Last week’s Doha conference on Financing for Development recorded progress on innovative financing mechanisms. Under the Monterrey Consensus (2002) the international community committed itself to the stretching targets of the Millennium Development Goals, pledged to increase Official Development Assistance (ODA) to 0.7% of GDP by 2015 and called for new approaches and instruments to generate additional funding for development.

In the intervening years a series of quite impressive initiatives have been implemented, together mobilizing close to $10 billion. Financing, as noted in Doha by the Emir of Qatar, is not the single key for comprehensive human development but one of the most important tools to empower those in poverty to achieve their basic needs. Healthcare for the poor has been a particular beneficiary of innovative financing. Both The Global Fund to fight AIDS, Tuberculosis and Malaria and The GAVI Alliance now fund a growing proportion of their work from non traditional sources.

Of six notable financial innovations created so far, the Advanced Market Commitment (AMC) and Debt2Health are ultimately funded from public sector sources. Encouragingly, three approaches are derived from private sector commercial flows. The Air Ticket Levy, initiated by France is clipped from traveller’s airfares. Revenues from trading CO2 emission permits in Germany come from industry, a financial transfer from a “public bad” to a “public good”. The imaginative product “Red” brand takes its contribution from the profit margin of suppliers of everything from coffee to clothing. These private sector mechanisms, some mandatory, some voluntary, represent real additionally.

IFFIm
The International Finance Facility for Immunisation (IFFIm) pioneered by the UK is a hybrid approach combining both public and private sources in a creative financial model. Following Monterrey, Gordon Brown, then UK Chancellor, promoted the “big IFF” as capable of raising billions for funding the MDG’s. The concept was ignited at the Gleneagles G8 Meeting (2005) when IFF was stapled to child immunisation through GAVI, which had been initiated by the Bill and Melinda Gates Foundation and still required front loading of billions of dollars. The compelling premise…there is zero value vaccinating a child in 2012 or 2015 (when gradually rising ODA might be available) when it will probably die from disease this year…prompted six European governments to pledge over $5 billion to fuel this new arrangement.

Irrevocable sovereign financial commitments to IFFIm are structured as rising cash flows over twenty years, enabling it to carry an AAA rating. In effect the 20-year government pledges are, via placing bonds in the capital markets, converted into cash today. Since launch, IFFIm has raised $1 billion from a global benchmark bond and $220 million equivalent from a placement with Japanese retail investors. During this period only $230 million of cashflows from the underlining government pledges have been paid. In a world today where financial leverage has taken a beating, this is leverage of the most constructive form.

Healthy children are the feedstock of any strong society and IFFIm’s resources will permit 500 million children across seventy-two of the poorest countries to have immunity from disease. IFFIm has transformed the capacity of GAVI, with all of the $1.2 billion raised in the last two years already dispensed in vaccination programmes.

Political will
The IFFIm financing initiative illustrates three things. First, policitical will. Will to innovate, to bring a new flexibility to public finances, to accelerate capital availability. Will to fund on a scale ($5 billion) and for a duration (twenty years) never before evident in the aid system. And will to work multilaterally, pooling resources into a global collective effort.

Targetted
Second, IFFIm is as targetted as the sharp point of an injection needle, a tightly focused healthcare intervention, delivering vaccines, coldchain and strengthening health delivery systems. This, as Jeffrey Sachs appeals for, provides measurable inputs and outputs and true traceability.

Effective
Third, it is effective both in its financial and medical terms of reference. IFFIm Bonds have a high appeal to investors providing solid AAA credit backing to their capital, a market based interest rate and the “socially responsible return” of knowing their investment or savings is put to such good use. This double sweet spot is IFFIm’s win-win, bringing together capital market investors and children. Both benefit.

Looking ahead, the Doha call to governments for the next six years is to continue to innovate in development finance. The current crisis in the capital markets must not diminish the appetite to access the $125 trillion global pool of savings to fund development. While the financial engineering of casino capitalism may be a thing of the past, governments need to find inventive ways to harness the private capital markets.

IFFIm has plans for 2009 to place vaccine bonds with private investors in Japan, the UK and France. Encouragingly, investment bankers are offering their creativity to design new routes to market. Rich country governments will need to make their pledges to development assistance in new and novel ways. Thinking and structures from yesterday, and today, are obsolete…policy flexibility, legislative flexibility, budgetary flexibility and funding flexibility will be required. After all there has been no greater demonstration of such flexibility than the government bailouts of the western banking system. If we can act with such urgency and expediency to save ourselves…extraordinary measures for extraordinary times…then the poor with whom we share this earth deserve equivalent and proportionate treatment.

Finally, it is notable that each of the innovative financing mechanisms reviewed in Doha had their origins in Europe. This is no time to be self congratulatory. But it would be good to see the United States under a new President deliver some of its apparently bottomless capital resources and its ability to be financially inventive to the process of development finance innovation. A bailout for the bottom billion too!