Digitalising Innovative Finance: Emerging instruments for early-stage innovators in low- and middle-income countries
According to the OECD, the current estimated SDG financing gap stands at $4.2 trillion per year. To meet the ambitions of the SDGs, there needs to be a significant and rapid scale-up in funding. Additionally, it is clear that government, donor, and philanthropic contributions alone are not sufficient to close this gap, but instead must be deployed alongside, and to leverage, private capital.
This report takes stock of the role digital technologies are playing in crowding in private sector capital through innovative financing mechanisms to social enterprises in low- and middle-income countries (LMICs). It focuses on how digital technologies enable new structures for combining commercial and impact-oriented capital in ways that help scale innovative utility service delivery models aimed at closing service gaps and addressing climate change. The research focuses on ‘missing middle’ investments, where social enterprises have grown too big for grant funders but are typically still too small or deemed too risky for traditional commercial investment. It also demonstrates how these technologies can help funders make more effective use of existing funds through established financing mechanisms such as results-based financing.
The findings of this report are based on novel conceptual and analytical frameworks designed to create a common language in identifying and analysing instances of digitally enabled innovative finance. As part of the research, over 80 in-scope use cases were identified through this analytical framework, and were segmented into mature, scaling, and emerging categories. Additionally, five in-depth case studies on high impact funding mechanisms examine the role of digital, present key examples, and showcase future trends and opportunities for greater impact.
The report serves as one of the first comprehensive assessments of the role of digital in supporting innovative financing for social enterprises in LMICs. This resource is essential reading for digital-first start-ups looking to leverage the digital assets to attract funding, financiers aiming to make use of the opportunities and use cases enabled by digital technologies to support innovators in LMICs, companies aiming to find more effective ways to meet their ESG objectives, and development partners who seek to leverage both digital and private capital to maximise their impact.