Innovative financing for health: Challenges and opportunities

Humberto Laudares, innovative financing officer at the Global Fund to Fight AIDS, Tuberculosis and Malaria.

Innovative financing, a branch of development financing that creatively adapts old and tested methods to raise new money, is at the end of its first decade.

Innovative health care financing mechanisms created since the 2002 International Conference on Financing for Development in Monterrey have had mixed results. Several evaluations have pointed out the pros and cons of initiatives such as Debt2Health, UNITAID, the International Finance Facility for Immunisation, advance market commitments, as well as private-sector initiatives such as Product Red, the Dow Jones Global Fund 50 Index, and the GAVI Matching Fund.

Here are some challenges that international organizations should consider when engaging in innovative financing:

1. Words are meaningless

Results are needed on both the revenue and the expenditure side. A successful innovative financing mechanism should raise consistent amounts of money over time. Donors pay significant attention to expenditures. The financing mechanism’s incentives for all actors involved, such as transaction costs, visibility and the satisfaction of interests, are also crucial. The calculation of the rate of return in innovative financing should consider financial, programmatic, political and governance variables.

2. Scaling up innovative financing

Innovative financing is primarily a multilateral action to tackle global public goods. However, existing innovative financing initiatives have depended on a single donor (or a small group of donors) – mostly Europeans. There is a need to scale up innovative financing mechanisms and to include major donors such as the United States, Japan and Canada.

3. The cost-benefit calculus

Innovative financing mechanisms tend to be more resource-intensive than traditional ways to raise funds for development. Their cost-benefit needs to be evaluated well to prevent a diversion of funds and energy from an organization’s core business.

4. Follow the money

Ideas for new innovative financing mechanisms may abound, but current constraints of our global economy should be considered as well. That is why the creation of new innovative financing products is different from 10 years ago, when they were first discussed.

Today, there are several noteworthy innovative financing opportunities, including:

In times of global financial crisis, innovative financing seems like an attractive solution for ODA retraction. But innovative financing will only be able to offset a reduction in ODA if a global tax-based mechanism, such as the FTT, is implemented. And it does not prevent international organizations from developing or expanding smaller-scale innovative financing products that satisfy their needs.

Much has been achieved in the last ten years. Challenges remain, but now is a time to use opportunities creatively in development financing.

Want to read more about innovative financing for development? Check out Busannovate, a blog brought to you by Devex in partnership with the United Nations Foundation, and launched with a thought-provoking guest opinion by Nobel Peace Prize winner Muhammad Yunus.