Pay for results strategy-- integral to unlocking private sector funding

As Bangladesh is approaching the milestone of becoming a middle-income country, donors are gradually shifting their priorities. Traditional fundings from bilateral and multilateral sources are drying up triggering a need for considering alternative funding for achieving the sustainable development goals.

On December 17, Desperately Seeking Development Experts (DSDE) held the second session of its 7 day-long symposium on the topic "Alternative Financing for Development Interventions: A Closer Look".  Peter Vanderwal, Innovative Finance Expert and Founder of Stratigos was the keynote speaker at the event and Afsana Islam, Private Sector Development Advisor and Deputy Team Leader, Growth and Private Sector Development, Foreign Commonwealth and Development Office was present as a guest speaker. The whole session was moderated by DSDE founder and Managing Director of Innovision Consulting Private Limited, Md Rubaiyath Sarwar.

The keynote speaker Peter Vanderwal opened his lecture by establishing both the brighter and darker sides of the current state of financing. On the positive side currently, the world including Bangladesh has an increasing amount of wealth, growth in technological inventions and more inclusivity in case of human rights. On the other hand, there is an estimated 4 trillion dollar financing gap for achieving SDGs and moreover, the world has been facing an unprecedented amount of natural calamities in recent years.

Bangladesh is failing to utilise its existing financial resources to finance the SDGs, remarked Afsana Islam. "In order to achieve success in innovative financing, first, we need to ensure the maximum utilisation of the funds in financial sources we currently have in hand", she said.

Blended finance is one of the major and easy to understand examples of innovative financing where commercial and development financing is merged to lower the risks associated with private sector funding to finance projects in key development sectors, according to the keynote speaker. "Blended finance has to be strategically targeted based on a careful assessment of what works in different contexts and geographies," he said in his presentation.

Even though on a small scale blended financing is being introduced to some of the large businesses in the health and manufacturing sector of Bangladesh, financing the small and medium business still remains a challenge. Alternate assessment mechanism that links up to the fund managers needs to be developed in order to reach the medium and smaller tier businesses.

Another form of alternative financing discussed in the session was Impact Investment. Impact investment is a middle ground between traditional investing and philanthropy, where the sole purpose is not only to gain profit but also to animate the forces to achieve the goal of development. Monitoring the achievement of goals is necessary because without it, most investors will only aim to maximise their profit.

The keynote speaker also focuses on Pay For Results (PfR), an investment strategy where the funder sets a financial or other incentives for an entity to deliver a predefined outcome and rewards accordingly based on the result. Impact bonds are based on the concept of  Pay For Results. They have the potential to drive greater efficiency, results and participation of private and institutional investors in the delivery of development projects. The government and the donors need to work together to set a good example for PfR to attract money from the private sector.

The discussion ended concluding that lowering risk, incentivising the private sectors and accountability are some of the prerequisites for facilitating alternate investment. There is no one size fits all solution to this problem. The public and the private sector have to work together to create a sector-specific method of investment.

Khandakar Iffah is a third-year student of the Department of Economics, University of Dhaka. [email protected]