Friday, December 13th, 2019

Innovative Financing – Funding Development One Penny At A Time

Laurent Lamothe in Haiti with school children

For many countries, financing large scale development projects that would see the improvement of infrastructure, education, healthcare and the overall well-being of its citizens, is an ongoing challenge. It’s not cheap, and these projects are often long-term, lasting many years.

When it comes to financing, if a country cannot find the additional revenue through its tax-base, it may look towards securing a loan. The most common solution is to approach multi-lateral organisations, the World Bank, the IMF and other development banks. However, this means increasing a country’s debt levels, and it might not be enough. Innovative Financing is an alternative solution, which allows governments to fill the development finance gap.

Innovative Financing refers to a range of non-traditional mechanisms to raise additional funds for development utilising micro-contributions, public-private partnerships and market-based financial transactions. Thus, governments can leverage millions of transactions, apply a micro-levy onto those transactions and bring in millions of additional dollars for development.

Some examples of what is possible are UNITAID, Haiti, and Jamaica.

One of the first Innovative Financing initiatives was the international solidarity levy on air tickets (or airline ticket tax). The revenues generated are used by UNITAID, an agency specifically created to distribute the revenues raised to projects and programmes for the treatment and care of those affected by HIV/AIDS, tuberculosis and malaria.

Jamaica is stimulating entrepreneurship and boosting small business development by financing universal access to the information superhighway through its Universal Service Fund.

Haiti created a comprehensive free education programme, sending 1.4 million needy Haitian children to school free of charge and increasing elementary school attendance.

The money is there; it just has to be unlocked. A significant number of untapped resources can be mobilised in this way and ploughed into development, helping governments improve the lives of its citizens. Harmless and microscopic contributions on enormous volumes of transactions, when aggregated, create significant amounts of revenue in sectors that benefit the most from globalisation. In this way, a micro-contribution could make a mega difference, helping governments fast-track development.

Innovative Financing is about funding development one penny at a time, and it is a game-changer. Through this tried and tested revenue-generating model, it can bring about significant results without incurring debt.