How do we finance development?

With the Millennium Development Goals set to expire and be replaced by the Sustainable Development Goals (SDGs), now is the time for all partners in development to make blended finance and shared-value partnerships the cornerstones of our future development pursuits.

The SDGs will be ambitious and far-reaching. To achieve them, we need to rethink how we finance development. In 2014, development assistance spending from all governments totaled $135 billion. The estimated cost to meet the proposed SDGs is in the trillions. This is an insurmountable gap to address through government funding alone. We need to find new ways to mobilize both public and private investments into developing countries to achieve sustainable development outcomes.

One mechanism that Canada is actively promoting is blended finance – an exciting new field of investment that uses public and philanthropic funds to unlock massive amounts of private capital for development. It offers a new approach to reducing the financial risk for investors in order to increase private investments in sectors such as health, finance or infrastructure.

Blended finance has already generated a significant amount of support within the development community. The challenge is that it involves a complex web of actors, sectors, geographies, instruments, and terminologies. What we need now is a space where all of these moving parts can converge, and Canada is actively involved in bringing that space to life.

In partnership with the World Economic Forum, the Global Development Incubator and many others, we are supporting a new initiative to accelerate the scaling up of blended finance. It is called Convergence, and it will address a number of challenges that currently exist in the blended finance field. These include a lack of knowledge and data about blended finance, high search costs of identifying partners, and high risk of testing new blended finance models. Convergence will provide information, tools and training on blended finance, and connect public and private investors, and pilot new blended finance models in developing countries.

Done right, Convergence will help leverage new sources of financing, turning billions into trillions, and significantly contribute to ending global poverty. The private sector will also benefit from new investment opportunities in developing nations.

Canada is developing a number of other tools as well. We are establishing a Canadian Development Finance Initiative (DFI) that will provide financing to private firms and foundations for commercial projects in low- and middle-income countries whose activities complement Canada’s international assistance priorities.

Initiatives can also be designed to pursue specific social objectives. For example, last year, Canada, the United States, Norway, and the World Bank Group announced plans to create the Global Financing Facility in support of Every Woman Every Child. We are thrilled to watch as this new facility begins to finance innovative initiatives with the private sector in maternal, newborn and child health.

The additional investment generated through Convergence and other innovative financing mechanisms like Development Finance Initiatives and the Global Financing Facility will set the course for moving from the current billions of dollars in development finance to the trillions required in the post-2015 period.

We must also seek to maximize other private flows. Remittances are an important source of income for families to pay for essential needs such as food, education and healthcare. Canada is introducing measures that will help ensure Canadians have access to safe, reliable and lower-cost remittance services when sending money to family and friends living in developing countries. This includes establishing a remittance price comparison website that will increase transparency by providing information on fees charged across service providers, allowing users to make informed decisions. This benefits our own citizens because greater competition between companies can drive down prices; transfer fees that are reduced by even just a few percentage points could mean millions more dollars in the pockets of families in developing nations.

These new approaches are why the OECD and the Forum set up the ReDesigning Development Finance Initiative in 2014. As Chair of the Steering Group, I am working with global partners to expand the pool of foreign and domestic capital to help accelerate social and economic progress. Our aim is to identify, test, and scale up public-private blended finance models in a systematic way.

Canada believes that a holistic approach to financing development – with effective domestic and international interventions like the DFI, increased remittances, blended finance and Convergence – can change the way we do development. With a price tag on the SDGs in the trillions of dollars, these are exactly the type of solutions we need and now is the time to add them to our respective toolkits.

Have you read?
What are the Sustainable Development Goals?
3 challenges facing the UN’s Sustainable Development Goals
How much has global poverty fallen over the past 25 years?

Author: Christian Paradis, Minister of International Development and Minister for La Francophonie, Canada

Image: Skyscrapers loom over a flagpole carrying the Canadian flag in the financial district in Toronto, March 11, 2009. REUTERS/Mark Blinch