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From Davos: Is paying for results with blended finance ready to take off?

Brookings' Emily Gustafsson-Wright moderated the Utkrisht panel at Davos and explores how Development Impact Bonds can help fulfill the SDGs.

Last Thursday morning, at a dark, early-morning hour, with my high-security badge securely hung from my neck, I cautiously trod along the slippery streets of Davos, Switzerland to participate in events at the 2018 World Economic Forum. This year, 2,500 of the world’s most powerful people gathered in this alpine town, with the aim of “Creating a Shared Future in a Fractured World”. Businesswomen and businessmen, world leaders, celebrities, entrepreneurs, the media, and academics like myself, met to discuss the pressing issues of today, including poverty, equality, climate change, terrorism, trade, and the refugee crises.

One of the big questions was how to fill the estimated $2.5 to 3 trillion annual investment gap needed to fulfill the 17 ambitious Sustainable Development Goals (SDGs), their 169 targets, and 230 indicators of success. Mind you, beyond finding the needed trillions of dollars, achieving these goals is no small feat. Goal 3, for example, aims to end preventable deaths of newborns and children under age 5. In the current scenario, 30 million newborns are expected to die between now and 2030. Goal 4, to ensure inclusive and quality education for all, is also a mighty task—given that, as things stand now, 263 million children and youth are out of school and the number is expected to grow. It will take a lot more than only money to address these issues.

Enter innovative financing for development. Innovative finance intends to both increase resources and improve the use of existing resources. One particular form of innovative finance, payment by results, or results-based financing, seeks to create incentives to achieve critical social outcomes by only paying when results are achieved. For over a decade, multilateral and bilateral donors have used variations of these tools as a way to bring transparency to development aid, with the end goal of improving more lives. The U.K.’s Department for International Development (DFID), for example, established the Global Partnership for Output-based Aid (GPOBA) in 2003 as a multi-donor trust fund administered by the World Bank, with the mandate of exploring output-based aid (OBA) projects across seven sectors. In addition, two other trust funds at the World Bank—focused on education and health—also use payment by results, as does the World Bank’s Program-for-Results (PforR) financing instrument.

Please click here to read the full article on the Brookings website, written by Emily Gustafsson-Wright.