Maternal mortality remains unacceptably high in low- and middle-income countries. According to the World Health Organization, more than 800 women die every day due to complications from pregnancy or childbirth. We know many of these deaths are preventable. Yet, the amount of development aid needed to implement life-saving solutions is not available. The good news is that there are innovative financing mechanisms that can bring more capital into the development space — to help save more lives.
Currently, there is a $2.5 trillion annual funding gap to reach the United Nations' Sustainable Development Goals. In the health sector, as in other sectors, development assistance has largely remained stagnant. A lack of aid funding, coupled with insufficient government spending on health, has resulted in a $134 billion annual investment gap for the health SDGs in lower- and middle- income countries.
Foreign aid and philanthropy are not enough to solve the problems we’re trying to address through the SDGs. We need more sustainable sources of investment in development. And we need to tap into private capital to get there. While $2.5 trillion is a big funding gap, it represents less than 2% of total private wealth.
Getting this untapped wealth into development
Clients of financial institutions are increasingly asking for an investment paradigm that includes not only financial return but also social impact. In a 2018 UBS survey of high net worth investors across 10 global markets, 65% said they believe it is highly important to help create a better planet. And half believe sustainable investments will outperform traditional investments.
So, the enthusiasm among investors is there. Currently, only 39% have sustainable investments in their portfolio, but that number is expected to grow to 48% over the next five years, according to the UBS survey.
Blended finance's potential is threatened by a financial system that isn't forward-looking, according to a group of development financiers and practitioners gathered at Skoll World Forum this week.
Right now, financial institutions, including UBS, offer investors impact through vehicles that provide competitive returns: from incorporating environmental, social, and governance considerations into investments to impact investments. And there are other financial mechanisms that could give investors the social impact they want while bringing private capital directly to development.
As the Organisation for Economic Co-operation and Development, the United Kingdom’s Department for International Development, U.S. Agency for International Development, the World Bank, and others have recognized, blended finance is one way to help bridge the SDG funding gap.
Blended finance strategically uses existing development finance to mobilize private investment in development. Financial institutions partner with bilateral and philanthropic funders to structure finance products to make the risk-return profile more attractive to private investors while structuring the investment to incentivize maximum social impact.
Collaboration to help save maternal and newborn lives
Developing and implementing innovative blended finance mechanisms is one way to make philanthropic capital go farther. Development impact bonds, or DIBs, have the potential to attract substantial private investor capital to finance development in a way that is 100% focused on outcomes.
For example, the UBS Optimus Foundation has been collaborating with public and private partners for several years, experimenting with how we might get to this point by acting as a social investor for DIBs that have a pay-for-success structure — where success is defined by social impact.
This DIB gives some insights into how the instrument might be used and highlights some key challenges.
This was the world’s first DIB in education — the Educate Girls DIB — which concluded last year after meeting the targets for enrolling out-of-school girls and improving education in Rajasthan, India. This is particularly impressive considering students' progress — especially in English — lagged in years one and two of the program. Had this gone uncorrected it would have meant only reaching 75% of the respective targets. But thanks to the DIB model's business-like discipline and active management to philanthropy, Educate Girls was able to take corrective measures, and at the same time introduce a raft of programmatic innovations.
There are other important learnings from this DIB that can be taken into the health sector. In collaboration with USAID, MSD for Mothers, PSI, Palladium, and HLFPPT, the Utkrisht Impact Bond aims to reduce the number of maternal and newborn deaths by improving the quality of maternal care in Rajasthan's health facilities.
Through this public-private partnership, formed in 2017, working capital from UBS Optimus Foundation will provide upfront costs to improve the quality of health services. The implementing partners, HLFPPT and PSI, will use this capital to improve the quality of care and help hospitals become accredited.
As outcome payers, USAID and MSD for Mothers will pay back the investment only if certain targets to improve quality are met. This collaborative effort will potentially provide 600,000 pregnant women and newborns with improved care during delivery, with up to 10,400 maternal and newborn lives being saved over a five-year period.
Another really interesting example of blended finance is that of impact loans. These give social enterprises in low-income settings access to low-cost capital, allowing them to focus on social impact, grow scale, and achieve sustainability.
A partnership with Yunus Social Business, the Rockefeller Foundation, and Impact Water has yielded the first social success note that will deliver clean drinking water in schools across Uganda. Its aim is to sell and install 3,750 water purification systems in five years, ultimately benefiting more than 1.4 million children through better health, enabling them to learn and fulfill their potential.
The UBS Optimus Foundation has also approved a $500,000 loan to Hewa Tele, a Kenyan social enterprise improving access to oxygen in emergency health care. The loan will enable Hewa Tele to invest in additional oxygen cylinders so that 45,000 people, including pregnant women and young children, receive oxygen for lifesaving procedures such as C-sections. The interest rate for the loan is tied directly to the impact: the more patients receiving oxygen for lifesaving procedures, the lower the interest rate.
Collaborating to bridge the gap
Performance-based financing is not new and DIBs and impact loans are but two possibilities. DIBs offer examples of how blending development finance with an investment vehicle can unlock private capital. More financial institutions can collaborate with bilateral and philanthropic funders to test solutions so that we move toward the point where innovative financing mechanisms become mainstream, made available to all investors who want to get involved. This will help bridge the gap between what traditional philanthropy is providing and what we need to achieve the SDGs — including a much-needed reduction in maternal mortality.
Update, Oct. 2, 2019: This article has been updated to clarify that UBS Optimus Foundation approved a $500,000 loan to Hewa Tele.
The Maternity Matters series is sponsored by MSD for Mothers, MSD’s $500 million initiative to help create a world where no woman has to die giving life. The content of this article is the responsibility of the author(s) and does not necessarily represent the official views of MSD. MSD for Mothers is an initiative of Merck & Co., Inc. Kenilworth, N.J., U.S.A.