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Case Study 14 Development Impact Bond Daniela Canton, Adrian de La Rosa, Andres Guerra ECO 4939 Professor Abu Shonchoy Trends in Global Health Financing What is it? Global health financing refers to the investment of financial resources into initiatives aimed at improving health outcomes on a global scale. Example: One way global health financing can be used is to fund vaccination campaigns in lowincome countries to prevent the spread of infectious diseases like measles. By providing financial Why is it needed? Global health support for the procurement of financing is essential to address vaccines, training of healthcare health challenges and achieve workers, and infrastructure for significant improvements in vaccine delivery, global health health outcomes worldwide. It financing can help achieve higher provides the necessary resources vaccination coverage rates and to fund healthcare programs, reduce the burden of preventable research, infrastructure, and diseases, ultimately saving lives and overall population interventions to combat diseases improving health. and promote overall well-being. When can it be used? Global health financing can be utilized continually to support ongoing healthcare initiatives and in response to emerging health crises or epidemics. It is crucial for sustaining progress in improving health outcomes and addressing new challenges as they arise How can it be used? Global health financing can be deployed through various mechanisms, including government funding, donations from philanthropic organizations, development assistance, public-private partnerships, and innovative financing mechanisms such as impact investing and social bonds. How USAID is applying non-traditional approaches to financing global health 1. USAID is embracing non-traditional approaches to financing global health. 1. Changes in global health financing have opened new opportunities for utilizing nontraditional financing tools. 1. USAID can leverage additional funding from diverse sources, including return-seeking investors and philanthropic donors. 1. Utilizing existing funding more efficiently is a priority, including through conditional grants and contracts tied to specific health outcomes. 1. These strategies enable USAID to maximize resources and address global health challenges effectively. Expectations of our investment in global health In today’s global health landscape, there’s a dual demand: to expand resources for new health programs and to enhance the efficiency of existing initiatives. Donors are not only focusing on delivering services directly but also advocating for policy changes and providing technical support to unlock additional public and private finance. This strategic approach magnifies the impact of modest investments. Simultaneously, the private sector, traditionally profit-driven, now prioritizes measuring social impact alongside financial returns. Impact investors annually allocate billions to projects with quantifiable social benefits, while trillions are directed towards investments meeting environmental, social, and governance (ESG) criteria. These shifts signify a departure from the outdated notion of trade-offs between social and financial gains, towards a more flexible and sophisticated development finance framework, incorporating diverse capital sources. Trends in global health financing mirror the development finance landscape. Domestic government health spending is Private investment in health is increasing but remains on the rise globally but varies greatly selective: among countries: ➔ Domestic and international private finance is selective, ➔ Governments in low- and lowerwith limitations in funding equitable healthcare provision middle-income countries saw a 7.6% to the poor at scale. annualized growth in spending from ➔ The scope and depth of private investment in global 2000 to 2015, with total spending health vary by country, often resulting in significant tripling from around $100 billion to disparities in capital distribution to target populations. $300 billion in 2015. ➔ Private investors have effectively deployed capital across ➔ This spending surge is fueled by the healthcare spectrum, including health infrastructure, unprecedented economic growth. pharmaceuticals, medical devices, technology, human ➔ Despite this growth, donor funding resources, digital platforms, and insurance. remains crucial in sectors like HIV/AIDS. TRENDS IN GLOBAL HEALTH FINANCING ➔ Financing for development has accelerated to a rapid pace in this century’s, with multiple coming together to create trillions of public as well private resources in flow. ➔ The domestic resource, government revenues and government bonds, are the main engines of the development budget that is undergoing a rapid growth. Private investment, inside and outside a nation, is taking a more critical role of the development that might show different in different countries and in the industries. ➔ With the declining level of donor financing and international public resources as a portion of the overall global circulation of funds, there is a shifting in the global architecture of the conception of development finances. TRENDS IN GLOBAL HEALTH FINANCING (CONTD.) ➔ Private investment in health is booming steadily, albeit its returns are uneven and its relevance is potentially limited to certain regions and areas. ➔ Donor financing, such as institutional as well as private philanthropic supporting, has been very important particularly in low-income countries, and it has been plateauing latterly. ➔ Large multi-sector partnerships such as the growing impact of Gavi and the Global Fund have led donor funds to become more consolidated as well as gained more strategic channels for global health financing. CAPITALIZING ON NEW TRENDS IN DEVELOPMENT FINANCE ➔ Changing patterns in global health investments, in turn, put into perspective the new roles of international grantors and development funds. ➔ The commitment of the G8 governments to provide good governance is amplified by their efforts to reduce mortality and to achieve universal healthcare with available domestic resources. ➔ Donors should give consideration to whether it can be useful to take advantage of different sources of funding, like corporate and government agencies, in order to maximize the impact on the ground. ➔ The appraisal of a value-based stance is proposed where such an approach focuses on eco-logical utilization and delivery of end results. TRADITIONAL DEVELOPMENT ASSISTANCE TAKING NEW FORMS ➔ The nature of modern development aid is changing, with the emphasis on novel approaches, which assist the aid to be more effective in gathering needed resources. ➔ Effective tie up of funds to specific health outcomes emphasizes on the implementer accountability and donor’s efficient allocation of funds. ➔ The catalyst funding is to help in the process of pulling in external capital by means of the inclusion of collection funds and market-based solutions. PRIVATE INVESTMENTS AND OTHER NONDONOR SOURCES OF FINANCING ➔ The keeping an eye on private investments and off-donor funding sources which are now focusing on generating social impact. ➔ CR investing evaluates ecological, societal and governance factors, while impact investing both social and environmental benefits together with financial benefits. ➔ Impact investment, which is channeled through platforms such as impact-first investment funds, has graduated into a very crucial field as implementers are looking to target global health among others. ➔ Socially responsible investment and impact investing, the innovative sources of capital, seem to be the long-term trends that will have a positive impact on global health. Non-Traditional Financing Tools Available to USAID A. Guarantee B. Debt Swap C. Pooled Investment Fund D. Social Insurance E. Seed Funding/Flexible Grant Capital F. Milestone-Based Payments G. Development Impact Bonds H. Co-Funding/Global Development Alliance A. Guarantee What is it? A tool for reducing an investor’s potential losses by covering a predetermined amount of an investment if it is unsuccessful. Why is it needed? ➔ Repayment assurance increases investor’s willingness to enter into a transaction. ➔ The entry of new resources means more available funding for a broad range of health programs. ➔ Healthcare providers have more access to capital, which allows them to provide more and better products and services. When can it be used? ➔ When finance providers seek market-rate returns and have low risk tolerance. ➔ When finance recipients operate in a country with relatively well developed financial markets but are unable to obtain a loan due to inadequate credit history. Example: Partnership between the DCA and “USAID Uganda Mission and Sida” to provide a 7-year 3 million loan portfolio guarantee with the goal of increasing access to credit for the Ugandan private health sector. How can it be used? Guarantees can be structured through the Development Credit Authority mechanism. B. Debt Swap What is it? A tool for transforming debt into resources for development work by forgiving part of a country’s debt with the commitment to use the funds for a social project. Why is it needed? ➔ Easing the significant debt burden of a developing country can help allocate resources for critical health projects. ➔ Governments with limited budgets can meet development obligations by having more funds available for programs. When can it be used? ➔ When finance providers hold debt of the target country and are willing to sell or forgive the debt. ➔ When finance recipients have high levels of debt, lack additional public sources for development programs, but have the capacity to administer funds when resources are available. How can it be used? Debt Swaps can be made after USAID mission officers and technical experts work together to identify appropriate circumstances and facilitate the structure and execution of the arrangement. Example: “Debt for Nature” debt swaps, which allow the US government to forgive the debt of developing countries and redirect the funds into forest conservation initiatives. C. Pooled Investment Fund What is it? Partnership between private investors and donors in which they aggregate their funds to invest into initiatives that generate social and financial returns. Why is it needed? ➔ Helps mitigate risk, enhance returns, provide technical assistance, support and scale market-based solutions to development challenges. ➔ Contributes to the growth of the private healthcare sector by helping scale innovative business models that serve low-income consumers. ➔ Private funds can be catalyzed by donors in cases of investment opportunity. When can it be used? ➔ When finance providers want to invest in the healthcare sector but want to share the risk or need technical assistance. ➔ When finance recipients have financially viable private sector business models but need investment capital. Example: The Global Innovation Fund (GIF) has received support from USAID in order to use investor’s resources to support innovative solutions to development problems at the pilot, testing, and scale-up stages. How can it be used? USAID mission officers can offer concessional capital like grants or guarantees to investment funds through the DCA mechanism or technical assistance to investment funds through other mechanisms like SHOPS Plus. D. Social Insurance What is it? A tool used to protect against possible loss or nonrepayment when the risk of an investment is too high for private funders and investors. Why is it needed? ➔ Helps ensure that capital that would not be available for a social impact project is made available because a third party insurer assumes the risk. ➔ Funding can be channeled to a broad range of health programs thanks to the entry of new resources into the development space. ➔ It can unlock significant private sector resources by reducing risk to the lender. When can it be used? ➔ When finance providers want to invest in a social impact project but need some protection against the risk of losing their investment. ➔ When finance recipients have financially viable project but need investment capital to scale and achieve maximum impact. Example: The partnership between USAID and Abasa Bank, Aspen Pharmacare, GSK, Imperial Health Sciences, and Pfizer to create Lulama. How can it be used? Social Insurance can be arranged after USAID mission officers and technical experts work together to identify appropriate circumstances and facilitate the structure and execution of the arrangement. E. Seed Funding / Flexible Grant Capital What is it? A tool used by donors to invest in early-stage social enterprises or high-impact innovations that are later scaled by other donors or commercialized. Why is it needed? ➔ Donors can take a venture capital approach to financing. ➔ There is no repayment expectation on the part of the donor. ➔ Helps demonstrate impact or proof of concept. ➔ Improves effectiveness by using public funds to demonstrate the viability and impact of a social enterprise before investing additional public or private resources. When can it be used? ➔ When finance providers need to see a proven or commercially viable project before investing to scale. ➔ When finance recipients have high potential idea and need to demonstrate proof of concept. How can it be used? USAID mission Example: The partnership between officers can use mechanisms like the USAID and Saving Lives at Birth, Grand Challenges for Development which leveraged $140 million in donor (GCD) or Development Innovation and investor funds to provide seed Ventures (DIV) to identify social funding for new approaches to address enterprises or innovators that need seed funding. maternal and neonatal mortality F. Milestone-Based Payments What is it? A tool that allows donors to fund projects through traditional channels while improving project accountability by making funding contingent upon the achievement of results. Why is it needed? ➔ Ineffective approaches can be terminated or coursecorrected more quickly. ➔ Focus of project implementation can be shifted from process and inputs to results and outcomes. ➔ Implementing partners are incentivized to understand the key levers of change in their programs and afford the flexibility to quickly adapt to changing circumstances. When can it be used? ➔ When finance providers are less willing to take risks, wish to improve funding efficiency, or wish to further incentivize effective project delivery by implementers. ➔ When finance recipients are financially able to cover the costs of project implementation prior to expected fund disbursement and are able to evaluate outcomes against targets. How can it be used? USAID offers technical and contractual support to negotiate the terms with the implementing partner. Example: The year round competition run by Development Innovation Ventures (DIV) for bold development ideas that, when chosen, receive a form of staged financing. G. Development Impact Bond What is it? Partnership between an investor, a program implementer, and an outcome payer that consists of a 5 steps pay-for-success agreement in which investors provide initial funding and are paid if social outcomes are achieved. Why is it needed? ➔ Can be used to scale proven interventions with measurable outcomes. . ➔ Mobilize private funding by offering a potential return to philanthropic investors that are willing to take on the risk of program failure. ➔ Improve the efficiency of public spending. Example: A pay-for-success agreement to improve the quality of maternal and neonatal care in India with the goal of reducing maternal and newborn mortality. When can it be used? ➔ When finance providers can identify development outcomes that are meaningful, measurable, attributable to the intervention, quantifiable in terms of costs and social benefits. ➔ When finance recipients utilize rigorous evaluation methods to measure the impact of their interventions and are empowered to innovate an apply a results-driven approach to development How can it be used? Development Impact Bonds can be arranged after USAID mission officers and technical experts work together to identify appropriate circumstances and facilitate the structure and execution of the arrangement. H. Co-funding / Global Development Alliance (GDA) What is it? A tool to leverage external funding and other non-financial resources for high-impact health investments through technical assistance and targeted funding. Why is it needed? ➔ Brings new resources and complementary expertise to the development space. ➔ Can provide a “demonstration effect” to private capital, reducing the need for public donor funding over the long term. ➔ Mobilizes private sector capital for global health programs. When can it be used? ➔ When finance providers align public and private sector goals and work together to jointly develop and implement activities that leverage those parties’ respective assets and expertise. ➔ When finance recipients are able to absorb and effectively utilize public and private funds while meeting the monitoring requirements of both parties. Example: The partnership between USAID and the Coca-Cola Company to improve supply chain management for essential medicines in Africa. How can it be used? By contacting USAID officers to establish a partnership. CONCLUSION ➔ There is a change that is happening in the background in the field of global health financing as it leans on domestic financial sector and engages with non-traditional partners. ➔ To assist humanity in realizing sustainable development goals in health, what needs to be done is to take advantage of the development finance trends that are currently coming up and at the same time also be able to tap into the various sources of capital which are now available. ➔ Partnership in strategic planning among various organizations including governments, donors, private investors, and other entities will be a crucial precursor in impact and the tackling of health issues. Resources Kelley, P. W. (2011). Global health: governance and policy development. Infectious Disease Clinics, 25(2), 435-453. Shiffman, J., Peter Schmitz, H., Berlan, D., Smith, S. L., Quissell, K., Gneiting, U., & Pelletier, D. (2016). The emergence and effectiveness of global health networks: findings and future research. Health Policy and Planning, 31(suppl_1), i110-i123. Yehualashet, Y. G., Horton, J., Mkanda, P., Vaz, R. G., Afolabi, O., Gashu, S. G., … & Nsubuga, P. (2016). Intensified local resource mobilization for the Polio Eradication Initiative: the experience of World Health Organization in Nigeria during 2008–2015. The Journal of Infectious Diseases, 213(suppl_3), S101-S107. USAID. (2019). Investing for Impact: USAID’s Development Credit Authority [PDF document]. Retrieved from https://www.usaid.gov/sites/default/files/202205/investing-for-impact-may2019-updated.pdf
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