Payment for performance (P4P) has been employed in low and middle-income (LMIC) countries to improve quality and coverage of maternal and child health (MCH) services. However, there is a lack of consensus on how P4P affects health systems. There is a need to evaluate P4P effects on health systems using methods suitable for evaluating complex systems. We developed a causal loop diagram (CLD) to further understand the pathways to impact of P4P on delivery and uptake of MCH services in Tanzania. The CLD was developed and validated using qualitative data from a process evaluation of a P4P scheme in Tanzania, with additional stakeholder dialogue sought to strengthen confidence in the diagram. The CLD maps the interacting mechanisms involved in provider achievement of targets, reporting of health information, and population care seeking, and identifies those mechanisms affected by P4P. For example, the availability of drugs and medical commodities impacts not only provider achievement of P4P targets but also demand of services and is impacted by P4P through the availability of additional facility resources and the incentivisation of district managers to reduce drug stock outs. The CLD also identifies mechanisms key to facility achievement of targets but are not within the scope of the programme; the activities of health facility governing committees and community health workers, for example, are key to demand stimulation and effective resource use at the facility level but both groups were omitted from the incentive system. P4P design considerations generated from this work include appropriately incentivising the availability of drugs and staffing in facilities and those responsible for demand creation in communities. Further research using CLDs to study heath systems in LMIC is urgently needed to further our understanding of how systems respond to interventions and how to strengthen systems to deliver better coverage and quality of care.

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