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Innovation in Blended Finance to Drive Development

July 31, 2019
In 2015, the United Nations Member States committed to 17 Sustainable Development Goals (SDGs) as a blueprint for peace and prosperity for people and the planet.[1] While progress has been made, achieving any of the SDGs will require development finance institutions, governments, multilaterals, and foundations to develop and deploy innovative financing tools to make existing funds as impactful as possible. Foreign aid has stagnated and begun to fall over the last few years, prompting investors to increasingly innovate to drive development. According to the OECD, external foreign investment to developing countries dropped by 30% between 2016-2017, after a 12% decrease in overall finance from 2013-2016.[2]

Image: External Finance to Developing Countries is Declining. Source: OECD.Image: External Finance to Developing Countries is Declining. Source: OECD.

The current development financing environment is primed for innovation and alternative investments that more effectively target those in need. Flexibility and creativity are required to leverage a limited amount of capital to create large-scale impact. The Overseas Private Investment Corporation (OPIC) has begun to experiment with a myriad of financing tools - development impact bonds and the Portfolio for Impact, creating a precedent for future investments, and serving as an example for other investors.

Development Impact Bonds

Development Impact Bonds (DIBs) bring together investors, implementing organizations, and outcome funders to increase private sector engagement. Investors provide start-up or growth capital, which implementing organizations use to deliver services. Outcome funders (typically aid organizations or foundations) repay investors their principal plus a return based on realized performance in delivering social outcomes.[3] By placing a greater emphasis on outcomes as opposed to inputs, DIBs foster innovation, local problem solving, and adaptation all while incentivizing deeper engagement from investors as the success of the project influences their payout.[4]

The Cameroon Cataract Bond was launched in 2018 as a new way to fund healthcare, bringing together public and private investors, health donors, and eye care delivery experts. Providing a $2 million loan to the Magrabi ICO Cameroon Eye Institute (MICEI), OPIC became one of the first development finance institutions to commit funding to a project using this kind of innovative financial instrument.

Image: Structuring and Funding of the Cameroon Cataract. Source: Center for Global...Image: Structuring and Funding of the Cameroon Cataract. Source: Center for Global Development.

The DIB support MICEI, a for-profit provider delivering low cost, low margin, high volume cataract surgeries to provide as many as 18,000 cataract surgeries in Cameroon over 5 years. The loan enables low-income patients to receive sight-saving surgery for free or at a subsidized cost, while also helping the hospital to become self-sufficient.[5] The financing structure measures and rewards based on the number and outcome of cataract surgeries, and adds a bonus for equity in provision.[6] In the first year alone, 50,000 patients were screened and over 2,300 cataract surgeries were completed.[7]

OPIC’s foray into DIBs signified a pivot towards results-based financing and a push to drive greater private sector engagement in emerging markets.[8] The success of the Cameroon Cataract Bond, as well as other DIBs, must continue to foster greater demand and interest in DIBs. Most recently the creation of a Rhino Impact Bond was announced, the first pay-for-results financing focused on species conservation.[9]

Portfolio for Impact

“The Portfolio for Impact unlocks private capital to unleash human potential and it demonstrates that smaller deals can produce outsized impact.” – David Bohigian, OPIC Acting President and CEO

In 2014, OPIC launched the Portfolio for Impact (PI) to support promising impact-focused investments that–given their small or early stage–might struggle to raise capital. Since its creation, PI has enabled OPIC to commit over $100 million to companies delivering solutions to persistent challenges around the world.[10] Through targeting small, early-stage companies, OPIC is helping to develop innovative products that serve regions and populations that are overlooked.

Through each of its 20+ PI investments, OPIC has spurred innovation and focused capital in places where the private sector is uninterested and unwilling to go on their own.[11] PI recipients address a wide range of need, from economic empowerment to education to financial inclusion; in each sector the impact is resounding.

For example, a $5 million loan in Uganda to Tugende spurs economic empowerment through lease-to-own financing for motorcycle taxi drivers, and provides training to improve driver and passenger safety. While in India, an investment guarantee facilitates on-lending to schools serving low-income populations, which frequently lack access to education. Another PI loan is helping Tiaxa, which provides credits as small as two cents to prepaid mobile users to support seamless bill payment and commerce, to expand from Latin America to sub-Saharan Africa and Southeast Asia.

PI’s innovative financing and smaller ticket price facilitates companies to innovate and grow to the scale where they are attractive to less risk-tolerant private investors. While small in value, the impact has been large, highlighting the power of finance – at whatever the dollar value – to create and drive impact.

Next Steps

The time for innovative finance is now. Only through bringing together partners, being flexible with our financing tools, and investing in innovative companies at earlier stages will we be able to achieve our SDGs. By continuing to iterate and deploy innovative finance mechanisms, we will be able to reach more disenfranchised communities and drive growth.

Student Blog Disclaimer
  • The views expressed on the Student Blog are the author’s opinions and don’t necessarily represent the Wharton Public Policy Initiative’s strategies, recommendations, or opinions.

References

  [1]https://sustainabledevelopment.un.org/sdgs

  [2]http://www.oecd.org/development/donor-countries-need-to-reform-development-finance-to-meet-2030-pledge.htm

  [3]https://www.cgdev.org/blog/another-one-joins-dib-opic-commits-2-million-development-impact-bond-cataract-surgery

  [4]https://www.cgdev.org/topics/development-impact-bonds

  [5]https://www.opic.gov/press-releases/2019/cameroon-cataract-bond-records-successful-first-year-0

  [6]https://www.cgdev.org/blog/envisioning-pay-success-learning-eye-health-dib-cameroon

  [7]https://www.opic.gov/press-releases/2019/cameroon-cataract-bond-records-successful-first-year-0

  [8]https://www.cgdev.org/blog/another-one-joins-dib-opic-commits-2-million-development-impact-bond-cataract-surgery

  [9]https://www.ft.com/content/2f8bf9e6-a790-11e9-984c-fac8325aaa04

  [10]https://www.opic.gov/press-releases/2019/opic-announces-investing-milestone-portfolio-impact-reaches-100-million-commitments

  [11]https://www.devex.com/news/opic-sees-a-bright-future-and-an-expanding-role-92008

PENN WHARTON PPI
RESOURCE SPOTLIGHT:

  • <h3>Congressional Budget Office</h3><p><img width="180" height="180" alt="" src="/live/image/gid/4/width/180/height/180/380_cbo-logo.rev.1406822035.jpg" class="lw_image lw_image380 lw_align_right" data-max-w="180" data-max-h="180"/>Since its founding in 1974, the Congressional Budget Office (CBO) has produced independent analyses of budgetary and economic issues to support the Congressional budget process.</p><p> The agency is strictly nonpartisan and conducts objective, impartial analysis, which is evident in each of the dozens of reports and hundreds of cost estimates that its economists and policy analysts produce each year. CBO does not make policy recommendations, and each report and cost estimate discloses the agency’s assumptions and methodologies. <strong>CBO provides budgetary and economic information in a variety of ways and at various points in the legislative process.</strong> Products include baseline budget projections and economic forecasts, analysis of the President’s budget, cost estimates, analysis of federal mandates, working papers, and more.</p><p> Quick link to Products page: <a href="http://www.cbo.gov/about/our-products" target="_blank">http://www.cbo.gov/about/our-products</a></p><p> Quick link to Topics: <a href="http://www.cbo.gov/topics" target="_blank">http://www.cbo.gov/topics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>NOAA National Climatic Data Center</h3><p><img width="200" height="198" alt="" src="/live/image/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg" class="lw_image lw_image483 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/198/483_noaa_logo.rev.1407788692.jpg 3x" data-max-w="954" data-max-h="945"/>NOAA’s National Climatic Data Center (NCDC) is responsible for preserving, monitoring, assessing, and providing public access to the Nation’s treasure of <strong>climate and historical weather data and information</strong>.</p><p> Quick link to home page: <a href="http://www.ncdc.noaa.gov/" target="_blank">http://www.ncdc.noaa.gov/</a></p><p> Quick link to NCDC’s climate and weather datasets, products, and various web pages and resources: <a href="http://www.ncdc.noaa.gov/data-access/quick-links" target="_blank">http://www.ncdc.noaa.gov/data-access/quick-links</a></p><p> Quick link to Text & Map Search: <a href="http://www.ncdc.noaa.gov/cdo-web/" target="_blank">http://www.ncdc.noaa.gov/cdo-web/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Reserve Economic Data (FRED®)</h3><p><strong><img width="180" height="79" alt="" src="/live/image/gid/4/width/180/height/79/481_fred-logo.rev.1407788243.jpg" class="lw_image lw_image481 lw_align_right" data-max-w="222" data-max-h="97"/>An online database consisting of more than 72,000 economic data time series from 54 national, international, public, and private sources.</strong> FRED®, created and maintained by Research Department at the Federal Reserve Bank of St. Louis, goes far beyond simply providing data: It combines data with a powerful mix of tools that help the user understand, interact with, display, and disseminate the data.</p><p> Quick link to data page: <a href="http://research.stlouisfed.org/fred2/tags/series" target="_blank">http://research.stlouisfed.org/fred2/tags/series</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Bureau of Economic Research (Public Use Data Archive)</h3><p><img width="180" height="43" alt="" src="/live/image/gid/4/width/180/height/43/478_nber.rev.1407530465.jpg" class="lw_image lw_image478 lw_align_right" data-max-w="329" data-max-h="79"/>Founded in 1920, the <strong>National Bureau of Economic Research</strong> is a private, nonprofit, nonpartisan research organization dedicated to promoting a greater understanding of how the economy works. The NBER is committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community.</p><p> Quick Link to <strong>Public Use Data Archive</strong>: <a href="http://www.nber.org/data/" target="_blank">http://www.nber.org/data/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>HUD State of the Cities Data Systems</h3><p><strong><img width="200" height="200" alt="" src="/live/image/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg" class="lw_image lw_image482 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 2x, /live/image/scale/3x/gid/4/width/200/height/200/482_hud_logo.rev.1407788472.jpg 3x" data-max-w="612" data-max-h="613"/>The SOCDS provides data for individual Metropolitan Areas, Central Cities, and Suburbs.</strong> It is a portal for non-national data made available through a number of outside institutions (e.g. Census, BLS, FBI and others).</p><p> Quick link: <a href="http://www.huduser.org/portal/datasets/socds.html" target="_blank">http://www.huduser.org/portal/datasets/socds.html</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>National Center for Education Statistics</h3><p><strong><img width="400" height="80" alt="" src="/live/image/gid/4/width/400/height/80/479_nces.rev.1407787656.jpg" class="lw_image lw_image479 lw_align_right" data-max-w="400" data-max-h="80"/>The National Center for Education Statistics (NCES) is the primary federal entity for collecting and analyzing data related to education in the U.S. and other nations.</strong> NCES is located within the U.S. Department of Education and the Institute of Education Sciences. NCES has an extensive Statistical Standards Program that consults and advises on methodological and statistical aspects involved in the design, collection, and analysis of data collections in the Center. To learn more about the NCES, <a href="http://nces.ed.gov/about/" target="_blank">click here</a>.</p><p> Quick link to NCES Data Tools: <a href="http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4" target="_blank">http://nces.ed.gov/datatools/index.asp?DataToolSectionID=4</a></p><p> Quick link to Quick Tables and Figures: <a href="http://nces.ed.gov/quicktables/" target="_blank">http://nces.ed.gov/quicktables/</a></p><p> Quick link to NCES Fast Facts (Note: The primary purpose of the Fast Facts website is to provide users with concise information on a range of educational issues, from early childhood to adult learning.): <a href="http://nces.ed.gov/fastfacts/" target="_blank">http://nces.ed.gov/fastfacts/#</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Internal Revenue Service: Tax Statistics</h3><p><img width="155" height="200" alt="" src="/live/image/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg" class="lw_image lw_image486 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/155/height/200/486_irs_logo.rev.1407789424.jpg 2x" data-max-w="463" data-max-h="596"/>Find statistics on business tax, individual tax, charitable and exempt organizations, IRS operations and budget, and income (SOI), as well as statistics by form, products, publications, papers, and other IRS data.</p><p> Quick link to <strong>Tax Statistics, where you will find a wide range of tables, articles, and data</strong> that describe and measure elements of the U.S. tax system: <a href="http://www.irs.gov/uac/Tax-Stats-2" target="_blank">http://www.irs.gov/uac/Tax-Stats-2</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>USDA Nutrition Assistance Data</h3><p><img width="180" height="124" alt="" src="/live/image/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg" class="lw_image lw_image485 lw_align_right" srcset="/live/image/scale/2x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 2x, /live/image/scale/3x/gid/4/width/180/height/124/485_usda_logo.rev.1407789238.jpg 3x" data-max-w="1233" data-max-h="850"/>Data and research regarding the following <strong>USDA Nutrition Assistance</strong> programs are available through this site:</p><ul><li>Supplemental Nutrition Assistance Program (SNAP) </li><li>Food Distribution Programs </li><li>School Meals </li><li>Women, Infants and Children </li></ul><p> Quick link: <a href="http://www.fns.usda.gov/data-and-statistics" target="_blank">http://www.fns.usda.gov/data-and-statistics</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The World Bank Data (U.S.)</h3><p><img width="130" height="118" alt="" src="/live/image/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg" class="lw_image lw_image484 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 2x, /live/image/scale/3x/gid/4/width/130/height/118/484_world-bank-logo.rev.1407788945.jpg 3x" data-max-w="1406" data-max-h="1275"/>The <strong>World Bank</strong> provides World Development Indicators, Surveys, and data on Finances and Climate Change.</p><p> Quick link: <a href="http://data.worldbank.org/country/united-states" target="_blank">http://data.worldbank.org/country/united-states</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>The Penn World Table</h3><p> The Penn World Table provides purchasing power parity and national income accounts converted to international prices for 189 countries/territories for some or all of the years 1950-2010.</p><p><a href="https://pwt.sas.upenn.edu/php_site/pwt71/pwt71_form.php" target="_blank">Quick link.</a> </p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>MapStats</h3><p> A feature of FedStats, MapStats allows users to search for <strong>state, county, city, congressional district, or Federal judicial district data</strong> (demographic, economic, and geographic).</p><p> Quick link: <a href="http://www.fedstats.gov/mapstats/" target="_blank">http://www.fedstats.gov/mapstats/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>
  • <h3>Federal Aviation Administration: Accident & Incident Data</h3><p><img width="100" height="100" alt="" src="/live/image/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg" class="lw_image lw_image80 lw_align_left" srcset="/live/image/scale/2x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 2x, /live/image/scale/3x/gid/4/width/100/height/100/80_faa-logo.rev.1402681347.jpg 3x" data-max-w="550" data-max-h="550"/>The NTSB issues an accident report following each investigation. These reports are available online for reports issued since 1996, with older reports coming online soon. The reports listing is sortable by the event date, report date, city, and state.</p><p> Quick link: <a href="http://www.faa.gov/data_research/accident_incident/" target="_blank">http://www.faa.gov/data_research/accident_incident/</a></p><p>See all <a href="/data-resources/">data and resources</a> »</p>