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SEMINARY - Special Supplement, Oct-Dec'2011

Innovative Financing: Global Practice

SME WORLD Desk
Nov 2011

Meeting the development and social infrastructure challenges facing humanity requires new, predictable and sustainable funding. Innovative financing initiatives generate diverse resources and unleash the full potential of the emerging markets, the financial community and private business. Innovative financing provides the opportunity to leverage the formidable pool of global capital and new asset classes for development.

Innovative financing refers to a range of non-traditional mechanisms to raise additional funds for development aid through "innovative" projects such as micro-contributions, taxes, public-private partnerships and market-based financial transactions.

As of the beginning of 2010, most of the existing innovative financing mechanisms were allocated for the health care sector in developing countries. Innovative financing mechanisms have already raised $2 billion over the past 3 years.

The Origin

The concept "innovative financing for development" was first mentioned and introduced at the International Conference on Financing for Development in 2002. The Conference led to what is now called the Monterrey Consensus where signatories acknowledged "…the value of exploring innovative sources of finance provided that those sources do not unduly burden developing countries." Innovative financing mechanisms were born out of a need to reach the Millennium Development Goals(MDGs) that 192 United Nations member states and at least 23 international organizations agreed to achieve by the year 2015. They include reducing extreme poverty, reducing child mortality rates, improving maternal health and combating HIV/AIDS, Malaria and other diseases such as Tuberculosis. So far, most donor states have failed to meet their 0.7% commitment from the Monterrey Consensus of their Gross National Income (GNI) dedicated to Official Development Assistance. Furthermore, in most developing countries the budget allocated for the social, and especially the Health sector, has been insufficient as it fails to meet the 15% Gross National Product (GNP) requirement dedicated to the Health Sector stated in the Abuja declaration of African leaders in 2001.

Innovative financing mechanisms emerged at the beginning of the twenty-first century as alternative mechanisms to help bridge the development financing gap.

Principles of innovative financing mechanisms

Innovative financing mechanisms can be assessed regarding the following principles:

Scaling-up: Innovative financing mechanisms should significantly increase funding in order to bridge the financing gap necessary to achieve the MDGs.

Additionality: Since these mechanisms were created to fill this gap, innovative financing mechanisms cannot replace Official Development Assistance nor will they be sufficient if certain countries decide to renounce the commitments that they have made.

Complementarity: The role of innovative financing mechanisms is to raise new funds for existing organizations and not to add new actors and complexities to the development landscape.

Sustainability: In order to have a significant and sustainable impact on the MDG's, innovative financing mechanisms should have the objective and ability to finance long-term programs in coordination with other countries. Finally, innovative financing mechanisms should be designed to comply with the other principles of the 2005 Paris Declaration on Aid Effectiveness and the 2008 Accra Agenda for Action.

Key publications have helped shaping the Innovative Financing framework. Among these key publications are: the Landau report, the report of Working Group 2 from the Task Force for Innovative Financing in Health Systems, a report by Brookings Institution and the World Bank.

Innovative Financing has received support from the United Nations through international conferences on Financing for Development and the Doha Declaration on Financing for Development.

(source: wikipedia)

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