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Financing the Sustainable Development Goals

Posted 12th May 2017

When it comes to improving the lives of the world’s poorest people, traditional development assistance is vital. But we also know that a key challenge going forward will be to do more with less. That means creating the conditions that will encourage other actors to enter markets across the developing world and deliver real value.

At GIF, we believe that new financial instruments, a relentless focus on evidence, and the creation of effective partnerships are central to this.

Funding beyond development assistance to deliver

Adopting a flexible approach to financing innovation is crucial to achieving meaningful social impact. This idea sits at the very heart of the GIF approach. If we are to realise the ambitions set out in the Sustainable Development Goals (SDGs) by 2030, exploring the potential of new and relatively untested approaches needs to be embraced in the same way.

Take development impact bonds (DIBs), for example. We have not fully exploited their promise to date – but this approach, if de-risked and road tested, could offer assurances of value for money for governments and donors, as well as offering real returns and impacts to upfront funders. We can crowd in new capital with DIBs.

The few DIBs that have launched are small, bespoke, and offer limited general learnings. We should push ourselves to jump start an effort to make them mainstreamed as a development financing instrument. If we are to achieve this, we need to learn how to structure DIBs so that outcome parameters and incentives are credible and not unrealistically ambitious.

This will require monitoring and evaluation frameworks that are simple to administer without compromising on credibility. We need to understand where and when impact bonds are more likely to be effective compared to alternative financing approaches.

The most important source of finances to meet SDGs is domestic resources. To put the importance of domestic public resources into perspective, it is estimated that for the $161bn worth of aid flows to developing countries in 2013, the total domestic resources mobilized in the same countries was 35 times larger at $5.5 trillion. Include domestic private resources too, and the multiple mounts to a staggering 57 times.

Existing conversations about leveraging these flows largely focus on issues around taxation – tax policy, strengthening tax administration, and the political economy surrounding this. We need to dig in more on questions of transactions costs, and both market failures and behavioural barriers to compliance, in payments for utility services, and other fees.

We have also focused overwhelmingly at the national level, despite the fact that public service provision in small and medium sized cities is a critical and growing need. In all these areas, there is enormous potential for innovations and entrepreneurship that we should collectively mine and exploit.

The role of evidence in delivering the SDGs is key

Evidence generation in development is not just a nice to have. If the dominant narratives that inform global development practice on different problems are constructed on rigorously validated evidence, then we have a far greater likelihood of being able to achieve development outcomes and the SDGs.

If we commit ourselves to this approach – that is, evidence-informed policy — then it pushes us towards data-driven approaches and habits that encourage iteration, experimentation, and testing. This is more subtle than saying that we run randomized controlled trials all the time, but it is potentially more powerful.

But we must resist focusing exclusively on figuring out the efficacy of innovations/interventions – what works. While we need such evidence, we also need to go beyond this and figure out how it works. In contexts where state capacity is very weak, figuring out the most practical implementation plan is critical to getting stuff done and the realization of outcomes. GIF funds several such efforts in areas ranging from increasing tax collection, to increasing vaccine coverage, and I think it would be valuable for others to support this space as well.

Bi-lateral and multi-lateral funders must work better together to deliver the SDGs

If we are to achieve real impact and realise the ambitious targets set out by the SDGs, we need to work more closely together.

There is a very rich eco-system of partners who are committed to figuring out what works and assembling evidence on them. At GIF we are very keen to work with any bilateral and multi-lateral funder, or civil society organization, to help inform their own development spending decisions with lessons drawn about what works and howfrom our own growing portfolio of investments, all of which have a very strong focus on measurement, evidence generation, and sharing learnings.

Going forward

Improving the lives of the world’s poorest means changing the systems in which we operate, as well as those of developing countries and their economic and social institutions. We need to put aside differences and commit to market realities. We need private capital, ideas, and ingenuity to be engaged if we are to achieve the SDGs.

I recently attended and spoke at the United Nations Sustainable Development Goals Financing Lab in New York, hosted by the 71st President of the UN General Assembly, which brought together a range of stakeholders for an in-depth discussion on what is needed to finance the SDGs, and what the main public and private financial sector actors are doing to align financial markets and investment patterns with sustainable development.

At this event, it was so clear that there is great enthusiasm for harnessing the power of innovative and market-driven approaches to tackling the greatest challenges facing the developing world.  This is the crux of the GIF approach, and the approach we are keen to share with other like-minded organisations: using cheap, informative experiments to identify good bets among a stable of long-shot, high-payoff prospects.

GIF is one example of how new aid and investment strategies can drive progress toward achieving the SDGs. There are others, and we want to hear about them.

Let’s learn together.

– Alix Peterson Zwane, CEO