Mashing economists and venture capitalists to innovate in development assistance

Maura O'Neill, chief innovation officer at the U.S. Agency for International Development.

A few miles outside of Busia in Western Kenya, Carol Nekesa brings us out to a small village that is enjoying a regular supply of clean water for the first time. Next to the stream where the villagers regularly fill up their containers of water, a chlorine dispenser has been installed.

For years, we have known that adding a little bit of chlorine to water can kill the bacteria that make people sick. And getting sick from bad water can too often turn fatal for people already ravaged by disease.

But until recently, only 10 percent of Kenyan families have been using chlorine. Why was that and how could that change? Carol, a Kenyan from Busia, was part of a team that was pioneering not just a particular solution, but a systematic method for creating more cost-effective solutions again and again.

As the OECD Development Assistance Committee holds the Fourth High Level Forum on Aid Effectiveness in Busan, South Korea, at the end of this month, we all seek better answers to “what works” in the fight against poverty. How can we uncover what people really will use to lift themselves out of extreme poverty and debilitating disease instead of what others think they need? How do we source and deploy solutions faster and cheaper? And how do we discover innovative ways to finance them?

Official Development Assistance as cataloged by DAC is now over $128 billion dollars a year. We need to be as prudent as possible with the U.S. taxpayer’s dollars and also leverage private investment. Net private capital flows to developing countries were as high as $1.1 trillion in 2007, according to the World Bank. While up from $152 billion, in just six years, with the global downturn, private investment was down in 2009 but still a big number: $598 billion. With our economic climate and the stakes as high as they are for so many in desperate poverty, we need to leverage every dollar as effectively as we can to deliver development results. We need to test what works — not just what products or services yield the highest impact for the lowest cost, but also what business or public sector deployment models allow for sustained impact.

Let’s return to Carol. She is the Kenya deputy country director for Innovations for Poverty Action, a nonprofit group whose members include some of the world’s foremost development economists. It is an organization dedicated to researching what works to fight poverty. Carol is part of a team of 500 researchers and practitioners in 40 countries that use tried and true methods pioneered by pharmaceutical researchers and adapted by leading economists to systematically test development solutions. As IPA researchers sought to improve chlorine uptake in Kenya, they considered adding chlorine to piped water like we do in most U.S. cities.

But Kenya’s desire to bring piped water to its 40 million people has far outstripped its financial and institutional abilities to do so in the last decade. Waiting for this infrastructure means millions of Kenyans would suffer from stunted growth or die in the meantime.

Researchers tried selling or giving away small bottles of chlorine so that people could add a little to their water jug. But people used the chlorine once or twice and the bottles then just decorated the shelf. It was only when researchers installed a dispenser right at the water hole that they saw terrific, persistent results. IPA manufactured the device in Kenya with a special valve imported from Minnesota. The dispenser capital costs (US$1 per person) were a tenth of the piped costs, with annual operating costs (30 cents U.S. per person) much less as well.

Suddenly, clean water for millions in rural East Africa could become a reality in the next decade if we figure out a sustainable financing model for scaling.

As official donors and stewards of precious taxpayer resources, we should use these methods to accelerate development outcomes while reducing the cost. We should also learn from the methods used in Silicon Valley and other innovation corridors that have fostered private sector innovation at blazing speed for decades. They could be useful in accessing the new capital flows in the developing world. Both the academic testing and the venture finance models should jump the foreign assistance fence and become part of standard practice – a new development paradigm.

At the U.S. Agency for International Development, we launched the Development Innovation Ventures program to do just that. It uses staged financing much like our friends in the Valley. DIV starts with small amounts of money to source and test promising ideas. Once the proof of concept is done, a little more is invested to find out if the market will actually adopt this innovation. And only then, once there is clear evidence that the innovation is working, larger amounts are invested to widely deploy the solution.

We should not care whether the innovation is planned to scale through the private or public sector. We just insist that from the beginning the idea must have the potential to improve the lives of millions of people and be sustainable in the long term without continued infusion of donor dollars.

In just one year of operation, we are already seeing impressive results through DIV. One innovation is showing a 97 percent reduction in a self-test for the second most common reason moms die in childbirth. Another reduced fraud in the polling centers where it was deployed in elections last year in Afghanistan. Based on these results, it was used in the Ugandan elections with similar success. Now Qualcomm is working on supporting its roll-out in the elections of other developing nations.

We know if we are to continue our quest in the development community to get cheaper, faster, more sustainable development outcomes, we need to grab great ideas from wherever they come. We need to seek real evidence that they can work at scale. We look forward to others building on the innovative financing methods so we might all learn together. Millions are counting on us. Time is not our friend. What methods are you finding that work?

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.

About the author

  • Maura oneill

    Maura O'Neill

    Maura O’Neill is the former chief innovation officer and senior counselor to the administrator of the U.S. Agency for International Development, where she had responsibility for inspiring and leading breakthroughs innovations in foreign assistance and development worldwide. In addition, she co-led USAID Forward, the agency's major reform initiative as well as created ground-breaking public-private partnerships in supply chain sourcing, mobile money, gender equity, entrepreneurship and new models for sourcing and scaling development interventions. She served on the White House Innovation Cohort assisting the Obama administration in innovation across federal government. O’Neill has started four companies in the fields of electricity efficiency, customer info systems and billing, e-commerce and digital education.