A wide range of players have begun to embrace innovative finance, including treasury departments, multilateral development agencies, nonprofit financial firms,.
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Introduction Closing the Funding GapDevelopment in the 21st Century is About Financing, Not Giving By Judith Rodin and Saadia Madsbjerg ..i Framing Innovations that Broaden the Scope of Financial CapitalismBy Robert J . Shiller 2The Innovative Finance RevolutionPrivate Capital for the Public GoodBy˜Georgia Levenson Keohane˜and˜Saadia Madsbjerg .8In Defense of Financial InnovationCreative Finance Helps Everyone Š Not Just the Rich By˜Andrew Palmer ..18

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The Risk of Small GoalsBy Zia Khan .28 Innovative Finance Solutions No Pain, Big Gain. How Micro-levies Save LivesPhilippe Douste-Blazy and Robert Filipp ..34Making Innovation Boring: The Key to Low-Cost Finance for fiPublic GoodsflBy Kenneth G . Lay ..38African Risk Capacity: An African-led Strategy for Managing Natural Disastersby Dr . Ngozi Okonjo-Iweala, Chair of the ARC Agency Governing Board ..51Investing in the Transformation of Financial Access in IndiaBy Sucharita Mukherjee, Deepti George and Nikhil John .59Meeting the World’s Infrastructure Investment Gap: Innovate or PerishBy Lorenzo Bernasconi . .69 Technology Innovation Bitcoin for the UnbankedCryptocurrencies That Go Where Big Banks Won™t By˜Paul Vigna˜and˜Michael J . Casey ..82

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Commissioned by The Rockefeller Foundation iClosing the Funding Gap Development in the 21st Century is About Financing, Not Giving By Judith Rodin and Saadia Madsbjerg JUDITH RODIN is President of ˜e Rockefeller Foundation. SAADIA MADSBJERG is Managing Director of ˜e Rockefeller Foundation. In 2015, the world had set ambitious targets for addressing global challenges, agreeing on the Sustainable Development Goals (SDGs) and the Paris Climate Agreement. ˜e cost of implementing these agreements, however, will be as -tronomical. Over the next decade, the UN estimates that implementing the SDGs will cost between $50 trillion and $70 trillion; the Paris Climate Agreement will cost over $12 trillion over 25 years. At a time when the world economy is in a fragile state, Overseas Development Assistance is in decline and being redirected towards peace and security e˚orts. Philanthropy provides a few hundred billion dollars a year, but that is far less than what is needed. ˜e critical question is: how will we pay for it all? ˜e answer is to leverage innovative ˛nance mechanisms that can tap into the over $200 trillion in private capital invested in global ˛nancial markets and e˚ectively deploy these funds towards development e˚orts. Development in the 21st century needs to be about ˛nancing , not just pledges and givingŠgiven the scale of the social, environmental, and economic challenges that we face today. Innovative ˛nance represents a set of ˛nancial solutions that create

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ii Commissioned by The Rockefeller Foundation scalable and e˚ective ways of channeling private money from the global ˛nancial markets towards solving pressing global problems. ˜ese ˛nancing solutions take a variety of forms across sectors and geographies, from insurance-linked securities and pay-for-success structures to advanced market commitments. As society™s provider of risk capital, philanthropy has over the years championed the development of innovative ˛nance solutions that have shown how to successfully enable, accelerate, and harness private capital markets for public good. We have seen early success with the adoption of innovative ˛nance mechanisms such as pooled risk insurance, social impact bonds, and green bonds. Yet this early success isn™t enough to meet increasing need. Globally, more than 800 million people still live on less than $1.25 a day; 2.4 billion people lack access to sanitation. Further, 795 million people are estimated to be chronically undernourished. The Rockefeller Foundation is committed to using our philanthropic risk capital to develop the next generation of innovative finance solutions that are needed to close the gap between global development™s funding needs and the resources that are currently available. We call this initiative Zero Gap. Working at the intersection of finance and international development, Zero Gap provides one model for how the development community can support and de-risk new and innovative financing mechanismsŠincluding financial products and public-private partnershipsŠto mobilize large pools of private capital that have the potential to create out-sized impact. ˝˝ Zero Gap is a collection of bold ideas that we have sourced from around the world for how to scale funding for critical development objectives such as energy access in Sub-Saharan Africa or restoring natural infrastructure in the Americas. A core value of Zero Gap is that ˛nance can be a powerful tool for good. Imagine a forest resilience bond investing in wild˛re prevention in California, a micro-levy that creates a stable funding stream for alleviating malnutrition in Africa, or insurance being harnessed to not only respond to the next Ebola crisis but also to ensure better preparation for disease outbreaks. To fully unlock the potential of innovative ˛nance, new ˛nancial mechanisms must be structured to meet the needs of investors such as return on investment, level of risk, and portfolio diversi˛cation. To encourage investors to go from

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Commissioned by The Rockefeller Foundation iii allocating billions of dollars for social good to trillions we need to align with ˛nancial principles without sacri˛cing the social or environmental objectives. For example, investments that provide poor and vulnerable people with access to energy must also meet the risk/return expectations of institutional investors. To be successful, we must continue to structure these ˛nancial mechanisms for and with the international ˛nancial community. ˜e only way to close development™s precarious funding gap is to make a sustained commitment to innovation Š innovation in developing novel ˛nancing mechanisms and enabling public policy interventions that collectively have the power to mobilize new and additional private sector capital. ˜is collection of essays draws on the expertise of practitioners and leading thinkers in the innovative ˛nance ˛eld to explore the role of global capital markets in driving social impact and the underlying policy framework required to foster greater collaboration between the private and public systems.

323 KB – 138 Pages