A New Strategy for the MCC – Nancy Lee and Sarah Rose

Summary

Podcast Summary: The CGD Podcast

Episode: A New Strategy for the MCC – Nancy Lee and Sarah Rose

Date: March 8, 2016
Host: Rajesh Merchandani, Center for Global Development (CGD)
Guests: Nancy Lee (Deputy CEO, MCC), Sarah Rose (CGD Analyst & MCC Expert)

---

Overview

This episode explores the Millennium Challenge Corporation's (MCC) new strategy for reducing global poverty through economic growth. Host Rajesh Merchandani is joined by Nancy Lee and Sarah Rose to discuss how MCC is adapting to emerging global development challenges, such as concentrated poverty in fragile states, climate change, urbanization, and the role of private and domestic financing. They examine the priorities of MCC's updated approach, with a particular focus on leveraging policy reform, measuring systemic impacts, and ensuring country ownership.

---

Key Discussion Points & Insights

1. The Motivation and Goals Behind MCC’s New Strategy

[00:05–02:22]

• The MCC, entering its "teenage years," faces a transformed global development landscape: fewer poor countries, more poor people within countries, increased urbanization, fragility, and new financing sources.

• Nancy Lee outlines that with 12 years of experience and a proven model, MCC is pivoting to address current realities:

  • "We now are at a point where we have a 12 year track record. We have...proof of concept. We have made a model which was ambitious in theory, actually work in practice. So it is a good time to...step back and respond to the new challenges..." (Nancy Lee, [01:09])

• MCC's reframed strategy involves five major goals, 38 priority actions, and 19 new directions, all aimed at expanding the model’s impact, especially via deeper leverage and partnerships.

2. Deepening the “Poverty Reduction Through Economic Growth” Model

[02:22–03:15]

• The strategy is fundamentally about leveraging scarce grant resources to catalyze more private financing and strengthening reform incentives through country collaboration.
• "How can we create greater leverage, use these very scarce grant resources to catalyze more private finance? How can we really strengthen reform incentives?...work very collaboratively...with countries on reform agendas." (Nancy Lee, [02:46])

3. Emphasis on Policy Reform in the New Strategy

[03:46–06:01]

• Sarah Rose notes increased emphasis on policy reform, though the idea itself isn't entirely new for MCC.

  • "In a way, there’s more emphasis...I'd like to hear a little bit more about how the increased emphasis on reform is going to be a little bit different than MCC's past history using conditions as part of its compact." (Sarah Rose, [04:04])

• Nancy Lee breaks down MCC's approach:

  • Help countries identify the most important infrastructure investments.
  • Create enabling environments for private investment through policy and institutional reforms.
  • Invest in early-stage project development and fill financing gaps.
  • "Because we can do all three things, we can be particularly catalytic in terms of mobilizing finance...recent compacts in Benin and Ghana and Jordan, for example, where we invested about a billion dollars and we're catalyzing about 5 billion." (Nancy Lee, [06:05])

4. Sustainability and Embedding Systemic Change

[07:13–08:37]

• Ensuring reforms and benefits persist after MCC funding ends is a priority.
• Focus on building or reforming systems (e.g., road maintenance, land titling) so countries can replicate successes.
• "We want to focus more on making these reforms sustainable and embedding them into country systems so that...the effect of the compact lasts long after our financing ends." (Nancy Lee, [07:13])

5. Country Ownership and Results Orientation

[08:37–11:09]

• Host raises the potential tension between policy conditions and country ownership.
• Nancy Lee reinforces local responsibility: "If they've accepted the policy reform, they have the responsibility, they own it...they speak about the compact as their compact." ([09:16])
• Sarah Rose pushes for clarity on how these reforms tie into MCC's results-focused approach, suggesting outcome-based payments could ensure accountability and adaptability: "In a way, I think this calls for more focus on actual outcomes-based payments..." ([10:01])

6. Defining and Measuring Systemic Impact

[11:09–12:25]

• MCC is working to define "systemic impact"—covering policy/institutional change, behavior change, and scaling/replication.
• Nancy Lee emphasizes ambition and innovation in results measurement and outcome-based finance:
  • "We...view that kind of innovation in development finance as very consistent with our model. We've always been focused on outcomes..." ([11:24])

7. Piloting Outcomes-Based Approaches—Morocco and Sierra Leone

[12:25–14:53]

• MCC is piloting "cash on delivery" or outcomes-based aid:
  • In Morocco (focus: education for girls and at-risk youth), some payments are reserved for measured outcomes.
  • In Sierra Leone (focus: power and water), payments are linked to access improvements and include anti-corruption platforms (e.g., "pay no bribe" e-government system).
• "We're also beginning it in Sierra [Leone] in our recently launched Threshold program...we will link payments to those outcomes." ([13:30])
• Example quotient: "It's an E-government platform where governments are held accountable because there is a public platform where people...can record cases where they’re asked to pay bribes." ([14:20])

8. The Role and Evolution of Threshold Programs

[15:14–16:05]

• Threshold programs, initially seen as too small for major impacts, have proved effective for catalyzing early policy reforms, laying the groundwork for larger investments.

9. Revisiting the Core Question: Does Growth Reduce Poverty?

[16:05–18:23]

• Sarah Rose points out it's still difficult to definitively prove that MCC’s approach increases household incomes, though elements like country ownership and good governance are valuable.
  • "There is not a huge body of evidence showing definitively that MCC’s investments have in fact increased household incomes. It doesn’t mean that they haven’t...This is just hard to...prove." (Sarah Rose, [16:29])
• Nancy Lee shares MCC research suggesting poor populations in MCC countries have higher income growth rates than elsewhere:
  • "Incomes of the poor were growing faster than average per capita income in the countries we work in...the incomes of the poor rise faster in our countries." (Nancy Lee, [17:55])

---

Memorable Quotes

• On MCC’s evolving approach:
  "We now are at a point where we have a 12 year track record. We have...proof of concept."
  — Nancy Lee ([01:09])

• On leveraging limited resources:
  "How can we create greater leverage, use these very scarce grant resources to catalyze more private finance?"
  — Nancy Lee ([02:46])

• On sustainability:
  "We want to focus more on making these reforms sustainable and embedding them into country systems so that...the effect of the compact lasts long after our financing ends."
  — Nancy Lee ([07:13])

• On country ownership:
  "They speak about the compact as their compact...they are implementing this compact."
  — Nancy Lee ([09:16])

• On the importance of evidence:
  "There is not a huge body of evidence showing definitively that MCC’s investments have in fact increased household incomes...At this point, I think that's still an important question that I hope MCC continues to strive to answer."
  — Sarah Rose ([16:29])

---

Timestamps for Key Segments

• [00:05] – Introduction & episode theme
• [01:09] – MCC’s track record and rationale for new strategy
• [02:22] – Outlining the five strategic goals
• [03:46] – Policy reform as a renewed priority
• [06:05] – Catalyzing private finance through combined interventions
• [07:13] – Making reforms sustainable and embedded
• [08:37] – Navigating country ownership and policy reform
• [10:01] – Push for outcomes-based approaches
• [11:09] – Defining and measuring systemic impact
• [12:25] – Piloting cash on delivery/outcomes-based payment in Morocco, Sierra Leone
• [14:20] – Anti-corruption platforms in service delivery
• [16:29] – Open questions about measuring results and impact
• [17:55] – MCC’s findings on income growth among the poor

---

Tone and Style

The discussion is thoughtful and forthright, blending the optimism of successful innovation with the humility to address evidence gaps. Both guests maintain a practical, results-focused tone, emphasizing collaboration, measurement, and adaptation in development policy.

---

Conclusion

This episode provides an in-depth look at how MCC is reinventing itself to meet global development challenges by focusing on leveraging resources, advancing systemic reforms, piloting innovative outcomes-based financing, and continually asking critical questions about poverty reduction. For those seeking a window into the evolution of US foreign aid, this conversation offers both clarity and candid reflection.

Transcript

[A]

Foreign.

[B]

Hello, I'm Rajesh Merchandani. Thanks for joining me for this edition of the CGD podcast. Now today, a 21st century baby is becoming a teenager and its outlook is changing. I'm talking about the Millennium Challenge Corporation, the US government agency tasked with reducing global poverty through economic growth. Now a dozen years since it started started MCC recently unveiled a new strategy that reflects the changing reality of global poverty. What am I talking about there? Well, fewer poor countries, but more poor people within countries, A concentration of people who are poor in fragile or conflict afflicted states, greater urbanisation, the development impacts of climate change, the growing role of the private sector and developing countries own resources as a source of finance. It's a very different world now when you think of about development. Here to discuss what MCC is doing about it is Nancy Lee, the Deputy CEO and CGD's own analyst and expert on the MCC, Sarah Rose. Ladies, thanks very much for joining me.

[A]

Pleasure to be here.

[B]

Nancy, let's start with you. What is the purpose of the new strategy? Why did you do it?

[C]

Well, as you know, we started 12.

[A]

Years ago as a bold experiment in development. We had a very different model, very different process for selecting countries, for selecting how we allocate our resources with a lot of economic analysis, having the country implement the projects and own the compact. So we now are at a point where we have a 12 year track record. We have, I think it's fair to say, proof of concept. We have made a model which was ambitious in theory, actually work in practice. So it is a good time to.

[C]

Sort of step back and respond to the new challenges that you were just outlining and really take the model to a new level, to another level.

[B]

In terms of the strategy, having looked through it, there are five goals, 38 priority actions and I think 19 new strategic directions. I mean this is getting to the level of the SDGs in terms of complexity. Not everything can be a priority. What would you say are the kind of top three priorities?

[A]

Well, I would say actually we deliberately.

[C]

Selected five goals in order to be very clear about what our priorities are. And they're really very much focused on expanding and deepening the impact of the model. Really taking this asset, this model that we've developed and, and tested over time and extracting greater returns from it.

[B]

This is the model of reducing poverty.

[C]

Through economic growth, through economic growth. And what we mean by that is really how can we create greater leverage, use these very scarce grant resources to catalyze more private finance? How can we really strengthen reform incentives Because I really do think we have a unique opportunity and ability to work very collaboratively, collaboratively with countries on reform agendas.

[B]

What do you mean by that, the strengthen reform incentives?

[C]

Well, unlike some other institutional models, we don't really arrive in a country with an agenda of our own. We come to a country and immediately begin to analyze the most binding constraints to growth in their country. So really what we're about is taking their growth performance, breaking it down, and finding the most binding constraints, and then trying to identify the root causes of those constraints.

[B]

Let's talk more about that issue of reform and reform agenda. Sarah Rose, my CGD colleague and an expert on mcc. Let's bring you in here. One of the things that comes out from the strategy on reading it is a greater emphasis on policy reform. Is that one of the things that struck you and what struck you about that?

[D]

Yeah, absolutely. I think that's very clear, that this is sort of a new priority or a new focus or a refocus, I think, of MCC in a way, this isn't particularly new. MCC has always included conditions as part of its investments policy, administrative, regulatory, kinds of reforms that would be necessary in order for their capital investments to have the kind of impact that they were projecting. So in a way, it's not particularly new. In a way, there's more emphasis, and I'd like to hear a little bit more about how the increased emphasis on reform is going to be a little bit different than MCC's past history using conditions as part of its compact.

[B]

Let's pick up a couple of those points with Nancy, actually. So let's talk about this greater emphasis on policy reform. How is that going to work in practice and what does it mean for, say, I'm a foreign minister of a developing country and I think, oh, I've got a program proposal for mcc. I'm going to take it to them, but actually they're interested in policy reform before they get into an agreement to compact with me. How's that going to work in practice?

[C]

Well, let me sort of highlight two aspects of it that I think are distinctive about ncc.

[A]

The first is in many cases, what.

[C]

We'Re trying to do is help countries identify the most important infrastructure investments to catalyze growth. And we're trying to help a country walk through the process of identifying what would build the right kind of environment to attract private finance for that infrastructure investment. So what we're trying to do is bring together really three threads. One is the policy and institutional environment, that conversation. Second, we're trying to help the country develop the best projects. And there's a lot of evidence that early investment in project development in and of itself is a big contribution to countries spending priorities.

[A]

And third, we're actually so creating the.

[B]

Kind of policy landscape, creating a policy.

[C]

Landscape to flourish, but also investing in project development at an early stage because there's always a scarcity of funds for those investments. And then third, filling in some financing gaps ourselves. So because we can do all three things, we can be particularly catalytic in terms of mobilizing finance. And we've seen examples of recent compacts in Benin and in Ghana and Jordan, for example, where we invested about a billion dollars and we're catalyzing about 5 billion. So we can be particularly catalytic, but we can also be particularly effective in galvanizing the country around a particular set of reforms. So, so one key aspect of this is that we can focus in a very concerted way on private investment. But the second aspect which we really are trying to highlight in the plan, is that we want to focus more on making these reforms sustainable and embedding.

[A]

Them into country systems so that really.

[C]

The effect of the compact lasts long after our financing ends. And that's really something we've heard from a lot of our stakeholders. We want to see sustainability, we want to see country systems changing in a way that really has benefits far beyond the compact itself.

[B]

And does this speak to sometimes the question raised about, because your partnerships, your compacts are five years. And many people would say, well, what can you achieve really at a structural level in a country in five years? So with this greater emphasis on policy, the point is, okay, we can build in the policies that will actually allow this program to continue having benefits beyond the five years.

[A]

Absolutely. The idea is, for example, not to.

[C]

Just focus on construction of several thousand kilometers of roads, but rather leave, look at the road maintenance system in the country, help it design a better maintenance system, better processes, help with funding, but also get commitments from the country that itself will allocate more of its resources to maintenance. If we do a land titling program, it's not just the farmers that we title, but creating a system that can be replicated and scaled after we leave.

[B]

So, Sarah, I can see you champing at the bit to get in, but I just want to ask Nancy one more question on this point. How does that fit with the idea of country ownership, which is one of the pillars of MCC's model, that programs have to be owned by the country? If you're coming and saying you need to reform these policies before we'll partner with you then. Does that chip away at the idea of country ownership seems to take it away from them a little bit?

[C]

No, I would say, actually I would approach it somewhat differently. I mean, first of all, there is.

[A]

An entity set up in the country which does all of the work in.

[C]

Managing the projects and implementing the projects. So as long as they've accepted the.

[A]

Policy reform agenda, they've accepted the policy reform, they have the responsibility, they own it. I've visited countries and I've talked to the people who are implementing these projects and, and they speak about the compact as their compact. They speak about their actions implemented. When they say we are implementing this compact, what they mean is they are implementing this compact. And then if we add to that an effort to help them think for the longer term and start to build systems that last after their group disappears, I think then we transfer these benefits.

[C]

To the country at large.

[D]

Sarah, I'm glad you asked about country ownership and I wanted to talk a little bit about sort of, or my questions or my thoughts about how sort of a renewed focus on systemic impact policy change fits into another pillar of MCC's model, which is the focus on results. So when you're talking about, you know, we are here, we want to get here, we think these policy reforms are important and they may in fact be, but there may be a number of other criteria that are also influencing how to get to that particular outcome. So, you know, in a way, I think this calls for more focus on actual outcomes based payments. So instead of prescribing, you know, what a country should do in terms of administrative, regulatory policy changes, to say we need to get to here and the way you figure out how to do it is up to you. But part of that paying for outcomes really does tie into being able to, to measure and adjust well. And so I'm curious as to how MCC will apply its results framework to investments in governance and policy reform, how MCC is defining systemic impact, how they're going to say, yes, we've been successful.

[A]

We're embarking on an effort right now in consultation with our stakeholders, to really define what systemic impact means for MCC and then to begin to define how.

[C]

We might measure it.

[A]

So we're talking about things like policy and institutional reform which change systems and which create environments which catalyze investment. We're talking about scaling and replication. So is anything we've done later scaled and replicated? We're talking about changing the behavior of key actors in the economy. So these are very hard things to measure. But you know, MCC is very ambitious when it comes to results measurement. You want to continue to lead. And so we're now discussing how we would do this. I'm glad you raised the outcomes based payments because we view that kind of innovation in developing finance as very consistent with our model. We, we've always been focused on outcomes and we've always been focused on accountability. And what outcomes based payments does is makes you accountable not for the inputs only, but for the outcomes.

[B]

You're describing the cash on delivery aid model that EGD has kind of pioneered. You're in the heart of the beast. You can almost hear now President Nancy Bertol cheering when you talk about outcomes based payments based on verifiable, independently verified results. I don't know whether that is part of your, your results framework as well. To have them as independently verified.

[A]

Yes. So the idea is we hold ourselves and the governments we work with accountable by having an independent evaluator assess results. In a recent compact we've launched in Morocco, we're testing this proposition for education.

[C]

Particularly of girls and at risk youth.

[A]

So we will.

[B]

It started. Has it.

[A]

It has. And we will reserve part of the payments in that compact for outcomes and.

[C]

The payments will then go to scale successful interventions, just as Nancy envisioned a number of years ago.

[B]

Actually, when MCC CEO Dana Hyde was here at CGD a few months ago, she talked about piloting a couple of CAT on delivery aid projects. Is that what you're talking about now, the Morocco project?

[A]

Yes.

[B]

So it's underway.

[A]

It's underway in Morocco and we're also beginning it in Sierra Sierra Leone in our recently launched Threshold program, which is focused on power and water access. And again, we will define outcomes in terms of power and water access and we will link payments to those outcomes.

[B]

How does the power and water access project work?

[A]

This is a threshold program, so it's relatively small. So the idea is to actually build systems at the community level which create access to water and power. The compact also includes again, policy and institutional reform to help improve delivery of services.

[B]

What are the elements of policy, institutional reform in that project? What is it you want to change at the policy level?

[A]

It's really improvements in the way the utility and the regulatory authorities work in circulation. Gary Leone as well as the creation with collaborating with DFID on something called a pay no bribe platform. It's an E government platform where governments are held accountable because there is a public platform where people seeking access to water and electricity can record cases where they're asked to pay pay bribes.

[B]

There was a similar thing in India actually called ipaidabibe.com which hundreds of thousands of people would list when they had to pay a bribe to a public official. If you come to the table with say, a relatively small pot of money, what's to stop that particular country saying, well, actually, no thanks, mcc, we don't really want to do policy reform. We'll go and get the Chinese to build these roads instead?

[C]

Well, that's the interesting thing that we're finding with threshold programs, because the conventional wisdom on threshold programs was they're too small really to have much motivational impact in terms of difficult reforms. So, you know, the original threshold programs were sort of more mini compacts than they were particularly focused on policy and institutional reform.

[A]

We're finding actually that's the right way to start in a threshold program at the policy and institutional level. It's much better than trying to build small infrastructure projects. Instead, what you're trying to do is take a country that's motivated, that's moving the scorecard in the right direction, take it to the next level, and then build the basis for then investing in.

[C]

A compact in a much bigger way.

[B]

Sarah, as we move to a close, I wonder if you could comment on something that Nancy said at the beginning that after 12 years MCC has proof of concept. Do you think in your analysis of MCC over the years that we do know enough now about the fundamental question about MCC and its model that increasing economic growth does help reduce poverty? Are we satisfied that that's a no brainer?

[D]

MCC's model was developed to be in the service of the goal, which is poverty reduction through growth. And I think at this point there is not a huge body of evidence showing definitively that MCC's investments have in fact increased household incomes. It doesn't mean that they haven't done so in many cases. This is just hard to reasonably definitively prove. And so I think aspects of the model, country ownership, the partnership structure, focusing on countries with good governance as a way to create incentives for potential improvement or reward countries that are performing well, these are important in and of themselves. They can likely have benefits, including growth benefits in and of themselves. But in some ways, I think the fundamental question was omitted from the discussion of the strategic plan, which is can aid delivered according to these sets of best practices actually achieve the results of interest, which is poverty reduction through growth? At this point, I think that's still an important question that I hope MCC continues to strive to answer.

[A]

I think it's a core question.

[C]

I think it's a very fair question.

[A]

We took the countries in which we've done compacts. We then compared average income growth to the growth of the bottom 20% or the bottom 40%.

[C]

It really actually doesn't make much difference.

[A]

And what we found actually is exactly.

[C]

What we wanted to find, which was.

[A]

That the incomes of the poor were grow faster than average per capita income in the countries we work in. And then if you compare that to countries where we don't work, the incomes of the poor rise faster in our countries. So, you know, that's kind of a sort of big picture look at are we actually reaching the poor? Are their incomes growing and are their incomes growing as fast as the incomes.

[C]

Of other parts of the population?

[A]

I think those are pretty powerful affirmations that what we're doing is on the right track.

[B]

Nancy Lee, Deputy CEO of mcc. Sarah Rose, my colleague here at cgd, an expert on MCC as well. It's been really interesting to talk to you both. Thank you both for joining me.

[D]

Thank you.

[A]

Thanks so much.

[B]

You can read about MCC Strategic Plan on their website mcc.gov and you can find out about everything that we're doing on this topic and everything else we do on our website, cgdev.org and of course, remember, please to join me, Rajesh Merchandani for the next podcast from the Centre for Global Development.