To inform world leaders at the G20 Summit in November 2020, ThinkWell assessed innovative finance in health in low- and middle-income countries (LMIC). With funding from the French Ministry of Europe and Foreign Affairs, we mapped the innovative finance initiatives deployed since 2000, including catalytic funds, conditional funds, impact investment funds, and socially responsible investing. In addition, we reviewed 42 major innovative financing initiatives that focus on Sustainable Development Goal (SDG) 3: health and well-being.
Our research’s aim was for the G20’s health and finance ministers, donors, development finance institutions (DFIs), investors, and bankers to not only scale up proven innovative financing for health approaches, but also to take more risks in their investment decisions. In addition, our review’s results were designed to inform G20 leaders about how to direct additional financing and attention to initiatives that have demonstrated impact and replicability. In our report, we presented ways that innovative financing for health could be made more innovative by crowding in new funding, especially from the private sector.
This was the first time since 2011 that a comprehensive, major review of innovative finance for health has been conducted. Our mapping highlights significant new initiatives created in the past decade to help address global development challenges.
Read more about our research in a blog. The Ministry of Europe and Foreign Affairs published our report here and the Leading Group on Innovative Financing for Development published our report here.
Breaking New Ground
In 2015, the UN General Assembly adopted 17 sustainable development goals (SDGs) to end global poverty by improving health, increasing economic growth, and reducing inequality by 2030. SDG 3 specifically aims to “ensure healthy lives and promote well-being for all.” It sets ambitious targets to improve many aspects of health, including reproductive, maternal, newborn, and child health; communicable and noncommunicable diseases; mental health; environmental risks; and health systems strengthening. We mapped 42 major innovative finance initiatives that address SDG 3. In our report, we summarize their successes and learnings so donors and development financing institutions (DFIs) can enhance their use of innovative finance moving forward.
The annual funding gap to achieve SDG 3 is estimated at US$371 billion for low- and middle-income countries (LMICs). There are also rising opportunity costs in delaying funding for SDG 3. Ongoing SDG 3 funding delays leads to higher annual costs and lives lost. Delays also imply that health pressures continue to mount, compounding the adverse effects.
Ensuring that SDG 3’s targets are met requires that the social determinates of health and related SDGs be reviewed. There is therefore an urgent need for health leaders to generate and deploy more effective official development assistance (ODA) and other financing, including from the private sector, for SDG 3 and related areas. Innovative finance is one critical approach to undertake this.
Innovative finance can help accelerate the participation of private investors in health and drive more capital into the health sector. In our report, we identify mechanisms and initiatives that have generated additional development funds by tapping new funding sources from the public sector, incentivizing the flow of private sector contributions, enhancing the overall efficiency of financial flows, and facilitating more results-oriented expenditure.
In our report, we mapped the initiatives and mechanisms across five classifications of innovative financing outlined in our conceptual framework (Figure A):
- Results-based financing
- Catalytic funding
- Impact investing
- Socially responsible investing
- New channels of international and domestic taxation for development
For the outcomes analysis and to formulate recommendations, we adapted four criteria from the Organization for Economic Co-operation and Development’s (OECD) Development Assistance Committee (DAC): relevance and coherence, effectiveness and efficiency, impact, and sustainability.
We developed four recommendations for how the field of global health can progress most effectively:
- Innovative financing initiatives must be co-created and designed to be fully compatible with local health markets.
- The cost of entry to invest in SDG 3 in frontier markets is often perceived as too high by the private sector. Donors and DFIs can address this by scaling up funding that builds an investment pipeline and “crowding in” private sector investment.
- More transparency and alignment of metrics across all innovative financing mechanisms in health is urgently needed to improve financial and health impact.
- Innovative finance offers a significant opportunity to fill the SDG 3 funding gap in a sustainable way, but the differences in the relative strengths and weaknesses of the mechanisms should be considered by donors and DFIs during design and then taken to scale.