One of the world’s great development achievements in the past 25 years has been the reduction in preventable child deaths. In 1990, 12.7 million children under age 5 died of preventable causes. By 2013 the number was reduced to less than half of that — 6.3 million. By some measures, 100 million children survived over the past 20 years due to the global focus on reducing child mortality.
The vision of an end to preventable child deaths by 2030 is now inscribed in the sustainable development goals to be ratified at the United Nations later this month. But in spite of this momentum, without new sources of financing, it will be difficult to achieve this goal as the United States and other nations have pledged. The private sector is one of the largest potential sources of additional funding that will need to be tapped to achieve this goal.
This summer, the U.S. Senate took an initial step toward tapping into new development funding through the introduction of the Reach Every Mother and Child Act of 2015. The bill — introduced by Sens. Susan Collins, Republican from Maine, and Chris Coons, Democrat from Delaware — requires the administration to develop an innovative financing framework that leverages financing from the private sector, among other sources.
Innovative finance is a broad category that includes an array of tools, including development credit authorities and advance market commitments. One of the most widely discussed emerging innovative finance tools is impact bonds.
Impact bonds are divided into two major categories, depending on where they are implemented:
● In developed nations they are known as social impact bonds or SIBs.
● In developing nations they are known as development impact bonds or DIBs.
Both types of bonds use similar models and are complex. Essentially, they are program financing models that ensure that public funds are not spent on unsuccessful programs. Public funds are only spent if programs are proven to be effective by independent evaluators. If they are not, the cost is picked up by a predetermined guarantor, such as a foundation, corporation, private equity fund or a high-net-worth individual.
Governments, foundations, universities and even private investors have expressed interest in development impact bonds. In addition to the framework mandated by the Collins-Coons bill, the U.S. Agency for International Development recently launched a child and maternal health financing framework in which DIBs play a significant role. The Reach Every Mother and Child Act legislation would codify this framework.
● Engaging private funding.
● Building a culture of monitoring and evaluation.
● Reducing risks for government.
DIBs are a promising potential tool to contribute to child survival, but they also require continued testing and experimentation. Particularly in the development realm, DIBs are in the very early stages. Only one DIB has been implemented: a girls’ education project in India. Before they are applied on a mass scale, impact should be tested in a range of country and programmatic contexts to learn where they can be applied for greatest benefit.
While we still don’t know where DIBs work best, there are dozens of DIBs and SIBs in the formation stage, and coming years will reveal their full potential.
Innovative financing is not a substitute for the traditional financing that USAID and other nations have provided in recent decades — to great success — in reducing child mortality. But without additional funding innovation and risk-taking to leverage traditional bilateral assistance, it will be difficult to achieve the elimination of eliminating preventable child deaths.
USAID’s new framework and the introduction of the Collins-Coons bill are hopeful signs that the U.S. government is embracing new approaches and tools required by the changing development finance landscape and the world’s ambitious 2030 sustainable development goals.
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