Innovations in Development Financing

by Emily Kallaur

Recently Development Gateway hosted a brownbag led by Navin Girishankar of the World Bank, who presented his new paper “Innovating Development Finance: From Financing Sources to Financial Solutions”.

The paper takes stock of creative financing mechanisms for development, from solidarity mechanisms like the Stolen Asset Recovery (StAR) initiative to risk management tools such as weather indexed insurance for Malawi. In an effort to mobilize resources to support achievement of the MDGs, donors have also turned to new sources of funding for development initiatives, such as proceeds from national lotteries (in the UK and Belgium) or levies on air travel.

Overall, innovative financing still accounts for a fairly small share of total development aid. The paper concludes that innovative financing should be increasingly mainstreamed, but that it is not a substitute for raising the overall volume of development assistance through traditional means (e.g. for concessional financing). According to the analysis, the only major new source of concessional financing in the period studied has been aid from emerging bilateral donors (non-DAC members), who accounted for roughly $3 billion in development assistance in 2006.

The paper also argues that innovations should be studied to determine whether the transaction costs associated with creative mechanisms are justified by the end results. Capturing better data on non-traditional development financing will be important to gauging the value added of these promising tools.