Innovative financing
Encyclopedia
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.
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.
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.
, an international facility for the purchase of drugs against HIV/AIDS, Malaria and Tuberculosis, is supported by a so-called "air ticket solidarity levy," or a tax on airline tickets. As of 2009, 13 countries apply such a domestic tax on airline tickets. UNITAID funds projects through implementing partners across the three diseases based on the market impact criteria (making medication prices affordable for developing countries).
International Finance Facility
for Immunization (IFFIm) can finance up to 20 year grants by issuing bonds in the capital markets backed by donor countries. So far, around 2 billion € has been collected for The Global Alliance for Vaccines and Immunisation (the GAVI Alliance). IFFIm’s goal is to provide $4 billion for immunisation between 2006 and 2015.
Advance market commitments
(AMC) are mechanisms supporting the GAVI Alliance aimed at providing incentives for Research & Development for new vaccines through the guarantee of a viable market to the new product. Governments or organizations commit to buy or subsidize the purchase of a certain amount of vaccines at a given price. It has been implemented for pneumococcal vaccines to demonstrate both the feasibility of the AMC mechanism and its impact on accelerating the introduction and mass-production of these vaccines.
Product RED
is a mechanism supporting The Global Fund to Fight AIDS, Tuberculosis and Malaria
. Thanks to the mechanism, global companies contribute a share of their profits on goods from sales branded with the Product Red trademark.
Debt2Health is a mechanism supporting the Global Fund to fight HIV/AIDS, Tuberculosis and Malaria. Through this mechanism, the Global Fund facilitates debt negotiation between creditors and debtors. Creditors agree to forgo part of the repayment of the money due to them against the commitment of the debtor to invest an agreed-upon amount on Global Fund-approved programs. So far, € 200 million has been pledged by the end of 2009 and €50 million had been disbursed in October 2008.
Voluntary Contributions on travel and tourism products funds are collected by the Millennium Foundation
through a donation to MASSIVEGOOD
which lets travellers make an optional $2, £2 or €2 "micro-contribution" every time they purchase a travel services. All funds go to UNITAID in its fight against HIV/AIDS, tuberculosis and malaria. Additional funding will go towards improving maternal and child health in the developing world.
De-Tax is a "proposal to earmark a share of VAT Taxes generated by participating businesses for health systems development". De-Tax is being discussed by the G20 countries.
Currency Transaction Levy (CTL) is a potential mechanism that would let governments apply a tax on foreign exchange transactions. An expert working group is underway to assess the feasibility of the proposed levy of 0.005%. The tax would be managed through computerized payments made in connection with the settlement of every trade.
Auctioning of permits to emit greenhouse gases could be one of the first innovative financing mechanisms earmarked for environmental purposes. Germany announced that it would allocate 225 million € from the 2009 proceeds of these auctions to fund development activities.
The development process of new innovative financing mechanisms has been improved thanks to the contribution of various players. Interagency initiatives such as The High Level Taskforce on Innovative International Financing for Health Systems and The Leading Group on Innovative Financing for Development
have facilitated coordination processes between actors and is also a platform for introducing new innovative financing mechanisms.
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.
As of the beginning of 2010, most of the existing innovative financing mechanisms were allocated for the health care
Health care
Health care is the diagnosis, treatment, and prevention of disease, illness, injury, and other physical and mental impairments in humans. Health care is delivered by practitioners in medicine, chiropractic, dentistry, nursing, pharmacy, allied health, and other care providers...
sector in developing countries. Innovative financing mechanisms have already raised $2 billion over the past 3 years.
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 ConsensusMonterrey Consensus
The Monterrey Consensus was the outcome of the 2002 Monterrey Conference, the United Nations International Conference on Financing for Development. in Monterrey, Mexico. It was adopted by Heads of State and Government on 22 March 2002. Over fifty Heads of State and two hundred Ministers of Finance,...
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
Millennium Development Goals
The Millennium Development Goals are eight international development goals that all 193 United Nations member states and at least 23 international organizations have agreed to achieve by the year 2015...
(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
Malaria
Malaria is a mosquito-borne infectious disease of humans and other animals caused by eukaryotic protists of the genus Plasmodium. The disease results from the multiplication of Plasmodium parasites within red blood cells, causing symptoms that typically include fever and headache, in severe cases...
and other diseases such as Tuberculosis
Tuberculosis
Tuberculosis, MTB, or TB is a common, and in many cases lethal, infectious disease caused by various strains of mycobacteria, usually Mycobacterium tuberculosis. Tuberculosis usually attacks the lungs but can also affect other parts of the body...
. So far, most donor states have failed to meet their 0.7% commitment from the Monterrey Consensus of their Gross National Income
Gross National Income
The GNI consists of: the personal consumption expenditures, the gross private investment, the government consumption expenditures, the net income from assets abroad , and the gross exports of goods and services, after deducting two components: the gross imports of goods and services, and the...
(GNI) dedicated to Official Development Assistance
Official development assistance
Official development assistance is a term compiled by the Development Assistance Committee of the Organisation for Economic Co-operation and Development to measure aid. The DAC first compiled the term in 1969. It is widely used by academics and journalists as a convenient indicator of...
.
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.
Existing innovative financing mechanisms for Health
UNITAIDUnitaid
UNITAID is an international facility for the purchase of drugs against HIV/AIDS, Malaria and Tuberculosis. It was founded in September 2006 on the initiative of Brazil and France, and is to a great part financed by so called innovative development financing mechanisms, namely a solidarity levy on...
, an international facility for the purchase of drugs against HIV/AIDS, Malaria and Tuberculosis, is supported by a so-called "air ticket solidarity levy," or a tax on airline tickets. As of 2009, 13 countries apply such a domestic tax on airline tickets. UNITAID funds projects through implementing partners across the three diseases based on the market impact criteria (making medication prices affordable for developing countries).
International Finance Facility
International Finance Facility
The International Finance Facility is a proposal by HM Treasury in conjunction with the Department for International Development of the United Kingdom. The IFF is designed to frontload aid to help meet the Millennium Development Goals...
for Immunization (IFFIm) can finance up to 20 year grants by issuing bonds in the capital markets backed by donor countries. So far, around 2 billion € has been collected for The Global Alliance for Vaccines and Immunisation (the GAVI Alliance). IFFIm’s goal is to provide $4 billion for immunisation between 2006 and 2015.
Advance market commitments
Advance market commitments
An advance market commitment is a binding contract, typically offered by a government or other financial entity, used to guarantee a viable market if a vaccine or other medicine is successfully developed. As a result of such a commitment, the market for vaccines or drugs for neglected diseases...
(AMC) are mechanisms supporting the GAVI Alliance aimed at providing incentives for Research & Development for new vaccines through the guarantee of a viable market to the new product. Governments or organizations commit to buy or subsidize the purchase of a certain amount of vaccines at a given price. It has been implemented for pneumococcal vaccines to demonstrate both the feasibility of the AMC mechanism and its impact on accelerating the introduction and mass-production of these vaccines.
Product RED
Product Red
Product Red, styled as RED, is a brand licensed to partner companies such as Nike, American Express , Apple Inc., Starbucks, Converse, Bugaboo, Penguin Classics , Gap, Emporio Armani, Hallmark and Dell...
is a mechanism supporting The Global Fund to Fight AIDS, Tuberculosis and Malaria
The Global Fund to Fight AIDS, Tuberculosis and Malaria
The Global Fund to Fight AIDS, Tuberculosis and Malaria is an international financing organization that aims to "[a]ttract and disburse additional resources to prevent and treat HIV and AIDS, tuberculosis and malaria." A public–private partnership, the organization has its secretariat in Geneva,...
. Thanks to the mechanism, global companies contribute a share of their profits on goods from sales branded with the Product Red trademark.
Debt2Health is a mechanism supporting the Global Fund to fight HIV/AIDS, Tuberculosis and Malaria. Through this mechanism, the Global Fund facilitates debt negotiation between creditors and debtors. Creditors agree to forgo part of the repayment of the money due to them against the commitment of the debtor to invest an agreed-upon amount on Global Fund-approved programs. So far, € 200 million has been pledged by the end of 2009 and €50 million had been disbursed in October 2008.
Voluntary Contributions on travel and tourism products funds are collected by the Millennium Foundation
Millennium Foundation
The Millennium Foundation for Innovative Finance for Health is an independent, non-profit Swiss organization, established in November 2008 in order to create new ways to finance health systems in low- and middle-income countries...
through a donation to MASSIVEGOOD
MassiveGood
MassiveGood is the Millennium Foundation’s fundraising project which was launched in the United States on March 4, 2010. MassiveGood will also be available later in 2010 in the UK, Germany, Austria, Switzerland, and Spain...
which lets travellers make an optional $2, £2 or €2 "micro-contribution" every time they purchase a travel services. All funds go to UNITAID in its fight against HIV/AIDS, tuberculosis and malaria. Additional funding will go towards improving maternal and child health in the developing world.
De-Tax is a "proposal to earmark a share of VAT Taxes generated by participating businesses for health systems development". De-Tax is being discussed by the G20 countries.
Possible promising innovative financing mechanisms for development
Among some potential future innovative finance mechanisms:Currency Transaction Levy (CTL) is a potential mechanism that would let governments apply a tax on foreign exchange transactions. An expert working group is underway to assess the feasibility of the proposed levy of 0.005%. The tax would be managed through computerized payments made in connection with the settlement of every trade.
Auctioning of permits to emit greenhouse gases could be one of the first innovative financing mechanisms earmarked for environmental purposes. Germany announced that it would allocate 225 million € from the 2009 proceeds of these auctions to fund development activities.
The development process of new innovative financing mechanisms has been improved thanks to the contribution of various players. Interagency initiatives such as The High Level Taskforce on Innovative International Financing for Health Systems and The Leading Group on Innovative Financing for Development
Leading Group on Innovative Financing for Development
The Leading Group on Innovative Financing for Development is a global platform made up of 55 member countries with differing levels of development, operating alongside international organisations and NGOs...
have facilitated coordination processes between actors and is also a platform for introducing new innovative financing mechanisms.
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
Brookings Institution
The Brookings Institution is a nonprofit public policy organization based in Washington, D.C., in the United States. One of Washington's oldest think tanks, Brookings conducts research and education in the social sciences, primarily in economics, metropolitan policy, governance, foreign policy, and...
and the World Bank
World Bank
The World Bank is an international financial institution that provides loans to developing countries for capital programmes.The World Bank's official goal is the reduction of poverty...
.
Innovative Financing has received support from the United Nations through international conferences on Financing for Development and the Doha Declaration on Financing for Development.
External links
- The High Level Taskforce on Innovative International Financing for Health Systems
- The Leading Group on Innovative Financing For Development
- Monterrey Consensus in 2002
- The Millennium Foundation for Innovative Finance for Health
- UNITAID
- MASSIVEGOOD
- Abuja declaration of African leaders in 2001
- Constraints to scaling Up and costs” Working Group 1 Report, Taskforce on Innovative International Financing for Health Systems
- Raising and Channeling Funds” Working Group 2 Report, Taskforce on Innovative International Financing for Health Systems