Innovative development finance

The Addis Ababa Action Agenda welcomes the progress in developing and mobilizing support for innovative sources and mechanisms of additional financing since Monterrey.

The Addis Agenda specifically:

  • Invites more countries to join in implementing innovative mechanisms
  • Encourages consideration of replicating existing mechanisms and exploring additional mechanisms


Latest developments

In the mid-2000s, the Leading Group on Innovative Financing for Development introduced several initiatives that were based on restructuring cash flows, building on innovations in private markets. Most of these mechanisms aim to make development cooperation more effective, rather than solely raise resources (although the most recent effort—MDB securitization—raises additional resources for development). As these instruments engage in some form of what is often referred to as financial engineering, all of them also impact incentives, with some of them (e.g., advanced market commitments) designed for this purpose. The aim should be to ensure that any changes in incentives are aligned with sustainable development.

Instruments for risk management - risk pooling instruments are one of several options, which can be part of a broader risk reduction financing strategy. Institutional pooled funds and insurance-like instruments can play complementary roles; and greater provision of international resources to both types of instruments could bring benefits and greater efficiency compared to the current practice of ex post disaster response. A related innovation in development cooperation is funds that pool public and private resources for a specific issue or theme. To date, these pooled funds have been used primarily for health- and climate-related international and global public goods. These funds link funding and visible outcomes (results focused), are transparent and appeal to development partners and the public through clear goals.They can also attract private donors and are a major mechanism for philanthropic flows, such as the Bill and Melinda Gates Foundation (BMGF).

Additional mechanisms to raise new resources for development cooperation include solidarity taxes and innovative bonds instruments. Coordinated internationally but implemented nationally, a solidarity tax is levied to provide funding towards a public good. Green bonds and similar instruments, such as SDGs-linked bonds, have grown significantly since the EIB and the World bank issued the first green bonds in 2007-2008.

Read the more detailed analysis of innovative public finance instruments by the Task Force here.