to begin the conversation needed to address change. On the negative side, indices tend to over-simplify problems, can focus too heavily on inputs, rather than outcomes at the country level, and can limit innovation and diversity, which are fundamental to address the complex set of problems in development.”

SmartAid is an index, and as Owen points out indices can help, but we shouldn’t expect too much of them. SmartAid is not a cure-all, but a tool that can be used to focus the discussion and identify what needs to change.

This post is the next in a special series that will help us reflect on the broader aid effectiveness initiatives, CGAP’s own work on effectiveness, and what this all means for access to finance today. Watch this space for a new post every week by an expert on this topic. What are your ideas for improving aid effectiveness? Share your comments.