Efficiency and Inefficiency in Humanitarian Financing€¦ · How humanitarian actors define...

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EfficiencyandInefficiencyinHumanitarianFinancingDecember2017AbbyStoddard,LydiaPoole,GlynTaylorandBarnabyWillitts-KingwithShoaibJillaniandAlanPotter

ThisstudyismadepossiblebythegeneroussupportoftheAmericanpeoplethroughtheUnitedStatesAgencyforInternationalDevelopment(USAID).ThecontentsaretheresponsibilityofHumanitarianOutcomesanddonotnecessarilyreflecttheviewsofUSAIDortheUnitedStatesGovernment.

TableofContents

Acknowledgments..................................................................................................................iv

Acronyms................................................................................................................................v

ExecutiveSummary................................................................................................................1

1.Introduction.......................................................................................................................51.1Backgroundandobjectives................................................................................................................51.2Researchapproachandmethods......................................................................................................61.3Caveatsandlimitations......................................................................................................................8

2.Definingefficiency..............................................................................................................92.1Typesofefficiency.............................................................................................................................9Figure1:Efficiencyinfunding:Conceptualframework.........................................................................112.2Causesofinefficiencyinhumanitarianfunding...............................................................................11

3.Efficiencyfindingsforfundingmodalities..........................................................................133.1Directgrants.............................................................................................................................13Figure2:Globalproportionsofemergencycontributions,2015–2016.................................................13Table1:AveragesfromsampledcontributionsinEthiopia,Iraq,andMyanmar(2015and2016).......143.2Bilateralgrantintermediaries..........................................................................................................183.3Global-levelpooledfunding(CERFandStart)..................................................................................223.4Country-basedpooledfunds............................................................................................................243.5Consortiaandframeworkagreements............................................................................................273.6Corefundingandinternalinstruments............................................................................................28

4.Otherissues:Multiyeartimeframesandearmarking.........................................................304.1Multiyearfunding............................................................................................................................304.2Earmarking.......................................................................................................................................30

5. Conclusionsandsuggestedguidanceforconsideringefficiencyinfundingdecisions......315.1Areasforaction................................................................................................................................315.2Guidingprinciplesfordonordecision-makingregardingefficiency................................................345.3Enhancingefficiencythroughamorecoordinated,evidence-basedapproach...............................36

References............................................................................................................................37

Annex1:Listofpeopleinterviewed.......................................................................................39

Annex2:Quantitativeanalysisdetails...................................................................................42

Acknowledgments

ThisstudywouldnothavebeenpossiblewithouttheconsiderablesupportandcooperationofthefollowingAdvisoryGroupmembers,whohelpedguidedthemethodologydevelopment,sharedtheirinsightsininterviews,andcooperatedinprovidingquantitativedatafromtheirfieldofficestoassistintheanalysis.HelenAlderson,ICRCSandraAviles,IASCHFTT/FAOAndreadeDomenico,OCHAFCSLisaDoughtenandMichaelJensen,IASCHFTTandCERFSecretariatChrisKaye,WFPChristopherLockyear,ACFJemilahMahmood,IFRCPatriciaMcIlreavy,InterActionJamesMunn,NRCMarkPryce,OCHASanjanaQuazi,UNICEFDeeptiSastry,StartJenniferSime,IRCJulianSrodecki,WorldVisionDonaTarpeyandHirokoAraki,UNHCRTheauthorswouldalsoliketopayspecialthankstotheInternationalRescueCommitteeforhostingthefieldresearchvisittoErbil,Iraq.AdvisoryGroupmemberswerenotunifiedintheiropinionsontheissuesdiscussedinthispaper,reflectingthediversityofviewsfoundthroughoutthesector.Theanalysisandconclusionsexpressedinthereport,aswellasanyerrorsoffact,belongtotheauthorsalone.

Acronyms

CBPFs Country-BasedPooledFundsCERF CentralEmergencyResponseFundDAC DevelopmentAssistanceCommitteeDEC DisasterEmergencyCommittee(UK)DFID DepartmentforInternationalDevelopment(UK)DRC DemocraticRepublicoftheCongoDREF DisasterReliefEmergencyFundEC EuropeanCommissionECHO EuropeanCommissionHumanitarianAidOfficeERC EmergencyResponseCoordinatorEU EuropeanUnionFAO FoodandAgricultureOrganizationFTS FinancialTrackingServiceGHD GoodHumanitarianDonorshipHC HumanitarianCoordinatorIASC Inter-AgencyStandingCommitteeonHumanitarianAffairsICRC InternationalCommitteeoftheRedCrossIFRC InternationalFederationofRedCross/RedCrescentSocietiesIRA ImmediateResponseAccount(WFP)NGO Non-governmentalOrganizationOCHA UNOfficefortheCoordinationofHumanitarianAffairs

OECDDAC OrganisationforEconomicCooperationandDevelopment’sDevelopmentAssistanceCommittee

OFDA OfficeofU.S.ForeignDisasterAssistanceUNHCR UnitedNationsHighCommissionerforRefugeesUNICEF UnitedNationsChildren’sFundUSAID UnitedStatesAgencyforInternationalDevelopmentWFP WorldFoodProgram

ExecutiveSummary

Thegoalofthisstudywastodefineandmeasureefficiencyinthecontextofinternationalfundingforhumanitarianresponse.CommissionedbytheOfficeofU.S.ForeignDisasterAssistance(OFDA),theresearchwasconductedtohelpinformdonordecision-makingatatimeofsurgingfinancialdemandforhumanitarianaidandnewmomentumforchangeinthehumanitariansectorfollowingtheWorldHumanitarianSummitinMay2016.

Efficiencyisjustonenarrowcriterionbywhichtoassessthehumanitarianfundingarchitectureandcannotbeconsideredinisolationfromfundingeffectivenessandbroadergoalsofthehumanitarianresponse.1However,inaresource-scarceandlargelyreactiveenvironment,howefficientlymoneymovestoenableresponseisacriticallyimportantcomponent,andonewhichhasreceivedlittlein-depthattentionatthesystemlevel.

Howhumanitarianactorsdefinefundingefficiencydependsonwheretheysitinthesector.Forthelargeinternationalagencies,efficientfundingisthatwhichisthemostflexible(i.e.,least“earmarked”bythedonorforspecificpurposes)andtimely(eitherrapidlydisbursedorreliablypredictable)whilerequiringthefewestadministrativeinputs.Smallerandlocalorganizationsfinditmostefficienttoreceivefundingdirectlyfromthedonorratherthanthroughanintermediaryagency,whichcanbeslowtodisburseandrestrictivewithoverheadallowances.Andfordonors,efficiencyoftenmeanshavingfewer,largerchannelsthroughwhichtochanneltheirhumanitarianfunding,preventingtheadministrativebottleneckscausedbytheneedtoindividuallymanagenumerousgrants.Itiseasytoseehowthesedifferentvantagepointscanbeatoddswitheachother,andnoneofthemalonespeaktowhatconstitutesfundingefficiencyforthewholesector.

Thestudydefinesoverallefficiencyofthehumanitarianfinancingsystemasacombinedmeasureofbothtechnicalefficiency(thespeedandsmoothnessofthepipelinesfromdonortoaffectedpeople)andallocativeefficiency(theappropriateallocationofresourcestospecificproblemsorobjectives).Bothmeasuresarerequiredforaholisticassessmentofthevariousfundingmechanismsthatconsiderstheirdifferentpurposesandvalueadded.

Theresearchteammadefieldvisitstothreehumanitarianresponsesettings—Ethiopia,Myanmar,andIraq—togatherdetailedinformationonthepracticalexecutionofdifferenttypesofcontributions.Theanalysisinvolvedexaminingthetransactionchainsinasampleofcontributionsforeachofthemainhumanitarianfundingmodalities:directgrants(bothpublicandprivate)andpooledfundingmechanismsattheglobalandcountrylevels.Usingthedataprovidedbyagencies,thestudycomparedthedifferentfundingmodalitiesintermsoftheirtimeliness,sufficiency,transactioncosts,andotherindicatorsoftechnicalandallocativeefficiency.Inadditiontoa

1Effectivenessoffundingwouldbeameasureofwhetherandhowwellthefundingachieveditsintendedresults.

quantitativeanalysisofthisdata,thereportincorporatedqualitativeevidencefrom86keyinformantinterviewsaswellasagloballiteratureandfundingreview.

Theresearchyieldedfourkeyfindings:

1. The primary modes of funding have not yet proved efficient for rapid response. 2. Disproportionate requirements and inflexibility hinder efficiency at all levels. 3. The added value of intermediary agencies in multi-link (pass-through) grants is inconsistent, and

they often create net inefficiencies. 4. Allocative efficiency and the stated goals of localization are impeded by risk perception and

capacity constraints on the part of donor governments.

Eachisdiscussedbelow.

Theprimarymodesoffundingarestillinefficientforrapidresponsepurposes.

Insuddenonsetcrises,fundingmustbeavailabletospendwithindays—notweeksormonths—ifitistosupporttimelyresponseefforts.Becauseonlyafewhumanitarianactorshavestandbyfundsthatcanbetappedinadvanceofdonorfunding,thismeansthatagrantmustberequested,approved,anddisbursedwithinaveryshorttimeframeforittofunctionasarapidresponseresource.Thestudyfoundthatnecessaryspeedindisbursementsforrapidresponsewaslackinginallthreecaseexamplesandacrossthemajormodalities,includingthosedesignedspecificallyforthepurpose.Anarrayoftransactioncosts,includingoverlyheavybureaucraticstructures,currentlyworksagainsttechnicalefficiencyoffundingflows.

Inthecaseofbilateralgrants,becausetheproposal-to-awardperiodtypicallyrepresentsthelongesttimelag,donorsshouldprovidegreater“pre-positioned”fundingwithindividualagenciesand/ormultiagencyconsortiacapableofputtingthemoneytoworkimmediatelyintheeventofasuddencrisis.StrongUN-NGOpartnershipsinsomechroniccrisissettings,andtheexperienceoftheStartFund,illustratehowthispreparednessapproachcanreducefundingdelaysandsupportrapidresponse.Pooledfundgrantsweredecidedmorequicklythangrantsfrombilateraldonors,butneverthelessfaceddelaysonboththefrontandbackendsoftheapprovalprocess.Thiscouldbeimprovedbywaivingtherequirementforjoined-upproposalsincaseswherethisprocesswouldhindercriticalrapidaction,andoverlyheavycluster-levelprocessesingeneral.

Thebiggestgainintimeliness,however,canonlycomethroughinternalagencyreformstoremediatethelongdelaysfromtheinitialawardtotheonwardcontractingofanddisbursementtopartners.

Disproportionaterequirementsandinflexibilityhinderefficiencyatalllevels.

Thesmallestandshortest-durationgrantshavetheheaviesttransactioncosts,andthesmallestNGOstypicallybearthegreatestadministrativeburdenfortheleastreward.Theallocativeefficienciesgainedbystrategiccoordinationandground-leveldecision-making(thelogicbehindthepooledfunds)canbeoutstrippedbythesetechnicalinefficiencies.Inordinatelyhightransactioncostsonsmall-sizedgrantsareinefficientfordonorandgranteesalike.Theseshouldbeaddressed

bymakingtherequirementscommensuratewiththesizeandtimelinesofthegrantsandbymaximizingtheflexibilitytomodifythemtosuitchangingconditions,withintheboundsofappropriateaccountabilitycontrolsandpragmaticriskmanagement.

Theaddedvalueofintermediaryagenciesinmulti-linkgrantsisinconsistentandtheyoftencreatenetinefficiencies.

Thehumanitarianfundingsystemneedsamindsetshiftandachangeinstandardoperatingproceduresthatrequireabusinesscaseforusinganintermediaryagency,demonstratinghowitwouldaddvalueasopposedtoautomaticallyassumingitwill.Inadditiontoscalabilityandeffectivenessjustifications,partofthecasefortheintermediarywouldincludedemonstratedhigherefficiencyinfunding,contracting,andflexiblemanagementofgrantscomparedtodirectfunding.

Allocativeefficiencyandthestatedgoalsoflocalizationareimpededbyriskperceptionandcapacityconstraintsonthepartofdonorgovernments.

Donorgovernments,foravarietyofdomesticpoliticalandregulatoryreasons,havenotbeenwillingtofundlocalactorsdirectly,deemingittoogreatarisk.TheGrandBargaincommitmentsinthisareahavesofarfocusedmainlyonincreasingindirectfundingtolocalactorsthroughintermediaryagencies(whichmayhelpbuildgreaterlocalcapacitybutdoesnotfosterameaningfulshiftinresponsibility)anddirectfundingtotheactorsthroughthecountry-basedpooledfunds(whichrepresentonlyatinysliverofhumanitarianfundingatpresent).Totheextentpossible,donors(includingpooledfundsdonors)shouldconsidersubsidiarity2indeterminingatwhatleveltomakegrants.Unlesstheallocativeefficienciesandvalueaddedofhavinganintermediarycanbedemonstrated,directfundingshouldbepreferred.Targetedcapacityinvestmentsinlocalorganizations(i.e.,corefundinggrants)canbolsterandenhancetherangeofoptionsavailableinfuturefordonorsseekingtomaximizeefficiencyaswellaseffectiveness.Country-basedpooledfunds,wheretheyarefunctioningwellandallocatingdirectlytolocalNGOs,maybeameansforsomedonorstoachievesubsidiarityandlocalizationobjectiveswhileavoidingthetradeoffinefficienciesofmanagingnumeroussmallgrantstolocalentities.

***Thereportconcludeswithbroadguidingprinciplesforconsideringefficiencyinmakingfundingdecisions:

Maintainthewidestpossiblerangeofoptionsandtoolstoemployfordifferentneeds,usingacombinationofmodalitiestoachieveareasonablebalanceofpredictability,responsivenessandallocativeefficiencybothatthecountryandgloballevels,whileretainingcontingencyfundingatthegloballevelincaseofunforeseenneeds.

2Theorganizingprinciplethatresponsibilityshouldbelocatedwiththemostproximate(leastcentralized)competententity.

Startingfromthespecificsofthecontextandhumanitarianneeds,matchgoalswiththefundinginstrumentsbestsuitedtoefficientlyservicethem:

• Forrapidresponse,workingthroughpre-arrangedframeworkagreementsorothermechanismswithprovenspeedydisbursementtimeswillbemoreefficientthantraditionalbilateralgrants.

• Large-scale,complex,andprotractedemergenciescausingsimilarneedsamongwidesegmentsofthepopulationmaybebestservedbylargeumbrellagrantingtocompetentcoordinatingbodies(UNagencies,NGOs,orconsortia)thataddtechnicalvalueandprovideeconomiesofscale.

• Specificgapsandunderfundedneedscanbeaddressedwitheitherflexiblebilateralgranting,earliercontributionstopooledfundwindowsforthatpurpose,orboth.

• Smallpocketsofneed,andhighlylocation-specificneedsinindividualareas,willoftenbemoreefficientlyfundedbyeliminatingtheintermediaryandgivingtolocallybasedorganizationsdirectly.

Determineandconsiderotherdonors’plansasfactorsinefficiencydecisions.

Totheextentthatanydonorhasflexibilityofchoiceinfundingmechanisms,thatchoiceshouldbeusedtohelpbalancetheneedsofbothtechnicalandallocativeefficiency,consideringwhatcounterpartsaredoingwithinthelargerpictureofstrategicpriorities.

Agreeonacommonsetofmetricsforassessingefficiency

TheGoodHumanitarianDonorshipinitiativecouldbenefitfromusingaquantifiedefficiencyframeworktoassessfundingmechanismsandagenciesseekingintermediaryroles.Suchaframeworkwouldencouragetransparencyandefficiencyinfundingdecisions,andsupporttheGrandBargaincommitments.

1.Introduction

1.1Backgroundandobjectives

The“GrandBargain”reformsannouncedattheWorldHumanitarianSummitinMay2016committhemajorhumanitariandonorgovernmentsandagenciestoworktowardaseriesofgoals,manyofwhichareintendedtoimproveefficiencyinthefundingrelationship.Theyincludecommitmentstoreduceduplicationandmanagementcosts,reducedonorearmarking(i.e.,increaseflexibilityinfunding),lightenandsimplifyreportingrequirements,improvefinancialtransparency,increasedirectfundingtonationalfirstresponders,increasecash-basedprogramming,andincreasetheuseofmulti-yearfunding.

Althoughtheoperationalizationofthesecommitmentsisnotyetfleshedout,itisanopportunemomentfordonorstosurveythecurrentmechanismsandchannelstheyuseforhumanitarianfundingtoseehowtheyserve—orhinder—thepursuitofthesegoals.Forthisreason,theOfficeofU.S.ForeignDisasterAssistance(OFDA)commissionedHumanitarianOutcomestoundertakeacomparativeanalysisoftheefficiencyofhumanitarianfinancingtoolsandinstruments.

Official(i.e.,government)humanitarianassistancefundingflowsthroughthefollowingchannels,indescendingorderofpercentage:

• directgrantsforspecificprojectsorprograms• globalpooledfundingmechanisms(theCERF,Start)• country-basedpooledfunds(CBPFs)• un-earmarkedcorefundingcontributionsorframeworkagreements• government-to-governmentaid• global-levelrapiddraw-downfunds(ex-anteagreementsforrapidresponse)(e.g.,IFRC’s

Arecentdescriptivebackgroundpaperontheseinstruments,alsocommissionedaspartofthisstudy,foundthatnotonlyhastherecentsurgeinhumanitarianfundingbeenoverwhelminglyfinancedbyasmallgroupoflargedonorgovernmentsandtheEU(justfivedonorsrepresent65percentofofficialhumanitarianflows),butalsothatithasgonethroughthedirect,earmarkedgrantmodality.Theever-increasingpercentagechanneledthroughdirectgrantstoindividualagencieshasdwarfedothermodalitiessuchaspooledfundsandcorefunding(Stoddard,2017).Further,thereportshowedthatdonors’decisionsonhumanitarianfinancingcontinuetobedeterminedmorebypastexperienceandinternalconstraintsthanbyevidenceandcoordinatedstrategy.

Veryfewdonorsoragencieshaveundertakenanin-depthcomparativeanalysisofefficienciesindifferentmodesoffunding,andthecriterionofefficiencytendstogetshortshriftinhumanitarianevaluationsgenerally(Palenberg,2011;Stoddardetal.,2015).ExceptingUKDFID’sextensivedoctrinalworkon“valueformoney,”mostdonorsfactoralooseworkingdefinitionofefficiencyintodecision-making,forinstancelookingbroadlyatprogramsupportcostsversusoutputs.Other

humanitarianactorsadmit,inthewordsofoneNGOrepresentative,that“wearesotime-constrainedwedon’tconsiderwhatwouldbemaximallyefficient.”

Whenitcomestomeetingurgenthumanitarianneedsincomplexandhighlyvariedcontexts,efficiencyinanarrowcost-per-outputsensewillneverbetheprimaryconsideration.However,ifefficiencyisneverdeliberatelyexaminedasonecriterioninanevidence-baseddecision-makingprocess,thendecisionswilldefaulttopath-dependentpatternsthatareun-strategicandpotentiallysuboptimal.Inthewordsofonedonorinterviewedforthisstudy,“Weareallstrugglingwiththisquestionofwhywearechoosingoneinstrumentoveranother.Sometimeswedon’tnecessarilyknowwhywearefundingparticular[entities/partners],orwhattheircomparativeadvantagesare.”

ItishopedthisstudywillcontributetotheGrandBargainfollow-upbysynthesizingcurrentissuesinefficiencyandidentifyingsystem-widetrendsandgaps.

1.2Researchapproachandmethods

Thedefinitionalframeworkofefficiencyusedforouranalysis,detailedinChapter2,considersthedifferenttypesofefficiencyandperspectivesofactorsatdifferentlevelsandcombinesthemforasystem-levelassessment.ThemethodologyinceptionnoteforthestudyincorporatedtheinputofthehumanitarianpractitionerssittingontheAdvisoryGroupandoutlinedanapproachforassessingandcomparingefficiencythatproceededfromthebelowassumptions.

1.2.1Assumptions

Efficiencyisonlyonecriterioninforminganyjudgment,andseldomthemostimportant.Itispossibletodothewrongthingwithultimateefficiency.Therefore,theconceptofefficiencycannotbedivorcedfromeffectivenesswhenexaminingfinancingmechanismswithdifferentgoals.Theresearchwillbeclearonthispoint,ensuringthatfindingsarenuancedwithrespecttobroaderobjectives(seemorebelow,in“caveatsandlimitations”)andmodestaboutmakingprescriptiveconclusions.Humanitarianfinancingislimitedtothepresentmodalitiesfortheforeseeablefuture.Despiteproposalsfornewglobalfinancingplatforms,andlimitedexperimentationwithvehiclessuchashumanitarianimpactbonds,nowhollynewhumanitarianfinancingmechanismsareonthehorizonyet.Therefore,thescopeofthestudywaslimitedtowhatcurrentlyexistsfordonorgovernmentstochoosefromintermsoffundingmodalities,aslistedabove.

Optimalefficiencyforthesystemwilloftenmeansuboptimalefficiencyatthelevelofindividualactors.Whatismostefficientforonehumanitarianactormaynotbeefficientforotheractorsorfortheoverallsystem.Trade-offsareinevitableandneedbemanagedinawaythatoptimizesefficiencyforhumanitarianfundingwritlarge.Forthisreason,andtoaccountforthedifferentobjectivesofthedifferentpiecesofthehumanitarianfinancingarchitecture,themeasureofefficiencyforthisinquiryisdefinedontwolevels—systemandcomponent—asdetailedbelow.

1.2.2Global-leveldatagatheringandanalysis

Theresearchersanalyzedhumanitarianfinancingdatafor2013–2016downloadedfromtheUNFinancialTrackingService(FTS).FTSwastheprimarydatasourceusedforfundingfigures,augmentedwhereappropriatebydatafromtheCERFandCountry-BasedPooledFunds(CBPF)data,UNagency/NGOannualfinancialreports,andinformationprovideddirectlybydonorsandagencies.Thefindingsfromtheglobal-levelanalysisinformedandcomplementedthefieldresearchandkeyinformantinterviews.AlthoughthevoluntarybasisonwhichhumanitarianactorsreporttoFTSmeansthatitfailstocapturethefullextentofhumanitarianfinancing,itisstillthemostcomprehensiveandtimelysourceofthisdataandthebestoptionfortrackingglobaltrends.DatafromtheInternationalAidTransparencyInitiative(IATI)werereviewed,butdeterminedtobestillfartooincompletetocontributetoanyrigorousanalysis(althoughintheorythisdatabaseshowspromisetohelpimproveefficiencyinthefuturebyprovidingincreasedtransparencyofthetransactionchain).

Aglobal-levelliteraturereviewencompassedreports,evaluations,andanalysesofhumanitarianfinancingaswellasrelevantagencyandinter-agencypolicystatements.Thisservedasbackgroundinformationandtoindicatethecurrentpointsofcontentionorconsensusonfinancingissues.

Theresearchteamalsoconductedsemi-structuredinterviewswithselectedindividualsrepresentingmajorandemergingdonorgovernments,implementingagencies,andhumanitariancoordinationandfundingbodies.Interviewfindingswereusedtoconfirmandquerythedatafindings,aswellastogleanperspectivesonthekeyfinancialissuesandtrendsinthesector.Inall,86individualswereinterviewedforthestudy(listattachedasAnnex1).

1.2.2Fieldresearch

AfterexploringoptionswiththeinputofAdvisoryGroupmembers,theteamidentifiedthreecasescenariosforfieldresearch:Ethiopia(2016),Iraq(2016),andMyanmar(2015floods).Theselectionofthesethreecasesaimedforregionaldiversityaswellasacombinationofslow-andsudden-onsetemergencies,naturalaswellasconflict-related,andwidelyvaryinguniquecontextualchallenges.

FieldtripstookplaceinFebruaryandMarch,2017.Theresearchcombineddetailedqualitativeinterviewswithhumanitarianorganizationsanddonorrepresentativestocapturearangeofviews,experiences,andcontextualconsiderationsintheassessmentoffundingefficiency.Inaddition,thefieldresearchgathereddataonasampleofhumanitariancontributionsforquantitativeanalysis,describedbelow.

1.2.3Quantitativeanalysis

Theresearchersineachfieldlocationrequestedinterviewsubjectstofillininformationonaspreadsheetcontainingasampleofcontributionsreceivedbytheiragenciesthroughdifferentfundingchannels,asreportedtoFTS.Theworksheetsincludedthefollowingdataquestionsforcompletion:

• the number of iterations that took place before the proposal was accepted, • the number of days from proposal submission to award, • the number of days from award to disbursement of funds, • staff hours expended on administrative requirements, and • the perceived administrative burden in terms of staff time and inputs required (ranked on a scale

from 1 (light) to 5 (heavy).

Outof32formalrequests,theresearchteamreceived16completedspreadsheetsintotalfrom5UNand11NGOofficescomprising209observations(totalcontributions).Ofthose,149contributionswerebilateralgrantsfromdonorgovernments,49werecountry-basedpooledfundsallocations,9wereCERFallocations,and2wereStartFundallocations.Thespecificdependentvariablesforeachmechanism(dayselapsed,etc.)wereaveragedwithinandacrosscountries,andthedifferencesbetweenthemwerefoundtobestatisticallysignificantbyanindependentsamplest-test.3Thequantitativefindingsagainstthevariousfundingchannelsarepresentedintherelevantsectionsofthepaper.

Becausetimelinessandtransactioncostsarejusttwoindicatorsofonetypeofefficiency,thepaperiscarefulnottooveremphasizethesequantitativefindings,astheywillalwaysneedtobebalancedbyotherfactorsinanydecision.Nevertheless,havingconcretemeasurestoconsideralongsidethequalitativeinformationisuseful.

1.3Caveatsandlimitations

Thestudyaimedtobeasempiricalandquantitativeaspossible,providingconcretemeasuresforwhathasbeenpurelyanecdotalorassumedtodate.However,becauseofthetimeandlabor-intensivenatureofgatheringdatapointsfromfieldoffices,wenecessarilyendedupwithasmallsample.Whilethefindingsofthequantitativeanalysisofthefielddatacorrespondtoglobalfigures(e.g.,theproportionsoffundingthrougheachmechanismareroughlyequivalenttooverallglobalproportions),weneverthelessmustbemodestinclaimingthattheyarerepresentativeofefficiencyperformanceinallemergencieseverywhere.

Eachhumanitarianresponsecontextisuniqueinmanyaspects,andtheabilitytocoveronlythree(Ethiopia,Iraq,andMyanmar)necessarilyinfluencedthefindings.AsobservedbyanAdvisoryGroupmember,“Alotofthethingsthatdon’tworkinIraq,Ethiopia,orMyanmar,arethingsthatactuallyworkquitewellinotherplaces.”Wehopewehavestruckabalancebetweenpointingoutthecase-specificproblemsweobservedandnotover-generalizingfromtheresults.

Finally,theteamiscognizantofvalidopinions,includingamongourAdvisoryGroup,thatleadtoskepticismofastudyonefficiencyinisolationofothervariables.Ourframingoftheefficiencydefinitioninthefollowingchapterspecificallyaddressesthisproblem,and,webelieve,offersasolutionadequatetothegoalsofthestudy.

3Theindependentsamplest-testcomparesthemeansoftwoindependentgroupstodetermineiftheassociatedpopulationmeansaresignificantlydifferent.

2.Definingefficiency

Practitionersinterviewedforthisstudyofferedwidelydifferingdefinitionsofefficiencyinhumanitarianfunding,from“leastpossiblewaste”to“flexibleandresponsivetoneeds”to“directaspossible,withfewestlinksinthechain.”Notsurprisingly,opinionswerecoloredbytheinterviewees’vantagepointsinthehumanitariansector.Donorintervieweeswereconsistentthatefficiencyfromtheirperspectivemostlymeantminimizingtheirownadministrativeburdenbylimitingthenumberofcontractsundertheirdirectmanagement.Inotherwords,funnelinglargeramountsthroughfewer(knownandtrusted)recipientagencies.First-levelrecipientagencies(UNagenciesandlargeinternationalNGOs)sawefficientfundingasthatwhichwasmaximallyflexiblewithminimaltransactioncosts.(Theidealinstrument,describedbyUNagencyrepresentatives,wasanun-earmarkedglobalcontributionwithlittleproposal,reporting,orcompliancerequirements.)NationalNGOsstressedsufficiencyingrantstoenableexecutionandcontinuityoftheiroperations(inotherwords,reasonableoverheadallowances)andtheneedforlessoneroustransactioncostsandbarrierstoentry.Allagreedthatspeedwasacriticalelementforefficientfunding,buttheneedforspeedcouldbeoffsetbypredictabilityiftherecipientagencywaslargeenoughtohavethecapacitytoadvancethenecessaryfundsforrapidresponseorinslow-onsetemergenciesorchronic-crisisenvironments.

Whenviewedthroughthelensofdifferentactors’interestsatdifferentlevelsinthesystem,efficiencycanappearasazero-sumgame,inwhichefficiencygainsforonepartycreatesinefficienciesforanother.Forexample,donorsmaymaximizetheirefficiencybymakinglargerumbrellagrants,therebyshiftingtheadministrativeburdentoagencies,andinternationalagenciesmayreducecostsbyrestrictingoverheadallowancesfortheirNGOpartners,creatinginefficienciesatthesubcontractorlevel.Forthatreason,toarriveatanobjectiveassessmentoffundingefficiencyatthesystemlevelrequiresadefinitionthatcanbalancecompetinginterestsofdifferentactorsalongthetransactionchainandwhichiscenteredonthebroaderfundingefficiencyofthecollectiveresponse.

2.1Typesofefficiency

Tobeginwithsomebasicdefinitionsofefficiencyineconomicterms,initssimplestdescription,efficiencyismeasuredbyaratioofoutputstoinputs.Thehighertheusefuloutputproducedrelativetoinputorcost(inmoney,fuel,staffing,time,energy,etc.),thehighertheefficiency.Ifeffectivenessis“gettingthingsdone,”i.e.,achievingobjectives,efficiencyis“doingthingswell”byreducingwaste,optimizingresources,andmaximizingdesiredoutputs.

Forourpurposes,itusefultounpacktheconceptfurtherwiththedistinctionsoftechnical(oroperational)efficiencyandallocativeefficiency.

Technicalefficiencyinhumanitarianfundingcanbeviewedasameasureofhowfundinggetsfromdonortoenduser(theaidrecipient)withaminimumofimpediments,transactioncosts,anddelays.Examplesoftechnicalefficiencyinafundingmechanismwouldthereforeincludetimeliness(meaningeitherspeedorpredictabletiming).Tobetechnicallyefficient,moreover,requiresahighratioofsufficiency(thesizeofthecontribution)tothetransactioncostsentailed(e.g.,hours

requiredforproposalwriting,negotiation,reporting,andotheradministrativeandcompliancetasks).Economiesofscaleisatypeoftechnicalefficiencyachievedwhencostsarereducedasafunctionofenlargingthedistributivechannelsorimplementationmechanisms,therebyconsolidatingandstreamlininginputs.Anintermediaryagencyorumbrellagrantmanagercansometimesprovidethistypeofefficiency,forinstancebycoordinatingcountrywideeffortsofnumerouspartnerstowardacommonoutcomeobjectiveandprovidingasingleprocurementpipelineorlogisticalplatform,thusavoidingduplicativecosts.

Allocativeefficiencyisconcernedwithdirectingfundingtowhereitwillhavethelargestbenefit,andthereforerelatestorelevance/appropriatenessandprioritizingthemosturgentneeds(Palenberg,2011).Examplesofallocativeefficiencywouldbefundingmechanismsthatfillgapsormitigateagainstduplicationofresources.Similarly,fundingmechanismswillhaveallocativeefficiencyiftheyhavetheflexibilitytoredirectormodifyspendingaswarrantedbychanginghumanitarianconditionsandpriorities.Somehumanitarianactorshavealsosuggestedatemporalperspectiveofefficiencyinsettingsofchronicvulnerability,namelytheimpactorreturnoninvestmentofdifferentfundingstrategiesinthelongterm.Subsidiarityreferstotheprincipleoflocatingresponsibilityoractionatthelevelnearesttowhichitisrequired.Thesubsidiarityprinciplecanoftensupportanefficiencyargumentfor“localization,”i.e.,facilitatingtheassumptionoflargerrolesbylocalactorsintheprovisionofaidtotheirownpopulations(inadditiontotheeffectivenessandsustainabilityarguments.)Incaseswherelocalactorsarebestplacedtoresponddirectlytospecificsituationsandneeds,channelingtheirfundingthroughintermediariesisinefficient.However,subsidiarityandlocalizationarenotalwayssynonymous.Situationswilloccurwhereabroaderscopeofactionprovidesgreaterallocativeefficiencyand/orwhereinternationalactorswillrepresentaddedvalue,forinstancebyprovidingtechnicalassistance,capacityinputs,centralizedprocurement,andcoordinationofmultipleeffortsforacommonoutcome.Wehavethereforeincluded“addedvalue”inthesamecategory,asacorollarytosubsidiarity.

Itisimportanttoconsideralltheaboveinoursystem-levelefficiencyassessment,astheyrelatetodifferentaspectsandobjectivesofhumanitarianresponse.Afterall,thehumanitariansectorisnotafactoryorfree-marketenterprise,butratherauniquehybridofpublicgoodsprovisionandcompetitiveinterestsengagedincomplexandvariedactivities.So,forexample,onefundingmodalitymayhavesuperiortechnicalefficiencybutmaynotbescalable,whileanothermayentailheavytransactioncostsbutneverthelessresultinallocativeefficiencies.Theprincipleofhumanityandtheprioritizationofthemostvulnerablealsooftenrequiremoredifficultandexpensiveinterventions,forinstance,reachingremote,hard-to-accesspopulations.Insum,differentfundingmechanismsorarrangementscangenerateefficienciesindifferentways,soshouldnotbeheldtoareductivemeasureofinputs-to-outputs.4

Manyintervieweeshighlightedwhattheyperceivedasbroader“structuralinefficiencies”inthehumanitariansystemrelatingtomandates,architecture,andprocesssuchasclustercoordination.

4AsimilarlogicisfoundinUKDFID’s“valueformoney”formulation,inwhichefficiencyislinkedtoeffectivenessinpursuitofadesiredoutcomeanddependentonthespecificcircumstancesofthecontext.

Thisstudyhasfocusedontechnicalandallocativeefficiencyasthelevelofanalysistomakeitsscopemanageable,whilereferencingsuchissueswhererelevant.

Figure1:Efficiencyinfunding:Conceptualframework

2.2Causesofinefficiencyinhumanitarianfunding

Themainimpedimentstoefficiencyinhumanitarianfunding,regardlessofthemodality,canbegroupedunderfourareas:transactioncosts,riskperception,informationasymmetry(i.e.,lackoftransparency),andcompetingobjectives.

Transactioncostsinhumanitarianfundingareanyrequiredoutlaysorinputsthatsloworreducethefundingflowbetweentheoriginaldonorandend-userecipient.Organizationaladministrativeprocessesrequiredforthefundingtoflowareconsideredatypeoftransactioncost,sometimesmorepreciselytermed“institutionalcosts”(Cheung,1987).Whilesomeleveloftransactioncostsisinevitable,minimizingthemiscentraltotechnicalefficiency.Forourpurposes,thedefinitionoftransactioncostsiswideenoughtoincludeallthefollowing:

• multiplelinksinthetransactionchain,leadingtoaccumulatedoverheadcosts;• bureaucraticprocedures,processrequirements,andadministrativeburdensrequiringstaff

timeandattimesevenadditionalstaffpositions;and• proceduraldelaysinfinaldisbursementandactivitystart-up.

Technicalinefficiencyofthistypecanbebuiltintofundingstructuresandprocedures,orcausedbytheirpoorimplementation.Inthecontextofrapid-onsetemergencies,speedwillbeaprimarycasualty.Slownessinfundingcanalsocreateallocativeinefficienciesbecauseoftenbythetimethefundsarrive—weeksormonthsaftertheinitialshock—theresponsetheywereintendedtofundwilllikelynolongerbewhatismostneeded.

TechnicalefficiencyTimeliness

(speed/predictability)

Sufficiency/limitedtransactioncosts

Economiesofscale

Allocativeefficiency

Flexibility

Subsidiarity

Addedvalue

Liketimeliness,insufficiency,islinkedtotransactioncosts,inthatthereisapointofdiminishingreturnsafterwhichthesizeofthegrantistoosmallfortheinvestmentintransactioncoststobeconsideredworththeeffort.

Effortsbydonorstoreducepotentialrisks—includingfraud,waste,ordiversion—havedriventheincreasingcomplianceburdenonagencies.Theseaccountabilitycontrolscangeneratetechnicalinefficiencies.5Totheextentthatriskconsiderationsalsodrivewherefundingisdirected,theycanalsonegativelyaffectallocativeefficiency(nottomentionpotentiallycompromisingthehumanitarianprincipleofimpartiality).Riskconcernsconstrainthewillingnessofdonorstopursuesubsidiarity,thuscreatebarrierstoamorelocalizedresponse.Governmentdonorsgenerallywillnotfundnationalactorsdirectlyforreasonsofperceivedfiduciaryriskand,asoneputit,the“needtobeaccountabletoourtax-payers.”Likedonors,theUNagenciesandinternationalNGOsthatsub-contracttosmallerorlocalorganizationscanalsocreaterisk-driveninefficiencies.Forinstance,becausecommonagreementsorstandardsforvettingpotentialpartnersdonotexist,oftenthesameorganizationmustbevettedbynumerousagenciesandineachnewoperatinglocation,takingconsiderabletimeandeffort.

Informationasymmetry,orwhatmanyinthehumanitariansectorlabel“lackoftransparency,”isalsoadriverofinefficiency.Theclustersystemhasarguablyimprovedtransparencyamonghumanitarianactors,butaccordingtointervieweesforthisstudyseriousissuesremain.One,inMyanmar,notedthattheoveralllackoftransparencyamonghumanitarianactors,andbetweentheimplementersandtheirdonors,madeitverydifficulttogetaholisticviewoftransactionchains.Insuchasituation,onecan’tevenidentifywheretheinefficienciesaretoaddressthem.Onedonorrepresentativelamenteda“totallackoftransparency—wereallycannottellwhatitisthatagencies,particularlytheUN,dowiththemoney.Thereisnodata,soitisveryhardtoknowwhatisefficient.”(Agenciestendtoframetheissuemuchdifferently,andspeakofa“lackoftrust”onthepartofdonorsfortheirpartners.)Othertypesofinefficiency,likedelays,canbemadeworsebylackofinformation.OneINGOrepresentativereportedbeingunabletomobilizeinBorno,Nigeria,despitehavingateamontheground,intheabsenceofreliableinformationfromthedonorthatfundingwouldultimatelycomethrough.

Finally,competingobjectivesandincentivesonthepartofhumanitarianactorscancreateallocativeinefficiencies.Donors’fundingconsiderationsgobeyondjustmeetinghumanitarianneeds,andpoliticalvariableshavethepotentialtoimpactefficiency(Beck,2006).OECDguidelinesfordonorssuggestincreasingthetransparencyoffundingdiscussionsasatooltolimitpoliticalincentivesfromovershadowinghumanitarianpriorities(OECD,2012).Implementingagencieslikewisehaveorganizationalinterestsforgrowthandcompetitiveadvantageovercounterparts,anddecisionsdrivenbytheseinterestsarelikelynottofavormaximumefficiency.

5AnINGOintervieweegavetheexampleofaChadprograminwhich80%ofalltheINGO’ssupportcostswerebeingusedtoaddressadonor’srequirementsforfinancialreporting,monitoring,andcompliancechecks.ThedonorwasneverthelesspressuringtheINGOtosignificantlyreducetheirsupportcostsfromthebudget(withnochangeinreportingrequirements).

3. Efficiencyfindingsforfundingmodalities

Usingtheaboveframingofefficiencytypes,thissectionpresentstheresearchonthedifferenthumanitarianfundingmodalitieswithinspecifichumanitarianresponsesinEthiopia,Iraq,andMyanmar.Thefindingsforeachmodalityareorganizedunderthethemesoftimeliness,sufficiency/limitedtransactioncosts,economiesofscale,flexibility,subsidiarity,andaddedvalue.

Contextplaysanimportantroleinassessingefficiencyinallthesecases.Therearebigdifferences,forinstance,betweenwhatmakesfundingefficientinsudden-onsetnaturaldisastersorrapidpopulationdisplacementsversusongoingprotractedcrisesorstaticrefugeesituations.Intheformer,rapidityisofcentralimportance,whilethelatterstandstobenefitmorefromlonger-term,predictablecycles,consolidatedsupportstructures,andeconomiesofscale.Ineachofthethreefieldcasesexaminedforthisstudy,sudden-onsetemergenciesorrapidnewdevelopmentsoccurredamidlong-runningcomplexorconflict-drivenemergencies,affordingtheopportunitytolookatbothscenarios.

3.1 Directgrants

Byfarthelargestpercentageofhumanitarianfundsdirectedtoemergenciesacrosstheworldeachyearcomesintheformofdirect(“bilateral”)grantsfromdonorgovernments(includingtheEU)torecipientagencies(Figure2).

Figure2:Globalproportionsofemergencycontributions,2015–2016

Source:OCHAFTS(ftsarchive.unocha.org)Whennaturaldisastersareexaminedinisolationfromcomplex(conflict-relatedorprotracted)emergenciesduringthesameperiod,theproportionschangesomewhat,withgovernmentdirectgrantsstillrepresentingthemajoritybutdroppingto63percentofthetotal,privatecontributionsat22percent,andpooledfundsat10percent.FundingpatternsinEthiopia,Iraq,andMyanmar(allcomplexemergencies)roughlyfollowedtheglobalnorm,withdirectgrantsrepresenting85percent,92percent,and90percentoftotalhumanitarianflowsrespectively.

Donorgovernmentdirectgrants

Pooledfunds(combined)

Private3%

Other2%

3.1.1Technicalefficiency

Thoughitvariesfromdonortodonor,overallthedirectgrantingmodalityisseenashavinghighertechnicalefficienciesintermsofpredictabilityandsufficiency(i.e.,largerandrelativelypredictablecontributions).Andwhilethetransactioncostscouldbehighforsomedonors’grants,thesedonorstendtobetheonesprovidinglargersums,sothesufficiency-to-transactioncostsratiocanremainfavorable.

Comparedtotheotherfundingmodalities,however,directgrantsareoveralllessefficientintermsoffundingspeedrequiredforrapidresponseandlowerstillforsubsidiarityefficiency—inthatdonorconstraintsoftenrequirethattheyfunneltheircontributionsthroughlargerchannels,regardlessofwhetherthisisthemostdirectandefficientwayforfundingtoreachtheactorbestplacedtoimplement.

Table1:AveragesfromsampledcontributionsinEthiopia,Iraq,andMyanmar(2015and2016)

Sizeofcontribution(USDmillions)

Days:proposaltoaward

Days:awardtodisbursement

Numberofiterationsinproposalprocess

Perceivedadministrativeburden:1(light)to5(heavy)

Bilateral(direct)grants 6.10 47 18 3 2CERF 1.70 10* 13* 5 4CBPFs 0.70 46** 28** 5 3

StartFund 0.16 2 0 0 1

Privategrants 0.18 2 3 0 2

*TheCERFSecretariatnotesinresponsethattheirdatabaseshow6daysfromproposaltoawardratherthan10and2daysfromawardtodisbursementratherthan13.**FCSdataonCBPFsshow39daysfromproposaltoawardand12daysfromawardtodisbursementTimeliness(speed/predictability)

Oneofthekeydrawbacksofdirectgrantinginsuddenonsetemergenciesisthatmostbilateralinstrumentsareusuallynotcapableofrespondingtosignalsandmobilizingwithinanacceptabletimeframetoenableatimelyresponse.Inoursamplethedirectdonorgovernmentgrantstookanaverageof47daysfromthetimeofproposalsubmissiontoawarddecisionandafurther18daysfromawarddecisiontodisbursementoffunds.

The2016droughtresponseinEthiopia—largeinscaleandwell-organized,withthegovernmentplayingakeyroleincoordinationandresponse—wasconsideredtohavebeenasuccessoverall,havingavertedsignificantexcessmortality.However,evaluationsidentifiedsomeseriousweaknesses,particularlyregardingtimelinessoftheresponse,includingdelayedarrivaloffunding(OCHA,2017).Intervieweescommentedonthedifficultiesinconvincingdonorcapitalsthatadeterioratingslow-onsetsituationwouldimminentlyrequirearapidresponse.Donordecision-

makersunderstandverywellthelogicofearlymitigatingaction,butincaseswheretheyhavealimitedpotoffundstoallocatetoexistingacuteneeds,prioritizingnewneedswhicharelikelybuthavenotyetoccurredisanextremelydifficultcasetomake.Inaddition,thesedonorswillhavecompetingprioritiesandemergencieselsewhereintheworldtoconsider.

TheproposalprocessprovedtobethegreatestpracticalimpedimenttotimelinessindirectgrantinginEthiopia.Adonorissuesacallforproposals,andbythetimeproposalsaresubmitted,reviewed,amendedandcontracted,itiscommonforthreetofourmonthstohaveelapsed,ataminimum.Acrucialexceptionisincaseswheredonorscanmodifytheirexistinggrantagreements,or,similarly,whereintermediaries(UNagenciesorinternationalNGOs)canmodifyagreementswithlocalactors.Inthesescenarios,thistime-lagmaybealmosteliminated.DFID,forexample,wasthefirstbilateraldonortorespondtothecrisis,inJuly2015,anddidsobytoppingupexistingmulti-yearagreementswiththeiraid-providerpartners,obviatingtheneedforadditionalgrantprocedures.TheUnitedStatesandSwedenmanagedtodothesameandmovedfundingfromtheirdevelopmentbudgetstotheirhumanitarianbudgets.Thisarrangementplayedacrucialrolefortheoverallresponseandshouldbefurtherexplored.

HumanitarianactorsinMyanmaralsocontendedwithdelayedfundingresponsesinthe2015floodsthataffectedlargeareasofthecountry,includingthosewherehumanitarianswereengagedinongoingassistancetoconflict-displacedpeople.Delaysintheapprovalanddisbursementprocessmeanttheinternationalhumanitariancommunitytookupwardsoftwomonthstoproperlybegintheresponsetothefloodemergency.

Theslownessinbilateralfundingneednotbeinevitable,assomerareexamplesshow.DFIDhasgivenapprovalauthoritytosomelocalofficesforuptoGBP2million,forinstance,whichcanenablefundstobereleasedveryquickly—amodelwhichwouldservehumanitarianactiontobereplicated.

Wheredirectgrantsdohaveatimelinessadvantageoverothermodalitiesisinpredictabilityoffundingforlong-termchronicemergencyresponses.Forsuchfunding,donorstypicallyhavesetdisbursementschedulesaccordingtotheirfiscalyears,participateinpledgingconferencestosignalintentions,andhavelong-termworkingrelationshipswithoperationalorganizations.InIraq,thefundingarrangementsdeemedmostefficientbyoperationalactorsweredirectgrantsoflongdurationthattendedtobetiedtolong-standingrelationshipsthatincludedanelementoftrust.

Sufficiency/transactioncosts

Directgrantingscoreshigherinsufficiencythanmostotherfundingmodalities.Whileindividualgrantsrunthegamutfromverysmalltoverylarge,onaveragetheyareseventimeslargerthanallocationsmadethroughthepooledfundmechanisms.However,mostefficienciesarerealizedwhenthesizeofthegrantislargerelativetothecosttothegranteeinthetimeandadministrationburdentoobtainandadministerit.Andtheinflexibilityofsomeofthesegrantscanbeconsiderable.Severalhumanitarianorganizationrepresentativesspokeoftheproblemscausedbybeinglockedintonarrowbudgetlineitemsandstaffingplansfromproposals,hinderingthemakingofanynecessaryadjustmentsthatmayariselater.

Theproposalprocessentailsanadditionalsetoftransactioncosts,alsorepeatedlyflaggedbyhumanitarianactorsasatimeburdenandinefficiency.TheGrandBargainandrecentresearchinitiatives(Rosellietal.,2016;Caccavaleetal.,2016)havedelvedintotheissueofreportingrequirementsandmadethecaseforharmonizedreportingformatsacrossdifferentdonors.

OFDAandECHOarelargelyconsideredtobeefficientsourcesofdirectgrants,despiteheavyadministrativerequirements(muchofwhichisenshrinedinlaw)andhighbarrierstoentryforgrantees.Afundingrelationship,onceitisestablishedandcompliancesystemsaresetup,becomesapredictable(iflabor-intensive)propositionwithahighbenefit-to-costratioandthusworththeinvestment.However,directfundingrelationshipswithhighentrycostsandlowflexibility(evenwithacceptablereportingcosts)wereconsideredlessefficientwhenthetotalamountoffundingwasrelativelylow.

Thedonorsperceivedashavinglow“entrycosts,”relativeflexibility,andlightproposalandreportingrequirementswereclearlyalsoperceivedbyhumanitarianorganizationsasthemostefficientsourcesoffunding(Switzerland,Norway,Sweden,andGermanywerenotedasexamples).(However,another,perhapslessvisible,formofentrybarrieriswhendonorspreferentiallygranttoINGOsbasedintheirowncountries,whichappliestosomeoftheabove.)

Fundingvolumeisnotalwaysofprimaryimportance,however,andhumanitarianactorsdonotalwaysviewsmallgrantsasinefficient.AsoneINGOrepresentativepointedout,thoughsmallgrantsarerelativelycostly,theycanattimesbeveryvaluableforallocativeefficiency“iftheygiveyoumoneyforsomethingyoureallywanttodo,andmayopenthedoorforotheropportunities.”Somethinginefficientintheshorttermcanthuspayoffinthelongrunaswellasaddothervalue.

InIraq,evidenceshowsthat,eventhoughtheyhaveefficiencyproblemsstemmingfromthecombinationofmultiplefundingstreams,operationalactorsprefercertaindirectgrantingarrangements.Highlydivergentadministrativeandreportingrequirementsbydifferentdonorswereclearlyandconsistentlycitedaskeyissuesforoperationalactors,andthenotionofasystemparalyzedbymultiplelayersofreportingrequirementswasraisedinmorethanoneinterview.Gulfstatedonorswerecitedbyagenciesasparticularlyproblematic,requiringextensivefeedbackanddetailedreporting.Therelationshipbetweenthedonorandrecipientagency,accordingtoonesenioragencyinterviewee“feelsmuchmoreunequal,andwedon’tunderstandwhatexactlytheywant.”

Economiesofscale

Withverylargebilateralgrants,economiesofscalecanbecreatedinthesamewaytheyarethroughpooledfundingallocationstolargeorganizations(UNagenciesormajorINGOs)andclusterleadstocoordinateandmanagelarge-scaleresponseswithmultiplepartners.Becauseofthegranular,fragmentednatureofthehumanitariansector,thisisoftentheonlyconceivablewaytoproduceresultsatscaleacrossalargearea/population.Forexample,UNICEF’s$1milliongrantfromOFDAforthe2015responsetotheRakhinecrisisinMyanmarallowedittoworkatscalethroughmultiplepartners.TheINGOIRChasconductedefficiencyanalysisoflatrine-constructionprogramsinEthiopia,findingthat“thedifferenceincostperperson-yearoflatrineaccessdiffered

morethantwentytimesbetweenthesmallestandthelargestprograms.Thisisroutinelytrueacrossprogrammingsectorswhichincurfixedcosts,”suchaswaterandsanitation,andlesstrueforsectorslikeprotectionwhicharestaff-intensive.6

3.1.2Allocativeefficiency

Flexibility

InMyanmar,manyofthechiefcomplaintsaboutdirectgrantfundingrelatedtothosegrantsthatdidnotallowtheflexibilitytomakenecessarychangesmidstream.FortheinternationalRedCrossmovemententities,earmarkedgrantsatthesubnationallevelmeantafarmorerestrictiveformoffundingandonewhichleftthemwithunderfundedneeds,suchaslogistics,thatmostdonorsfeltweretoo“unsexy”toresource.AnINGOrespondentalsoquestionedsomedonors’insistencethattheyhireadditional(muchmorecostly)senior-levelinternationalstaff“for‘accountability’purposes.Youbegintoquestionhowefficientthisis.”

Thetwolargesthumanitariandonors,theU.S.governmentandECHO,arerelativelyrestrictiveaccordingtotheirofficialguidance.However,withthehelpofdonorfieldofficers,partnerscanextractmoreflexibilityfromtheofficialrules.Forexample,OFDAadvisespartnerstousebroadergeographicaldelineationsratherthanhighlyspecificlocationsandtoinclude“trip-wires”ortriggersandthresholdsforresponseoradaptionwithouthavingtorequestaformalmodificationtothegrant.ECHOrequiresalotofdetailintheproposalpreparationstageandisrelativelyinflexiblewhenitcomestoadaptingprogramswithoutundergoingatime-consumingmodification.However,partnersareallowedavarianceacrossbudgetlines,providingspendingflexibility.Constraintsonpurchaseofdrugswerefelttobeoneofthemostrestrictivedonorconditions,whichappliestoboththeU.S.andECHO.TheU.S.hasextensiverestrictionsondrugprocurement.ECHOmeanwhilerequiresinternationalprocurementtomeetitsorganizationalqualitystandards,whichcantakeuptosixmonths,includingshipping,customsclearance,andinternaltransportinsomecontexts.Mostorganizationsconsiderthisimpossibleforrapidresponse.Therefore,organizationsmayoftenhavetoseekalternativefundingforprocurementofdrugsandmedicalsuppliestoworkaroundtheU.S.’sandECHO’srestrictions.

Subsidiarity(localization)

Putsimply,localNGOscanoftenoperateatlowercostandclosertocommunities,whichinmanycasescanbemoreefficient(aswellaseffective)forhumanitarianresponse,buttheylackdirectaccesstofinancialresourcesofthesortinternationaldonorscanprovide,butforthemostpartdonot.Whiletheneedforgreaterlocalizationofhumanitarianresponse,wherepossible,wasaprominentthemeattheWorldHumanitarianSummitandintheGrandBargain,donorgovernmentshavetodateofferedupmorerhetoricalsupportforitthanconcreteaction.DonorsinMyanmar,forexample,spokeofageneral“consensustofundasdirectlyandaslocallyaspossible,”withone

6CommentprovidedtothestudythroughtheAdvisoryGroupreviewprocess.Dataavailableathttps://www.rescue.org/report/cost-efficiency-latrine-building-camps.

donorrepresentativesayingtherewas“noreasonwhy10yearsfromnowinternationalorganizationsshouldstillbestillrunningtheshow,”butthesesentimentshavebeenslowtomaterialize.Fairlyorunfairly,accountabilityrisks(oftencementedindonors’operationalregulationsorevenindomesticlegislation)preventmanydonorgovernmentsfromfundingnationalaidorganizationsdirectly.Inthewordsofonedonorinterviewee,“Woulditbemoreefficienttogodirecttothebottomline(localproviders)?Possibly—butwedon’thavethecounterfactualbecausewearenotwillingtotakethatrisk.”

Somesignsofincrementalchangeinthisareaarevisible,however.USAID/OFDAcurrentlyfundsonenationalBurmeseNGOdirectly—anorganizationcalledMetta,whichhadtheinstitutionalcapacitytoundergoandpassarigorousorganizationalaudit.Someinitialpracticaldifficultiesofthisnovelarrangementstemmingfromregulationssoonbecameevident,includingproblemsmakingbanktransferstotheNGOin-country.Intervieweesalsonoted,asencapsulatedbyonerespondent,therisksometimesbornebyhighperformers:“WhendonorsfindastronglocalNGO,theytendtogivethemalotofmoney,makingitdifficultfortheNGOtohandlelargescalegrowthinashortperiodoftime,whichsometimescreatesperformanceissues.”

ItisnoteworthythatOFDAisamongthemostoperationalofdonors,withgreatercapacityforindividualgrantmanagementinthefieldthanmany.Fordonorswithsignificantresourcestospendbutlimitedstafftodeployinthefield,theincentiveistowritelargergrantsforfewerprojects.Forthistheyrequirepartnerswithlargecapacitytoeitherimplementormanagesub-grantees.Thisofcoursemilitatesagainstdirectfundingofsmalleractorsandhenceagainstlocalizationeffortsandsubsidiarity.

Addedvalue

Thedonorsthatwereheaviestintermsofadministrativerequirementsandtransactioncosts(OFDAandECHO)werealsonotedbytheirgranteesashavingaddedsomesignificanttechnicalvalue.AnINGOintervieweegavearecentexamplewheretheOFDAstaffinNigeriawerewellversedinboththecontextandtechnicalaspectsofprogramming,andsocouldmeaningfullycontributetoandimproveprogramdesigns,andafterthedesignphasewerehandsoffintermsoftheimplementation,“whichisareallygoodbalance.”

IntervieweesinMyanmaralsospokeofgovernmentbilateraldonorssuchasDFIDandOFDAasaddingvalueandarguablypromotingallocativeefficiencybytakinga“portfolioapproach”totheirfunding,wheretheirdifferentgranteesprovidedifferentadvantagesandcomplementeachother’seffortsintheaggregate.However,evenwithdonors’attemptstocoordinateandensurecoverageorcomplementarityintermsofsectors,inpracticebothneedsassessmentandcoordinationareimperfect,efficiencymetricsarelimited,andfundingisawardedprimarilytoknownandtrustedpartnerswithcapacity,accessandtrackrecords.

3.2Bilateralgrantintermediaries

Asubsetofefficiencyissuescomeswiththegrantswithmorethanonelinkinthetransactionchain,i.e.,thataresub-grantedfromtheprimaryrecipientagencies(UNorlargeINGOs)tosmaller

operationalactors.Thesetendtobeslowerandentailgreatercumulativetransactioncosts.However,theycanattimesbejustifiedbytheirallocativeefficiencybenefitsandthetechnicalorlogisticalvalueaddedbytheprimaryrecipientagencytotheimplementingpartners.Inotherwords,therightrelationshipwithanintermediarycanoffsettechnicalefficiencylossesbyaddingallocativeefficiencyandultimatelyenhancingeffectiveness.Particularlyforsmalllocalactorsthatundertakehumanitarianinterventionsinfrequently,thevalueaddedinsustainedmentoringrelationshipswithINGOsorUNagencies,whentheseareofhighquality,canbesignificant.

Forthethreecasesstudied,intervieweescriticizedthesearrangementsascumbersomeandthevalueaddedasminimal.Thesearrangementsweredeemedparticularlyinefficientwhentheywereusedtodeliverprojectsthatinvokedtheconceptof“provideroflastresort.”Forexample,aUNagencywasrequiredtosub-contractacertaintechnicalinventionthroughapartnerundercircumstanceswheretherewasnoestablishedrelationshipwiththepartnerandthepartnerwasaskedtoworkinanarea(“thematic”or“geographical”)whereitwasnotalreadyestablished.

Becausemorethanonesetofproposalreviewandrevisionproceduresusuallyexist,aswellasadditionallinksinthechainthatmoneymovesalong(entailingadditionaltimeonthepartsofboththeorganizationsandtheirfinancialinstitutions),thetimelinewillbelongerforamulti-linkcontribution,evenbarringsnagsalongtheway.Differentintermediarygrantershadvaryingreputationsforbeingrelativelyfastorslow,withUNICEFcominginforthegreatestamountofcriticisminthisarea.Totheagency’scredit,staffhaverecognizedtheproblemwithbothspeedandflexibilityfortheirpartners(moreonthisbelow)andareworkingtoaddressit.Partoftheproblemmaybeanorganizationalmindsetwhereagenciesdonotperceivethemselvesas“donors”—whichinpracticetheyincreasinglyareinthesecases—andthusarenotattunedtogooddonorshipprinciplesandhowtheyshouldapplytotheirpartnershipswithsub-grantees.

InthecaseofIraq,undercertaincircumstances,partnershiparrangementsbetweenUNagenciesandpartnerswereseenassimilartoefficientpartnershipswithefficientdonors.Again,thekeywastheestablishednatureoftherelationship.Inonecase,theINGOpartnerhadlongsinceacceptedthattherulesoftherelationshipwererelativelyrigid,buthavinglearnedtherulesandacceptedthem,adegreeofflexibilitywasinherentinimplementation.OnelocalNGOreferredtoaflexibleandefficientpartnershipwithUNICEF,basedonalong-standingrelationshipandadegreeoftrust.Inotherinstances,however,partnershaddeclinedfundingfromUNICEFandUNHCRbecauseofinefficiency(overlyhighentryandtransactioncosts).Indeed,moreoftenthannot,INGOpartnerssawlittleornoaddedvalueinUNsub-contractingfortheirindividualorganizationsandprogramming,whereasdonorsfeltthatpassingmoneyviaUNagencieshadcreatedeconomiesofscaleinprocurementandcoordination.AkeyissueforthemappearedtobetheUN’sspecialrelationshipwiththeIraqigovernment.

AnintervieweefromonemajorNGOreported,“AlotofthetimewithUNgrantsitactuallycostsustoaccepttheirsub-grants,becausetheydon’tprovideenoughinoverheads.”Thiswasnottheonlyorganizationrepresentativeinterviewedthatspokeofoccasionallydecliningsub-grantsforinefficiencyreasons.ThesituationismoredifficultforlocalNGOs,whicharenotaffordedthe

customary7percentoverheadcostsgiventoINGOs.InMyanmar,thejustificationgivenwasthatINGOshaveglobalHQcostswhichneedtobecontributedtowhereaslocalNGOsdonot.Oftentheselocalorganizationsareallowedtochargemarginsontheirdirectcoststopayforinstitutionalexpenses,butbynomeansalways.Thisresultsintheend-chainimplementerofthegrantreceivingtheleastinindirectcostrecovery,whiletheintermediariesreceivethemost,ininverseproportiontotheirproximitytotheactualprogram.ThelackofsufficientoverheadforsmallerandlocalNGOscontributestothestuntingeffectthatthefinancingsystem—particularlythebilateralgrantmodality—imposesonthem.Smallorganizationstendtogetsmallgrants,whichnotonlyhavetheproportionallylargesttransactioncostsintermsofreporting(Caccavale,Haver,&Stoddard,2016),butalsomaketheleastavailabletotheorganizationtofundthecapacityneededtomeetthosecosts.Ratherthanusingeachsuccessivegranttobuildthecapacitytogrow,thenationalNGOsattheendofthetransactionchainremainsmallandoperatehandtomouth.

Somerepresentativesofintermediaryagencieshavesaidthattheyarerequiredbytheiroriginaldonorstodemandacertainlevelofcompliancefromtheirsubcontractors,anduntilandunlesstheyreceivemoreflexibilityfromdonors,theirhandsaretied.OneUNagencyrepresentativethatparticularlywhenthesubcontractorisalocalorganization,thedemandsbecomemorestringentasthedonorstrytoextendtheirriskmitigationefforts:“Themorewetalkaboutlocalization,theconditionsaregettingmoreandmoregranularintermsofwhatwemustgivebacktoourdonors,soitisnotefficientforus.”

Whetherdonor-drivenornot,thehighertransactioncostsforsubcontractorsversusprimaryagencyrecipientisrealandwell-known.The“LessPaperMoreAid”reportfoundthat“overallUNagenciesrequiremorefrequentreportscomparedtoinstitutionaldonors.OnaveragetheUNagenciesexaminedrequiredaminimumofsixreportstoamaximumofeightperyear.Theinstitutionaldonorsexamined,requiredonaverage,aminimumoftworeportstoamaximumofsixperyear”(Roselli,Fabbri,&CollingwoodEsland,2016).Similarly,arecentHumanitarianOutcomesanalysisfoundthat“reportingrequirementsarefarlessonerousforUNagencies.Thisdifferenceisduetothefactthat(1)donorsdonotplayaroleinthegovernanceofNGOsandhencedonothelpshapetheirinternalaccountabilitymechanismsashappenswith[UNagencies];and(2)NGOfundingismorefrequentlyconnectedtospecificprojects(i.e.,earmarked)andthereforeisseentorequiredetailed,project-specificreportingtoensureaccountability...”(Caccavale,Haver,&Stoddard,2016).

Theissueofagencyoverheadisoneofthemorecomplexexamplesoftransactioncoststohumanitarianfundingandoneofthemostchallengingtomeasure.Acertainamountofindirect,institutionalfundingtosupportandsustaintheorganizationanditsactivitiesisofcourseanecessity,particularlyifsaidorganizationreceiveslittleornocorebudgetsupportfromdonors.Thisbecomeshardertojustifywhenlongmulti-levelgrantingchainsseepercentageswithdrawnateachlevel,leavingultimatelylessmoneyfortheaidrecipient.Previousstudiestacklingtheissueofagencyoverheadhavestruggledwiththefactthatthereisnosinglecommondefinitionoraccountingformulafortheseindirectcosts,andcomparingdifferentactors’costsislikecomparingapplestooranges.Forthisstudy,wetookadeliberatelysimplerapproachofusingagencyself-reportedfigures(i.e.,thepercentagestakeninoverhead,asdefinedbytheagenciesthattookthem)

oneachcontributiontransactionchainstudied.Whatthisshowedwasthatdirectgrantswithnointermediarieslost11percentonaverageinoverhead,comparedtoacumulative14percentonaveragefortwo-linktransactionchains.Bythemselvesthesefiguresarenotinstructive:Itstandstoreasonthatmultiplelinkswillamounttomoreoverheadwithdrawnfromtheprincipalamountremainingforprogrammingactivities.However,itbecomessomethingtoconsideragainstthequalitativefindingsinthefieldonwhethertheintermediariescreatedeconomiesofscaleoraddedvaluetotheprogramming.

Intermediaryfundingorganizations,whetheraUNagencyorlargeINGO,cantheoreticallycreatesystem-levelefficienciesandaddvalueinthe“middle-man”roleofahumanitarianresponseinavarietyofways,forexample,by

• coordinatingmultiple,geographicallydispersedeffortsunderasingleprogramtowardcommonoutcomes;

• assistingadvocacyeffortsandaccessnegotiations;• providingtechnicalexpertiseandguidanceandoverseeingstandardsinprogramming;or• directlyandindirectlyhelpingtostrengthencapacityofsmallerpartnersthroughtechnical

assistance,training,andbeingaconduittointernationalpublicandprivatefundingotherwiseinaccessible.

Ofcourse,theextenttowhichintermediariesaddvaluedependsonhowlimitedthecapacityofsub-granteesare—andtheintermediary’sownlimitations.InMyanmar,forinstance,WFPhasrobustsupplychainsandprocurementpipelineswhichcreateeconomiesofscaleinRakhineState,butcurrentlycannotbringphysicalcommoditiesintoKachin,solocalorganizationsaretakingonalargerindependentrolethere.

InEthiopiaaswell,UNagencieswereabletorealizeeconomiesofscale,whichisakeyconsiderationfordonorsinacrisiswherelargenumbersofpeopleareaffected,wheretheresponseiscommodity/logistics-heavyandwherelargegeographicalareasneedtobecovered.OnedonorcommentedthatwhentheyfundWFP,theyknowthattheycanmovequicklyandatscale,evenbeforetheyhavesignedanagreementbecausetheyhave“deeppockets”andestablishedsystems.ThatUNagenciesalsohaveestablishedrelationshipswithgovernment,whichhelpstofacilitatemoretimelyresponse,wasalsonotedasanadvantage.InadditiontotheestablishedroleofUNagenciesinclustercoordination,governmentliaisonandtheirabilitytocoordinateresponsesatscale,itisimportanttorememberthattheseagenciesaremandatedtobepresentinhumanitarianemergencies,whereasNGOpresenceisvoluntaryandhighlyvariable.

Asmentionedabove,thebulkofhumanitarianfundinggoesthroughbilateralgrantsfromlargegovernmentdonors.Andmostofthesedonorsareunableorunwillingtogranttonationalorganizationsdirectly,leavingaverythinsliceofthepieavailableforlocalactorstoaccesswithouthavingtobesubcontractedbyaninternationalorganization(mainlyCBPFallocationsandgrantsfromprivateorganizations).Whilewesawabovethatallocativeefficienciesresultingfromeconomiesofscaleandvalueaddedcanbebroughttobearincertainsituations(andgenerallyare

farmoreappreciatedbydonorsandlargeagenciesthanbytheNGOcommunity),unquestionablyinsomecasesthevalueaddedislackingornotcommensuratewiththetransactioncostsgenerated.AlocalNGOrepresentativeinMyanmaropinedsuccinctly,“Efficiencyisdeliveringintheshortesttimewheremostneeded.Bureaucraticmechanismswhichaskfortoomuchinformationareinefficient.”

Notallintermediaryorganizationscameinforcriticism.CaritasInternationalisreportedlyverylightonreportingandquiteflexibleintermsofchangingprogrammingmidstreamasneeded;OxfamaddsvaluethroughinformalsupporttogranteesapplyingtotheMyanmarHumanitarianFund.WFP,incontrasttootherUNagencyintermediaries,occasionallyreceivedsomepraiseas“astraightforwardcontract,veryfamiliar,goodmechanism,negotiatedlocally.”Thissuggeststhatorganizationsthathavebeendesignedfromtheoutsettoworkthroughpartnershipshaveworkedoutsomeefficienciesthatothersmayyetlack.

Atpresent,thelackofclearandreadilyavailableinformationonsub-grantinghindersthoroughanalysis.FTShasonlybeguntotrytocapturesecondaryandtertiarylevelsofgrantingintheirdatabaseasofthisyear,andinmanycasestheoriginaldonorsthemselvesarenotawareofwhatpercentageoftheirgrantsweresub-grantedtolocalNGOs.Asonedonorsaid,“Whenweaskedourpartners,theystruggledtotellushowmuchtheywerechannelingtolocalorganizations,andsecondly,itwasn’tthepartnersweexpected.ICRCendedupbeingourlargestsupporteroflocalpartners!”

3.3Global-levelpooledfunding(CERFandStart)

Sinceitsexpansionin2006,theCERFhasfunctionedtoproviderapid-responsefundingtosuddenonsetemergenciesandtofillgapsin“under-funded”emergencies.Withfundinglevelsclosetoits$500milliontargetforthepastfewyears,theCERFisnowanticipatedtodoubleinsizeto$1billion,followingcommitmentsmadeattheWorldHumanitarianSummitandendorsedbytheGeneralAssembly.Bydesign,theCERFexiststocreatebothtechnicalefficiencies(movingmoneyrapidly)andallocativeefficiencies(fillinggaps).Anestimated50percentofCERFfundsareusedtoprocurereliefitems.3.3.1Technicalefficiency

Timeliness(speed/predictability)

Regardingspeedofresponse,theCERFhasshownthatitcanmakeveryrapid(evenwithin24hours)decisionsanddisbursements.InEthiopiaforexample,theCERFwasnotedtohaveprovidedaverytimelyinjectionofcash,withanallocationinNovember2015,beforeotherdonorshadmobilized.CERFalsoallowsback-datingrequestsuptosixweekssothatagenciescanbeginprogrammingwiththeirinternalreservesassoonastheyareconfidentthattheywillreceivetheCERFallocation.

Whereproblemsarise,however,isonthefrontandbackendofthetransactions,withdelaysoccurringinthepre-proposalsubmissionprocessandfollowingtheinitialdisbursement.IntheMyanmar2015floodresponse,CERFfundstookanaverageof30daystoreachthesecondary

(implementing)agencies,whichislengthywhendealingwithfirst-responseneedsinasudden-onsetemergency.

ManyintervieweespinnedpartoftheblameforthisonCERF’spreferenceforreceivingjoinedupagencyapplicationsratherthanconsideringseparateproposalsastheycomein.Whilethisismeanttopromotestrategiccoordinationofactivities(anexampleofaddingvalueandallocativeefficiency),itmeansthattheapplicationprocessmovesasfastastheslowestmember,andobserversnoteanelementof“piesharing”isclearlyatplayaswell.Moreover,intervieweeswerenotconvincedthattheextratimetakentocombineproposalsinfactenabledprioritizationandplanning.AUNrepresentativeinthefielddescribeditas“creatingachapeaudocumentandinventingastrategicoverlayafterthefact.”AndsincetheCERFsecretariatstillneedstoreviewalltheseparateproposals,itdoesnotsavetimeatthegloballeveleither.

Beyondthedelaysintheproposalprocess,incaseswheretheprimaryrecipientagencymovesslowlytocontractpartnersandbecomesabottleneckforsub-grants—afrequentoccurrence—monthshavebeenknowntoelapsebeforethemoneyhitsthegroundforthestartofprojectactivities.Giventhatgrantsaretypicallysmallinvolumeandofshortduration,thetimelinessinefficienciesofsuchinstancesareclear.ForonesuchallocationinMyanmar,afterdelaystheNGOadvancedotherfundstostarttheproject.Butsincemanyimplementerslacklargeadvancereserves,thisisoftennotpossible.ThiscomponentofthedelayisnotthefaultoftheCERFmechanism,butratherlieswithinternalagencyprocesses.

TheStartFundisthefinancingcomponentofa“collectivelyowned”networkofNGOs(41internationaland6national),whichwasspecificallydesignedtomovefundingfastertoenablearapidresponseontheground.Start’sownglobaldatareportsacall-to-disbursementtimeofthreedays.Thisboreoutinoursample(albeitofonlytwoStartcontributions),wherethedisbursementtimewastwodays.Significantly,however,theStartFundisalsoamuchsmallermechanismthantheCERFanditsgrantsarerelativelysmallsumsofmoneyforsmall-to-mediumemergenciesthatreceivelittleinternationaldonorattention.Whileitisgearedforrapidresponse,itisnotlookingtosupportmajorcoordinatedresponsesatscale,astheCERFis,andthereforecannotbemeasuredbythesameyardstick.Indeed,itsrelativeefficienciesmaybelargelydependentonitslimitedsizeandremit.

AlthoughtheCERFiswithinthepurviewoftheUN,theyareadmittedlyunaccustomedtotherelativelystringentearmarkingandaccountabilityrequirementsattachedtoCERFgrants.Particularlywhenthegrantamountswererelativelysmall(inourthree-countrysurveytheyaveraged$1.7million,butsomewereassmallas$300,000),recipientagenciesfoundthisasourceoffrustration.Indeed,manyCERFallocationsrepresentedafractionofwhattheagencyoriginallyproposedfortheactivities(10percentinthecaseofoneinstanceinMyanmar),andthebalancehadtobemadeupfromotherdonors,creatingmoreworkandtimedelays.

Inadditiontoaspeedydisbursementmechanism,theStartfundalsohadthelightestperceivedtransactionscostsandadministrativeburden(onafive-pointscalewith1beingthelightestand5

beingheaviest,itscoreda1,ascomparedwitha4fortheCERFanda3fortheCBPFs).Atthesametimeofcourse,itsdisbursementsarethesmallestonaverageofanyofthemechanismssampled,includingprivatecontributions(whichaveraged$157,000inoursample).

Throughthe“underfunded”window,theCERFfillsgapsresultingfromthefragmentednatureofthebilateralgrantingsystem.However,thefactthatUNagenciesarethesoledirectrecipientsofitsallocationsmeansthattheCERFcancometobeusedasasafetynetandsharedresourceratherthanastrategicinput.InMyanmar,CERFfundrecipientsspokeofbeingaskedtoputinonlyacertainpercentageoftheirprojectrequirementssothatallappealingagenciescouldgetashare.

Subsidiarity

BecauseitonlyfundsUNagencies,theCERFcannotdirectlyfacilitategreatersubsidiarityefficiencywhenlocalNGOcapacitiesmakethispossible.AlthoughasizablepercentageoftheCERFallocationsendsupinthehandsoflocalNGOs,thereisnoevidencethatthisisanydifferentfromwhathappenswithbilateralgrantsthroughintermediaries.

AlthoughtheStartFundhasrecentlyaddedmorenationalNGOmembers,itisonlybeginningtothinkabouthowtomorestrategicallyapproachthequestionsoflocalizationandsubsidiarity.Arguablybymakingsmallgrantsdirectlytoimplementersontheground,itismakingsomesubsidiaritygains,butbecauseitisamembers-onlyproposition,thereisnowaytoensurethattherightactorattherightlevelcanhaveequalaccesstoitsresources.

Addedvalue

Coordinationasanaddedvalueisaprincipalobjectiveofpooledfundingandmostintervieweesdidallowthatthishasbeensomethingthatthesemechanismscanandhaveachieved,bybothincentivizingandhelpingtostructurecommonplanningprocesses.TheStartFundhasalsonotedthatitsabilitytoleveragefundingtocatalyzeresponsestootherwiseforgottencrisesisaconsiderableaddedvalueaswell.

3.4Country-basedpooledfunds

Donorsacknowledgethatevaluationsandanecdotalevidencestronglyindicatethatcountry-basedpooledfunds(CBPFs)areimprovingyearbyyearandbecomingreasonablyefficientandeffectivefundingmechanisms.Asbilateralgrantsledthesurgeinfundingoverthepastfewyears,however,pooledfundsarebecomingasmallerandsmallerpercentageofthetotalfundingpoolandarguablylessrelevantandlessabletoleveragecomparativeadvantageandaddvalueaspartofadiverse“fundingecosystem”(Stoddard,2017).

Unliketheglobalpooledfunds,theCBPFs’performanceistiedtothatofthecoordinatedhumanitarianstructuresineachcountrywheretheyoperate.PoorhumanitariancoordinationinacountrycanhinderCBPFs,butconversely,well-runandwellappliedCBPFcanhelptostrengthencoordinationstructuresbyincentivizingactorsandunderpinningastrategicplan.InEthiopia,the

qualitativeevidencesupportstheclaimthattheCBPFprovidesanefficiencybenefitatthestrategic,systemlevel.ThiswasnotthecaseinIraq,wheredifficultiesarerootedinbroadercoordinationfailure—clustersnotfunctioningwell,disagreementonapproach,andsevereproblemsinhumanresources.

Timeliness(speed/predictability)

TheCBPFshaveshownvariableperformanceintermsofrapidityoffunding,thoughtheytypicallyimproveovertime.Onaverage,pooledfundsaretwiceasquickasbilateralgrantsfromtheproposaltodecisionstage,thoughtimelinessefficienciescanbelostinthedisbursementphase.

EfficiencyisakeyprincipleelaboratedinthestandardizedCBPFguidance(aswellasinclusiveness,transparency,accountability,andtimeliness),andthestatedgoalistoenableatimelyandstrategicresponsetolocallyidentifiedneeds(UNOCHA,FundingCoordinationSection,2016)whileminimizingtransactioncostsandmaximizingtransparency.

TheCBPFinEthiopiainthepastpre-positionedsmallamountsoffunding(around$20,000)withagenciestoallowthemtorespondimmediatelytorapidcrisesbasedonaphonecalloremailapproval.Althoughintervieweesreportedthishadasubstantialimpactinthefirsthoursanddaysofacrisisforarelativelysmallamountofmoney,itwasdeterminedtobetoohighacorporateriskforOCHAtocontinue.

Asdiscussed,timelinessisnotjustafunctionofspeed;itis,moreimportantly,makingsurethatmoneyisavailableattherighttimes,whichinthecaseofEthiopiaareeasytopredict.Inmanycases,fundingcyclesfollowdonoradministrativeyears;however,thisimpactsdirectlyontheabilityoftheCBPF(knownastheEthiopiaHumanitarianFundorEHF)tomakeallocationsinsyncwiththeseasonalcalendar.TheEHFtypicallyreceivesalargevolumeofcontributionsinDecember,asdonorslooktoallocateunspentfunds.ThesefundsarerolledintotheEHF’sfollowingallocationyear,whereuponthesizeoftheEHF’sendofyearbalanceisquestionedbydonors.

TheMyanmarCBPF(orMHF)hashadarockyinceptionandbymanyaccountsisstillnotperformingoptimally,althoughitisreasonablywellfundedanddonorsgenerallysupportitsrole.Agencyintervieweescomplainedthatitisslowtodisburseandcumbersomeintermsofitsprocesses.ThemaincomplaintswerethatitisinflexibleandnotsufficientlyaccessibletolocalNGOs(anexamplecitedwasthatapplicationsmustbemadeonlineinEnglish—requiringbothreliableinternet,whichisoftennotthecaseinMyanmar,andlanguageskills).Mosttellingofitschallenges,theMHFtookbetweentwoandthreemonthstodisbursesomegrantsforthe2015floodresponse.

CBPFsgrantstendtobequiteabitsmaller,onaverage,thaneitherbilateralorglobalpooledfundgrants.Inpartthisisbydesignaccordingtotheirfundingobjectives(addressingsmaller,discretecrisesandfundingsmaller,localorganizationswhentheyarebestsuitedtorespond).But,as

previouslydescribed,thesmallerthegrant,thelargertherelativetransactioncosts,whichareallthesameintheCBPFsystemnomattertheamountofthegrant.Infact,inMyanmarseveralintervieweesreferredtotheMHFastheheaviestofanyfundingtheygetintermsofadministrativeburden.(Forthisreason,somediscussionhasoccurredinOCHAonsettingaminimumgrantsize.)ItisnonethelessafundingsourcewhichNGOscontinuetoapplyto,oftenknowingthattheprocesswillbepainful.

ThefinancingsysteminEthiopiaisexcessivelycomplexgiventherelativelypredictablenatureofneedsandtheestablishedpresenceofhumanitarianactors,responsemechanisms,coordination,andprioritizationprocesses.Bilateraldonorstendtocreatenewmechanismsaswork-aroundstobureaucraticimpediments,whichmayshortendisbursementtimeswhileaddingtotransactioncosts,andmanyrespondingactorscomplainedofhighlyfragmentedportfoliosandhightransactioncostsassociatedwithnavigatingcomplexnetworksoftransactions,relationships,andinstruments.

Flexibility

Accordingtointerviewees,theproceduresandgrantmanagementmechanismsfortheCBPFswerenotparticularlyflexiblewhenitcametomidstreammodifications(inthatformalchangesmustbemadetotheonlinesystem),buttheywerenonethelessabletobechangedwhenneeded.

Amoreextensivenotionofflexibilityefficiency,however,hastodowithusingafundingmechanismtorespondtochangingneedsasandwheretheyoccurwithoutbeinghamstrungbybureaucraticorproceduralconstraints.TheCBPFsaretypicallytootightlycircumscribedintheirroletoactnimblyandflexibly,despitetheiraspirations.However,theycanfillgaps,forinstancebyprovidingfundingforneglectedemergencies(suchassmall-scalenaturaldisasters)withinlargercrisiscontexts.

Subsidiarity

TheCBPFsstartedtopreferentiallyfundNGOs,andparticularlynationalNGOswhenpossibleandefficient/effectivetodoso.BecausesomedonorsinMyanmarmustgothroughtheMHFtofundlocalactorsbecausetheregulationswon’tallowthemtoprovidedirectfunding,onecouldarguethatsubsidiarityispromotedbytheexistenceoftheCBPFfromwhichnationalorganizationscanapplyforandwintheirowngrantsasopposedtoworkinginpartnershiparrangementswithinternationalactors.Itmaybesubsidiarity“onceremoved”butitisstillawaytoreducethenumberoflinksinthechainwhenthisisdesirable.

TheIraqHumanitarianFund(IHF)highlightedthechallengesofearmarkingfornationalNGOswithinpooledfunds.InlinewithdonorcommitmentstolocalizationintheGrandBargain,donorshavepressuredtheIHFtoopenaspecialwindowfornationalNGOs.Thisrunscontrarytothegloballevelunderstandingthatcontributionstopooledfundsmaynotbeearmarked.Asaresult,thesecontributionshavebeenthesubjectoflengthynegotiationswithOCHAandinefficientonthesupplysideoftheIHF.

OnenationalactorinIraqnotedthatcontributionsfromthepooledfunddidnotmeettheirowndefinitionofefficiency;i.e.,fundswereofshortduration,hadhighreportingcosts,andallowedforonlyminimalsupport(overhead)costs.Moreover,thefundingdeliveredbytheIHFwasnotaccompaniedbyasustainedrelationship,withcapacitybuildingaroundfinancialmanagementandreporting,thatthepartneracknowledgedtheyneeded

Addedvalue

AninternalOCHAreportontheCBPFspresentsthreebroadwaysinwhichtheycanaddvalue:

1. CBPFscanprovidefundingtolocalNGOsthatmanydonorsareunabletododirectly.2. CBPFssupportmulti-yearplanning.3. CBPFsfundingcanbe“strategicallyandtimelyallocatedinawaythatpromotesahigh

degreeofcoordination,quality,accountabilityandtransparency”(UNOCHA,2016).

Intermsofthethirdpoint,notallactorsexpressappreciationfortheuseoffundingmechanismsasleverageforparticularstrategicorcoordinationends.Agencieshavecomplainedofdonorscolludingwiththemanagersofthepooledfundstoincentivizeactorstochangetackandworkinareasthattheydeemunderserved—perceivedasgainsayingtheagencies’judgementonwhereandhowtoprogram.

3.5Consortiaandframeworkagreements

Intermsofspeedandlimitedtransactioncosts,bilaterallyfundedinstrumentsinvolvingprearrangedpartnerscanbequitetechnicallyefficient.Largebilateraldonorscanestablishtheseentitieseitheratthecountrylevelorglobally.AnexampleisDFID’sRapidResponseFacility,whereagroupofUK-basedNGOsareonstandbyagreementstoproviderapidresponsetosudden-onsetdisasters.Whentheyworkwell,theseconsortiaandframeworkagreementsareconsideredthesecondorthirdfastestwaytomobilizemoney(afterinternalreservesandtheStartFund).Mostdonorsandorganizationsinvolvedinsuchbodiesaregenerallyhappywiththearrangements,althoughtheresearchersdidheartheoccasionalobservationfromNGOrepresentativesthattheydon’talwaysdecreasetransactioncosts,duetotheamountofinternaldiscussionrequired.Insomecases,includingaframeworkagreementinMyanmar,forNGOstheyaresimply“amarriageofconvenience”andawayfordonorstoshifttheadministrativeandmanagementburdendowntheline.

Atthegloballevel,passingfundsfromaffiliateofficestooperationalINGOentitiesatthecountrylevelisacommonpractice,andonenotoftendiscussed.SavetheChildrenSwedenforexample,willcontractfundsfromSidaandpasstheseontoSavetheChildrenInternationalinEthiopiatocarryoutchildprotectionprogramming.Theaffiliatethatreceivesthegrantfromitshomedonorwillchargeapass-throughfee,insomecasesaddingabudget-lineforits“addedvalue”activities.Theefficiencyofthesepracticesisrarelyquestionedbydonorsorimplementingorganizations,despitethecleartransactioncoststhatcouldhavebeenavoidedhadthedonorfundedtheimplementingaffiliatedirectly.

Mostdonorsseeconsortiaasameansforreducingtheirmanagementoverhead,andsothetrendistowardsmanagingfewergrants.ButthismilitatesagainstprovidingmoredirectfundingforlocalNGOs—howthetensionbetweenthesetwoobjectiveswillbemanagedisunclear.NeitherishowgrantapplicationswillbemademoreaccessibletolocalNGOswhilemaintainingcurrentstandardsofduediligence.Donorsmanagingtoomanygrantsexperiencebottleneckswhichslowdowngrants.

InMyanmar,theHumanitarianandResilienceProgramme(HARP)isauniqueframeworkfundinginstrumentdesignedbyDFIDtofunnelallitsgrantsinthecountry(exceptthosethatgothroughthepooledfunds)intoasinglecontractmanagedbyCrownAgentsandcombiningbothhumanitarianandresilienceprogramming.TwonotablenoveltiesareHARP’sabilitytofundlocalNGOsdirectlyandonamulti-yearbasis.Thisdecisionwasreportedlydrivenbyefficiencyconcerns,inacontextwheretheneedsarediverseandfarflung,requiringmanydifferentpartnersformanydifferenttypesofwork,withthevarietyofaccesschallenges.

3.6 Corefundingandinternalinstruments

Someofthemostresponsiveandcost-efficientfinancinginstrumentsarefoundintheinternalfinancinginfrastructureoflargehumanitarianorganizationsandassuchareoftennotvisiblewithinofficiallyreportedfinancingdata.

ThemajorUNhumanitarianagencies,andsomeofthelargestINGOs,maintaineitherinternalcashreservesorinternalemergencyfunds,whichcanadvancefundingforactivitiesuntiladonorgrantcomesonline.InEthiopia,forexample,WorldVisionInternationalreceivedaround42percentofitsfundingin2016fromprivatesources,whichitusesacrossavarietyofinstrumentsdesignedtosupportmoreefficientandtimelyresponse.WorldVisionallows20percentofitsprivatefundstobelinkedtoacrisismodifier,whichcanthenberedeployedonthedecisionofnationalleadershipwithouthavingtoseekpermissionuptheline.Inaddition,ithasaninternaldraw-downmechanismandcanputaside5percentofprivatefundseachyearasareserveforpreparednessandresponseactivities.

WFPusestheworkingcapitalitholdsatthegloballeveltoovercomethedelaysandcash-flowproblemsofbilateraldonorfundingandenableittorespond,procure,transport,andprepositionfoodandscaleupresponsesasneedsoccurratherthanwhenafundingcontractissigned.ThisadvancefundingisabigcontributortoeconomiesofscaleinthatmuchofthefoodclusterresponsedependsonWFPtosetupthelogisticscapacityforallpartners(andemergencytelecomsservicesforthewiderhumanitariancommunity).

IFRCoperatesitsownDisasterReliefEmergencyFund(DREF)toprovidequickresourcestotheitsNationalSocietiesintheeventofemergency.Similarly,UNICEFinMyanmarreceivesroughlyathirdofitsfundingfromprivatesourcesthroughitsnationalcommittees,whichcanbeinvaluableforemergencyadvancefunding.

UNHCRreceivesdonorcontributionsinthreedifferentloci:country-levelfunds,regionalfunds(e.g.,theAfricabureau),orun-earmarkedcorefunding.Thiscorefundingisrecycledthroughthe

yearandisdirectedfromthegloballeveltowhereitisneeded.Insomecases,itisdirectedtotheprotectionandnormativeworkthatispartoftheorganization’sofficialmandatebutwhichhasbeendifficulttogetdonorstofund.UNHCRhasimprovedpredictabilityforcountryofficesthroughasystemofguaranteedminimumoperatingbudgetssothatcountry-levelresourcescanbemaintainedandcushionedfromfluctuationsindonorcontributionstospecificcrises.

Newtoolstoharnesssocialimpactinvestingarestartingtobeusedbyhumanitarianorganizationsinwaysthatboostcorefundingforemergencies.Forexample,UNICEF’sUSAchapterhasaBridgeFundthatleveragespermanentgrantstoattractprivateinvestments,andisusedasarotatinglendingtooltobridgethegapbetweenemergencyonsetandreceiptofgrantfundingforresponse.

Onanindividualagencylevelthisisthefastest,mostefficientwayoffinancingrapidresponse,butitislimitedinvolumeanddurationofleadtimeandisbeyondthescopeofmosthumanitarianactors,henceun-scalable.Becausetheseorganizationsdonotfunctiononabusinesscycleofreinvestmentandgrowth,butratheronlimitedcostrecovery,establishingthistypeofresourceisoutofreachwithoutsomesignificantinfusionofflexiblecorefundingfromeitherpublicorprivatesources.

4. Otherissues:Multiyeartimeframesandearmarking

4.1Multiyearfunding

Thesubjectofmulti-yearfundingandhowitmayaffectefficiencyisrelevanttoallthecurrentfundingmodalities,sinceintheoryallofthemcouldbeadaptedtolongertimeframes.Bothhumanitariananddevelopmentactorshaveexpressedgrowingrecognitionthatinchroniccrisissettings,repeatedlarge-scalehumanitarianresponsestopredictabledisastersareprofoundlyinefficient.Asaresult,donorsarenowexperimentingwithextendingthehumanitarianfundingandprogrammingcyclesbeyondthestandard12-monthgrant.BothMyanmarandEthiopiaareexamplesofhow“resilience”programmingisgaininggroundincontextspreviouslylimitedtotraditionalhumanitarianprogramming.

Ethiopiahasservedasalaboratoryforresilienceprogramminginthewakeofthe2011HornofAfricafoodsecuritycrisis.Here,resilienceprogrammingfollowedthelogicofaddressingunderlyingvulnerabilitiesinordertograduatefromthecycleofcrisisandresponsetopredictableriskandmitigation.ThenewHARPfundingframework,initiatedbyDFIDinMyanmar,aimsatsimilarobjectives,intendingtogainbothtechnicalefficienciesandbroaderstrategicefficienciesforaddressingthecountry’sneeds.

Theexistenceofmultiyearfunding(oratleast“predictablefundingformultiyearprograms”—donorsarenotabletoallocatemorethanoneyear’sworthoffundinginadvance)couldhaveclearbenefitstofundingefficiencyinbothtechnicalandallocativeaspects.

4.2Earmarking

Theissueof“earmarking”contributions,thatisdonorsdirectingwhereandhowhumanitarianfundingshouldbespent(typicallyonaprojectbasis),hasbeenthesubjectofcontentionforaslongasthemodernhumanitariansystemhasexisted.NGOslargelyacceptitasthenormwhendealingwithdonorgovernments.ThoseNGOsluckyenoughtohavefullyormostlyflexible(un-earmarked)resourceshaveachievedthisbygeneratinglargeprivatesumsfromprivateandindividualdonations.UNagencies,ontheotherhand,seeearmarkingasabanetoefficiencyandstrategiceffectivenessinundertakingtheirmandates.UNagencyandICRC/IFRCrepresentativesinterviewedforthisstudywereunanimousintheirassertionthatfundingefficiencyissynonymouswithflexibility,andearmarkingistheantithesisofit.Theyalsounanimouslyexpressedconcernthatearmarkinghasgrowntighterinrecentyearswhiletheproportionoftheirfundingthatisun-earmarkedhasdeclined.

TheGrandBargainhastakenupthisissuewith“aninitialtargetfordonorstoremoveearmarksfor30percentoftheirfundsprovidedtohumanitarianagenciesby2020”(HighLevelPanelonHumanitarianFinancing,2016).ItisdifficulttoforeseehowdonorswillapproachthistargetinpracticeandwhethertheirreciprocaldemandsforgreatertransparencyfromtheagencieswillultimatelyamounttoanygreaterflexibilityornetefficienciesSomeagencyrepresentativeshaveaccuseddonorsofbeingdisingenuousonthisscore,sayingtheunderlyingproblemisreallyaboutthedonors’“distrust”oftheirimplementingpartners.

5. Conclusionsandsuggestedguidanceforconsideringefficiencyinfundingdecisions

Thefollowingsummarizesthemaintakeawaysfromourfindingsonefficiencyinhumanitarianfunding.Thestudywasnottaskedtoproduceexplicitpolicyrecommendations,butwhereconclusionsfromthefindingslogicallysuggestpotentialactionsforimprovement,wenotethemhere.Inaddition,thissectioncontainsasetofguidingprinciplesforconsideringefficiencyalongsidetheotherfactorsindecisionmakingaroundhumanitarianfunding,andaproposalformorefarreachingstrategiccoordinationamongdonors.

5.1Areasforaction

Asshownintheprecedingpages,thedifferentfundingmodalitiespromotedifferenttypesofefficiencyaccordingtotheirobjectives.Thissupportstheargumentformaintainingadiversityofinstrumentstoemployfordifferentpurposesandthenotionoftheutilityofafinancingecosystem,asopposedtoasinglefavoredchannel.However,eachmodalityhasmuchroomforimprovement,andsomerebalancingbetweenthemwouldimproveefficiencyforhumanitarianresponseoverall.

Tobeginwithwhatneedsimproving,eachfundinginstrumentwasalsofoundtoincurcertaininefficiencies.Itisimportantheretoseparateinefficienciesthatareunavoidablebydesign—thatis,theinevitabletrade-offofonetypeofefficiencyinthepursuitofothergoals—andthosethatareduetopoorexecutionormanagementorareneedlessbureaucraticartifactsthatcanbeeliminated.

Theprimarymodesoffundingarestillinefficientforrapidresponsepurposes.

Themostefficientmechanismsformovingmoneyquicklytoenablerapidresponsearealsotheleastusedinthehumanitariansystem,asaproportionoftotalfunding.Theseare(1)pre-arrangedagreements,includingmulti-yearagreements,betweendonorsandagencypartnersatthecountryleveland(2)theemergencyreservesofoperationalorganizationsestablishedandmaintainedthroughcorefunding.

TheCERFhasaprovenmethodologyforrapidlyapprovingprojectproposalsandreleasinginitialdisbursements,butthisefficiencyishinderedbydelaysonthefrontend,whentheprocesstoprioritizefundsisprolongedanddelaysdisbursements,andontheback-endwhenagenciesareslowtocontractanddisbursetopartnersfortheactualimplementationofactivities.Asaglobalrapidresponsemechanism,themuchsmallerStartFundhasworkedbetterintermsofspeedefficiency,butislimitedinscopeofcountriesandisfocusedonsmalleremergencies—whetheritcanscaletothelevelnecessarytomeetneedsinalargecrisisisnotclear.ThespeedoftheCBPFsvaryfromonecountrytothenext,butinthesamplelookedatforthisstudy,weresimilarlydisappointingintermsofdayselapsedbetweeninitialproposalandfinaldisbursement.

Slowestofallisthetraditional(andpredominant)bilateralgrantmodality,whichinoursampletookanaverageof65daystogetfromtheproposalsubmissiontothestartofprojectactivities.Asaresult,itcanonlysupportrapidresponseiftherecipientagencyhasboththecapacitytoadvance

fundingfortheinitialoutlaysandahighdegreeofconfidencethatthedonorwillfollowthroughonstatedintentions.

Technicalefficiencycanbeimprovedacrossallmodalitiesforbetterrapidresponsefunding:

Ø Insuddenonsetorrapidlyevolvinghumanitariancrisesfundedthroughtherapidresponsewindow,CERFproposalvettingandallocationdecisionsshouldnotwaitforaconsolidatedsubmissionofproposals.ThestrengthoftheproposalandtheadviceoftheHumanitarianCoordinatorshouldsufficetoindicateiftheproposedinterventionrepresentsanecessaryandappropriateresponsetocurrentconditions.Thiswillalsohelpworkagainsttheperverseincentivestogiveeachagencyits“fairshare.”However,thebiggesttimelinessgaincanonlycomethroughinternalagencyreformsthatpreventlongdelaysbetweendisbursementandonwardgranting.Agenciesidentifiedashavingproblemsinthisregardhavearesponsibilitytoundertakeathoroughoperationalreview(asUNICEFandUNFPAarecurrentlydoing)andenactsystemimprovementstoaddressthem.

Ø CBPFscouldimprovetheirtechnicalefficiencybymakingaggressiveeffortstomaketheprocessaslightand“userfriendly”aspossible,and/orbyhavingminimumgrantthresholdssothattheawardisworththetransactioncosts.

Ø Intheirbilateralgranting,donorsshouldincreasethe“pre-positioning”ofadvancefundswithindividualagenciesand/ormultiagencyconsortiacapableofputtingthemoneytoworkimmediatelyintheeventoftherapidonsetcrisis.Ascapacityinvestmentsinwell-placedorganizations,donorscouldconsiderincreasingboththeamountsofprepositionedadvancefundsandcorefunding.

Ø Increasingthepracticeofmulti-yearfunding,withbuilt-inmodifiersystemstoallowpartnerstoadapttochangingcircumstanceswithoutundergoingtime-consumingformalmodifications,couldsimilarlybolsterflexibilityandspeed.

Disproportionaterequirementsandinflexibilityhinderefficiencyatalllevels.

Asevidencedinthisstudyaswellasotherrecentresearch,thesmallestandshortest-durationgrantstendtohavethehighesttransactioncostsintermsoftherelativeamountofadministrativeworkrequired,andconsequentlythesmallestNGOstypicallybearthegreatestadministrativeburdenfortheleastreward.Evenlargeorganizations,whiletheyhaveacceptedandadaptedtotherequirementsoftheirdonors,saidthatformanytheburdenofreportingandcompliancewasexcessive,disproportionatetotheactualrisks(andinfactnotaneffectivemeansofreducingfiduciaryrisk),andhadnegativeimpactsontheirabilitytocarryouttherealbusinessofhumanitarianresponse.

Inordinatelyhightransactioncostsonsmall-sizedgrantsisinefficientfordonorandgranteesalike,asostensiblyeveryadditionalpieceofreportingorextraworkneededforcontractmodificationrequiredoftheagencyinturnmustbeprocessedbythedonor.Thepreliminaryproposalsforharmonizedreportingareastepintherightdirection,butamorerationalapproachwillalsorequiredonors(includingbothdonorgovernmentsandagenciesthataresub-grantingtoimplementingpartners)toreevaluatetheirgrantingproceduresalongthefollowinglines:

Ø Reportingrequirements,bothprogressandfinancial,shouldbemadecommensuratewithtimelinesandoverallsizeofgrants,ratherthanbeingappliedthroughaone-size-fits-alltemplate.Inaddition,onceanorganizationhasbeenthroughinitialcompetencyvetting,itshouldnotbemadetofacesimilarhurdlesinsubsequentprojectcontracts(orindifferentlocations).

Ø Proceduresregardingmodificationstoprojectsshouldbeestablishedwithaneyetoallowingmaximumflexibilitywhilemaintainingappropriateaccountabilitycontrols.Thiscouldincludebroaderbudgetcategoriesandexplicitpermissiontomovebetweenlineswithoutrequiringamidstreammodificationifitdoesnotsubstantiallyalteranyoftheprojectobjectives.

Theaddedvalueoftheintermediaryroleinmulti-linkgrantsisinconsistentandoftencreatesnetinefficiencies.

Insomecases,economiesofscalecanbecreatedthroughmulti-linkgrants,andaneffectiveintermediarycanaddvalueintermsoftechnicalassistanceandcoordination.Inothercases,however,theallocativeefficienciesgainedbyintermediariescanbeeasilyoutstrippedbytechnicalinefficienciessuchasdelaysrelatedtoonwardcontracting.Toguardagainstthis,anagency’spotentialeffectivenessinthisroleandforagivensetofcircumstancesshouldthereforebedemonstratedandnotassumed:

Ø Abusinesscaseforvalueaddedbyanintermediaryagencyshouldberequiredintheirproposals,whichanswersnotonlythequestionofwhyfundingthroughanintermediaryisnecessaryorpreferabletodirectfundingofimplementersintheparticularsituation,butalsohowthisagency,asopposedtoanother,isbestsituatedtoplaytheintermediaryrole.Partofthecaseforpotentialvalueaddedbytheprospectiveintermediaryagencymustincludeprovenefficiencyinfunding,contracting,andflexiblemanagementofgrants.

Allocativeefficiencyandthestatedgoalsoflocalizationareimpededbyriskperceptionandcapacityconstraintsonthepartofdonorgovernments.

Currentlocalizationeffortsappeartoaimatincreasingend-chainfundingtolocalactors,notmeaningfullyincreasingtheirdirectaccesstointernationalresources.Theoverwhelmingmajorityofhumanitariancontributionsgoesthroughbilateralgovernmentgrants,whichrarelyaccruedirectlytolocalorganizations.Therefore,forlocalizationgoalstobemet,oneoftwothingsneedstohappen:(1)Donorgovernmentsfindwaystobegingrantingdirectlytolocalactorsfarmorethantheycurrentlydo(whichinmostcasesisnotatall)or(2)thecountry-basedpooledfundsincreaseinsizetoallowforastepupinthenumbersandsizesofgrantsprovidedtolocalactors.

Donorgovernments,foravarietyofdomesticpoliticalandregulatoryreasons,havenotbeenwillingtodirectlyfundlocalactors,asitrepresentstoogreataperceivedrisk.Signsthatthismaybechangingcanbefound,buttheyarevanishinglyfewandfarbetween.Inaddition,somemajordonorssimplydonothavethecapacityonthegroundtomanagemorethanasmallnumberofgrants,meaningtheymustdisbursemoneyinallotmentstoolargeforasmallorganizationto

absorbandputtouse.Inthemeantime,whileinsomecasesfundingalocalorganizationdirectlymightbemoreefficient,itwillnotbedone.Inotherwords,caseswillremainwheretheprincipleofsubsidiaritycannotberealizedandwheretheinefficienciesofmulti-linkfundingchainsareunavoidable:

Ø Totheextentpossible,donors(includingdonorsofpooledfunds)shouldconsidersubsidiarityindeterminingatwhatleveltomakegrants.Unlesstheallocativeefficienciesandaddedvalueofhavinganintermediarycanbedemonstrated,directfundingshouldbepreferred.

Ø Targetedcapacityinvestmentsinlocalorganizations(corefundinggrants)canbolsterandenhancetherangeofoptionsavailablefordonorsseekingtomaximizeefficiencyaswellaseffectiveness.

Ø CBPFs,wheretheyarefunctioningwellandallocatingdirectlytolocalNGOs,shouldbeconsideredasatoolforpromotingsubsidiarityefficiencybydonorsthatremainunabletofundtheseorganizationsdirectly.Iftheirrapidresponseperformanceandadministrativeprocedurescancontinuetoimprove,theCBPFsmayultimatelybethekeytoreconcilingthetensionbetweendonors’supportforlocalizationontheonehandandtheinefficiency(andperceivedrisk)ofprovidingnumeroussmallgrantstolocalentitiesontheother.

5.2Guidingprinciplesfordonordecision-makingregardingefficiency

Toreiterate,whenmakinghumanitarianfundingdecisions,theefficiencycriterionisclearlysupersededbyotherconsiderations,aboveallbeinghowthefundingwillbestenableaneffectiveresponsetopeople’sneeds.Butdonorsmustbecognizantthatefficiencyfactorsintoeffectiveness,andthatcumulativeinefficienciescandetractfromdesiredoutcomes.

Whendecidinghowtoallocatetheirannualenvelopes,donorsneedtoemploydifferentmodalitiestoachieveareasonablebalanceofpredictabilityandresponsiveness,andallocativeefficiencybothatthecountryandgloballevels,whileretainingcontingencyfundingatthegloballevelincaseofunforeseenneeds.Ontopofthat,theyneedtomanagetheirownpolicycommitments,accountabilityrequirements,andcapacityconstraints.Eachinstrumenthasamixofcomparativeadvantagesthatrespondtoelementsofthesedifferentpriorities.Currently,donorsadmitthatknowingiftheyhavethebalancerightisverydifficult.TheissueismorecomplexthantheGrandBargaincommitmentswouldappeartosuggest,becauseeachdecisionentailsopportunitycosts.Forexample,dedicatinglargeamountstomulti-yearfundingagreementsprovidesincreasedpredictabilitybutreducedflexibilityifcircumstanceschange.

Maintainthewidestpossiblerangeofoptionsandtoolstoemployfordifferentneeds.

Donorsshouldseektoexpandtheirrangeofoptionsbeyondoneortwoinstrumentsforfunding,knowthatdifferentsituationswillbemoreamendabletodifferentinstrumentsorcombinationsofinstruments.Ablanketrejectionofpooledfunding(orconversely,aninabilitytomakedirectgrantstoimplementers),forexample,reducesthescopeforeffectivenessindonorship.

Tothisend,donorsshouldundergoaninternaloftheircapacitytosupportefficientfinancing.Thiscouldbeassimpleasaquestionnairecontainingthefollowing:

• Whatproportionofourfundingisspentinprotractedcrises?

• Howoftendowemodifyandextendgrants?

• Areweabletoworkflexiblyacrosshumanitariananddevelopmentfundingstreams?

• Howwellsetuparetheytorespondtorapidresponse?

• Dowehaveagoodrangeofglobalandnationalresponsivemechanisms(Includingsupporttointernalfundingfacilitiesandinstruments)?

• Whatadditionalevidencedoweneedfromgranteestoimprovefuturedecision-making?

Theanswerstotheabovemayprovideausefulsteerfordonorsseekingtomaximizetheefficiencyandeffectivenessoftheircontributions.Forexample,ifalargepercentagegoestoprotractedconflictswhereno-costextensionsarecontinuallyrequired,thismaybeanefficiencyargumentforashifttomoremulti-yearfunding.

Startingfromthespecificsofthecontextandhumanitarianneeds,matchgoalswiththefundinginstrumentsbestsuitedtoefficientlyservicethem.

Iftheneedisforrapidresponse(asmaybepredictableincountrieswithfluidconflictconditionsorfrequentsudden-onsetemergencies),applyingforbilateralgrantswillbelessefficientthanworkingthroughpre-arrangedframeworkagreementsorapplyingforpooledfundsthathaveprovenspeedydisbursementtimes.

Large-scale,chronicemergenciescausingsimilarneedsamonglargesegmentsofthepopulationcouldbemoreefficientlyfundedthroughlargeumbrellagrantstocompetentcoordinatingagenciesthataddtechnicalvalueandprovideeconomiesofscalewithlogisticalandprocurementinfrastructures.

Specificgapsandunderfundedneedscanbeaddressedwitheitherflexiblebilateralgrantingorearliercontributionstopooledfundwindowsdesignedforthatpurpose,orboth.

Smallpocketsofneedandhighlylocation-specificneedsinindividualareaswilloftenbemoreefficientlyfundedbyeliminatingtheintermediaryandfundinglocallybasedorganizationsdirectly.

Finally,manycountrycontextswillatdifferenttimesorsimultaneouslyexperienceallfourofthescenariosdescribedabove.Thebalanceofdifferentfundingneedsandobjectivesshouldbereflectedwithinorbetweendonorportfoliostotheextentpossible.

Determineandconsiderotherdonors’plansasfactorsinefficiencydecisions.

Finally,becauseinmostmajorhumanitariancrises,nodonorcansinglehandedlyprovidethefullcomplementofresourcesneededtomeetneeds,ideallyfundingdecisionswillbemadeinconcert

withotherdonors.Attheleast,theywillnotbemadeinisolation.Donorchoicebetweenfundingmechanismsshouldbeusedtohelpbalancetheneedsofbothtechnicalandallocativeefficiencyinlightofwhatcounterpartsaredoing,withinthelargerpictureofstrategicpriorities.

Strategiccoordinationoffundingdecisionsbetweendonorsissomethingthatgoesontovaryingdegrees,butinanadhocandinconsistentway.Buildingthisstepintoaframeworkforefficiencycalculationcouldpotentiallybringaboutmorerobustcoordinationandrigorousdecisionmaking,creatingavirtuouscircle.

5.3Enhancingefficiencythroughamorecoordinated,evidence-basedapproach

Theaboveareasforactionpre-supposethecurrentlevelofdonorcoordination.Whatfollowsisaproposalforconsiderationofadditionalcommontoolsthatwouldhelpstrengthenamorestrategicallycoordinatedapproachtofundingdecisions.

Agreeonacommonsetofmetricsforassessingefficiency

Donorsrequirebetterevidenceonwhichtomakedecisionsaboutwhoandhowtheyfund.Efficiencywouldonlybeoneconsiderationinthesedecisions,butanimportantone.Todothatwouldrequiregreatertransparency(opendata)onbudgetsandtransactiontimesofthedifferentchannels,includingumbrellagranteesaswellaspooledfundmechanisms.

ThemembersoftheGoodHumanitarianDonorshipinitiativeshouldthereforeconsidercommissioninganeutralentity,e.g.anauditingbody,todevelopanefficiencyframeworkwithexplicitstandardsthatcouldcomparetheefficienciesandvalueaddedofdifferenttypesofpooledfundsandpotentialintermediaries.Thiswouldhavethebenefitofincentivizingallactorstoimprovetheareasofweaknessthatarecurrentlycausingunnecessaryinefficienciesand,intheprocess,wouldfacilitatethefulfillmentoftheGrandBargaincommitments.

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Annex1:Listofpeopleinterviewed

GlobalHelen Alderson DirectorofFinancialResourcesandLogistics ICRC

Marc Cohen SeniorResearcher Oxfam/CfC

Paul Currion IndependentConsultant Independent

Andrea DeDomenico Chief,FundingCoordinationSection(FCS) OCHA

Lisa Doughten Chief,CERFSecretariat OCHA

Jessica Eliasson HumanitarianPolicySpecialist Sida

Michael Jensen Chiefofsection OCHACERFSecretariat

Chris Kaye DirectorofGovernmentPartnerships WFP

Christopher Lockyear DirectorofOperations ACF

Jemilah Mahmood UnderSecretaryGeneral,Partnerships IFRC

David Matern HeadofDonorRelationsandReportsUnit UNICEF

Michael Mosselmans HeadofHumanitarianprogrammepractice,policyandadvocacy

ChristianAid

James Munn Director NRC

Lamade Nicolas SeniorManager,Security,RecoveryandPeace GIZ

Melissa Pitotti HeadofPolicy ICVA

Mark Pryce HPCInformationServicesUnit OCHAFTS

Sanjana Quazi SeniorAdviser UNICEF

Deepti Sastri HeadofEvidence StartNetwork

Rachel Scott TeamLeader:Conflict,FragilityandResilience OECD/DAC

Dhananjayan Sriskandarajah SecretaryGeneral CIVICUS/HLP

Julian Srodecki TechnicalDirectorforHumanitarianGrants WorldVision

Anne Street HeadofHumanitarianPolicy CAFOD/CfC

Hans vanderHoogen HumanitarianAdvisor MinistryofForeignAffairs,TheNetherlands

James Weatherill CoordinationandResponseDivision(CRD) OCHA

Hesham Youssef AssistantSecretary-GeneralforHumanitarianAffairs

OrganisationofIslamicCooperation(OIC)

Ethiopia

YoucefAitChellouche HeadofDelegation IFRCEthiopia

John Aylieff

Kati CsabaMinister-CounsellorandSeniorDirector(Development),Ethiopia GovernmentofCanada

Anna Ekman DonorRelations UNICEF

Aurelie Ferial DeputyRegionalOperationsDirector ACF

Daniel Holmberg SeniorHumanitarianAdvisor OFDA

Abera Lulessa DirectorofFinance EthiopianRedCross

Tim Mander EthiopiaHumanitarianFundManager OCHA

Richard Markowski DeputyCountryDirector CRSEthiopia

Charlie Mason CountryDirectorSavetheChildrenEthiopia

Phinias Muziva ProgrammeManager NRCEthiopia

James Reynolds HeadofDelegation ICRC

Esther Salazar CountryDirector MercyCorpsEthiopia

Hanspeter Schwaar HeadofDevelopmentCooperation BMZ

Marijana Simic CountryDirector IRCEthiopia

Alex Whitney CountryDirector WorldVisionEthiopiaIraq

Andrew Barash SeniorInter-AgencyCoordinationAdvisor UNHCR

Alex Beattie HumanitarianAffairsOfficer(CHASEOT) DFID

Mike Bonke CountryDirector Welthungerhilfe

Julie Davidson

Lotti Douglas Director IraqCashConsortium

Ivo Freijsen HeadofOffice OCHA

Sally Haydock CountryDirector WFP

Nicholas Hutchings TechnicalAssistantEuropeanCommission

Jason Kajer ActingCountryDirector IRC

DanielMunoz-Rojas HeadofSub-Delegation-Erbil ICRC

PeggittyPollard-Davey ReportsSpecialist UNICEF

Michael Prendergast AssociateExternalRelationsandReportingOfficer,UNHCR

Olga Prorovskaya IraqHumanitarianFund OCHAAndresGonzalez Rodriguez CountryDirectorIraq Oxfam

Aneta Sama CountryDirector ACF-Iraq

Diana Tonea

Basil Yousif FoodSecurityProgrammeManager RNVDOMyanmar

Suresh Bartlett NationalDirector WorldVisionMyanmar

Kim Bawi ExecutiveCommitteeMember MyanmarRedCrossSociety

Edward Benson Shelter/NFI/CCCMClusterCoordinator UNHCR

Sophie Ford HumanitarianProgrammeAdvise OxfaminMyanmar

Brian Heidel RegionalAdvisorforEastAsiaandthePacific USAID/OFDA

Michael Hemling HeadofFinanceandAdministration WFP

Chris Hyslop DeputyHeadofOffice OCHA

Gwenolenn LeCouster SeniorProgramOfficer UNHCR

Laura Marshall HeadofProgram NRC

Leslie McCracken SeniorHumanitarianAssistanceAdvisor USAID

Esther Perry FirstSecretary AustralianEmbassy

Narciso Rosa-BerlangaSeniorHAO OCHA

Dom ScalpelliWFPResidentRepresentativeandCountryDirector WFP

Gum Shah

Masae Shimimura EmergencyPreparednessandResponseOfficer WFP

Mark Silverman Delegate ICRC

Kelland Stevenson CountryDirector PlanInternational

Jane Strachan EmergencySpecialist UNICEF

Moe Thu AssociateDirector-HEA WorldVisionMyanmar

Annex2:Quantitativeanalysisdetails

An independent-samples t-test was conducted to compare admin burden for bilateral grants and pooled fund grants. There was a significant difference in the scores across the pooled funds (M=4.42, SD=0.36) and bilateral grant (M=2.26, SD=0.13) conditions, t(14.2)=-5.64 p=0.00. These results suggest that the processing of pooled funds poses a greater administrative burden to organizations than the processing of bilateral grants. An independent-samples t-test was used to compare time lags (days between proposal and award) for bilateral grants and pooled funds grants. Once again, there was a statistically significant difference between the scores for pooled funds (M=27.25, SD=6.80) and bilateral grants (M=46.53, SD=8.14), t(46.6)=1.82 p=0.08. Comparing time delays between awards and disbursement, we once again note significant differences between the scores for pooled funds (M=32.42, SD=3.48) and bilateral grants (M=18.3, SD=1.88), t(18.1)=-3.56 p=0.002. However, in this case, pooled funds appear to be slower.

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