Forty years ago, most of the money flowing from the United States to developing countries came in the form of foreign aid. Today, we see just the opposite. Over 80 percent of those capital flows now come from other sources, such as the private sector -- businesses that want to invest in emerging economies. And as the economies of developing countries grow, their governments are now better able to finance their own development.
As a result of this trend, the ways in which USAID and other donors finance global health programs in developing countries are changing. Here are examples of how we’re using non-traditional funding tools that capitalize on investor interest.
Development Impact Bond
USAID is launching the world’s first Development Impact Bond in healthcare, focused on improving the quality of care in private facilities in Rajasthan, India, which has one of the highest maternal and newborn mortality rates in the country. The private sector accounts for over 25 percent of hospital births in Rajasthan and is used by women across socioeconomic levels. This bond will support government efforts to reduce maternal and newborn deaths by improving access and quality of care in 440 private facilities in the area. Interventions will be delivered by Indian NGOs, Population Services International and HLFPPT and could save to up to 10,000 lives over five years. With the bond, one investor will pay costs upfront, while USAID and a different donor pay only after milestones are achieved.
In Biñan, Philippines, Florencio can now get dialysis treatment regularly - after a USAID guarantee covered a bank loan to refurbish a local state-of-the-art hospital. This access to finance means a hospital is now close enough for Florencio and hundreds more patients to visit. USAID’s Development Credit Authority, which provides partial protection to lenders willing to extend loans to borrowers in traditionally underserved sectors like health, has facilitated 29 health sector guarantees across 18 countries.
Co-funding / Global Development Alliance
This mother and child are waiting to be seen outside a health clinic in Dar es Salaam, Tanzania. Thanks to Project Last Mile, they now have access to life-saving medicine. In this project, USAID and partners are leveraging the proprietary business intelligence and experience of Coca-Cola’s supply chain and distribution system to improve access to life-saving medicine and critical supplies at the “last mile” of African nations — meaning the most remote communities. The project is working with African governments and partners in eight countries, including South Africa, Swaziland, Mozambique, Nigeria, Tanzania, Liberia and Sierra Leone. This partnership with the private sector was made possible through a Global Development Alliance, a mechanism through which USAID’s contribution is matched equally, at a minimum, with private sector resources.
Côte d’Ivoire is one of five countries participating in The Global Fund’s Debt2Health project, which negotiates individual debt swaps for countries (USAID is a contributor to The Global Fund). A debt swap is a method of transforming debt into funding for development. Creditors — such as private investors or creditor governments — forgive a portion of a country’s debt and in return, countries commit to using the funds that would have gone toward debt repayment for a social project.
To date, the Debt2Health project has made $201 million available for health investments in Côte d’Ivoire, Egypt, Ethiopia, Indonesia and Pakistan.
Pooled Investment Fund
A $2 million equity investmentby the Global Innovation Fund in mClinica, a digital network of pharmacies in Southeast Asia, aims to increase the availability and affordability of life-saving medicine and to help patients adhere to regimens. The Global Innovation Fund is a pooled investment fund — private investors partner with donors like USAID to aggregate their funds to invest in businesses that generate social and financial returns. mClinica’s network provides patients with discounts and health advice in return for collecting prescription data, similar to existing products in higher-income countries. Learn more about mClinica here.
Last year, USAID partnered with the private sector to create Lulama, a project to strengthen small, independent pharmacies in underserved areas in South Africa by providing them with access to credit. This ensures they can keep sufficient medicine in stock. The initiative — with private sector partners Absa Bank, Apsen Pharmacare, GlaxoSmithKline, Imperial Health Sciences, and Pfizer — anticipates averting 200,000 deaths due to improved access to medicine as Lulama expands across South Africa. To facilitate this process, USAID purchased social insurance against the risk of pharmacies defaulting, unlocking $6.5 million in credit from a commodity wholesaler in South Africa. USAID and large pharmaceutical companies are risk sharing, as the insurance only covers 50 percent of the wholesaler’s loss. The pharmaceutical companies cover the remaining 50 percent in the form of credit on the wholesaler’s next purchase from the companies.
Seed Funding / Flexible Grant Capital
The Bempu Hypothermia Alert Device is a newborn temperature-monitoring wristband that alerts caregivers if their baby’s body temperature falls to the point of hypothermia, so they can get help. With a $250,000 grant from USAID’s Saving Lives at Birth: A Grand Challenge for Development, Bempu demonstrated proof of market demand and adoption in India. The device has since helped an estimated 10,000 newborns. Bempu was recently nominated for another Grand Challenge award for $2 million to scale the distribution of the device in India and abroad to save more newborn lives. Bempu was featured in TIME magazine as one of the top 25 inventions of 2017. USAID uses Grand Challenges for Development to identify and support early-stage innovators and social enterprises that need seed funding.
The DripAssist is a device that delivers IV fluids to patients with precision, which is particularly important when treating children or elderly patients as it eliminates the risk of fluid overload. The device, developed by Shift Lab, is FDA-approved, low cost and battery powered. Funded through The Fighting Ebola Grand Challenge, issued by USAID and other U.S. Government partners, DripAssist is now being used in Liberia and Sierra Leone. The grant was transferred through milestone-based payments to improve accountability, meaning USAID paid only after milestone results had been achieved.
To learn more about these tools and how USAID has applied them, check out USAID’s new report Investing for Impact.
About the Authors: Bea Spadacini is the Senior Communications Advisor in the Bureau for Global Health. StoryMap visualization by Leeza Kondos, Data Scientist in the Bureau for Global Health.
Editor's Note: This entry originally appeared in USAID's 2030: Ending Extreme Poverty in this Generation publication on Medium.com.