Overview

For global digital transformation to be successful, stakeholders must assess how to develop and deploy more inclusive systems collaboratively, safely, and effectively. Recently, the COVID-19 pandemic accelerated the demand for digital solutions to improve countries’ public and private service delivery. Some countries, like Togo, were able to deliver seamless digital payments to their most vulnerable populations. Other countries, including the United States, pumped huge sums of public money through outdated systems that buckled under the weight of the crisis, resulting in unprecedented inefficiencies in the delivery of public services and benefits. The results are clear: Legacy systems are no longer fit to govern twenty-first century societies, and every country and community needs systems suitable for the modern digital age.

Our team assessed the challenges surrounding sustainable financing for digital public infrastructure (DPI)—the digital rails enabling core functions that all societies need to power more inclusive, effective, accountable service delivery, such as identity verification, payments, and data exchange. A growing movement of global leaders are investing in DPI, enabling solutions ranging from the digital economy, health, and education sectors to cash transfers and food distribution. We set out to examine the current landscape of DPI funding, potential sources of new financing, and recommendations for how the public, private, and social sectors might collaborate to resource DPI systems for social impact at scale.

With no single funding vehicle dominating the emerging DPI landscape, this paper first examines existing funding models across six categories, identifying an example solution for each:

• Governments are often invested in supporting DPI projects through their entire life cycle, given the significant advantages for their residents and organizations across all sectors. However, governments often lack incentives to scale solutions beyond their jurisdiction and may struggle with inflexible procurement, limited funds and political will, and sociopolitical and data privacy risks. (Example: Aadhaar)
• Philanthropies are well suited to provide early-stage funding for DPI, having a higher risk tolerance for experimentation, the ability to act nimbly, and the means to crowd-in other funders. However, this funding can lack long-term implementation and feasibility planning, as investment is subject to change based on broader strategies. (Example: Mojaloop)
• Philanthropic to self-sustaining models can leverage philanthropic capital as initial anchor funding to help incubate and de-risk solutions. Moving on to a self-sustaining model can help secure a solution’s longevity, though funding sources may be regressive. (Example: ProZorro)
• Intergovernmental collaboration is useful in lowering overall development and maintenance costs, scaling across jurisdictions, and managing risk. However, coordinating joint efforts and resources and finding willing partners may be a challenge. (Example: X-Road)
• Multilateral organizations can provide reliable financing, crowd-in other public and private funding, coordinate different sources of capital, supply technical and policy expertise, attract users, build in-country capacity, and convene stakeholders. Disadvantages may include institutional complexity, higher absolute costs, and decreased funder control, visibility, and preferences. (Example: LACChain)
• Diverse funding streams help diffuse risks across multiple stakeholders, increase the visibility of DPI projects, protect solutions from reliance on any single source of funding, and allow stakeholders with different incentives to support and scale common solutions. Challenges include coordinating funders and their goals, aligning investment incentives across stakeholders, and creating mechanisms to pool and allocate funds. (Example: District Health Information System 2)

We weighed the strengths and weaknesses of these existing models against a range of challenges underlying the sustainable financing of DPI. These include:

• Lack of coordination among stakeholders, leading to duplicative efforts;
• Misalignment of funding incentives, with no center of gravity to incentivize collaboration among actors and articulate return on investment at different stages;
• Lack of regulations that facilitate new business models, discouraging the development and financing of private-sector solutions;
• Siloed, sector-based funding approach, leaving foundational systems that could be leveraged by multiple sectors underfunded;
• Disconnect between funding and technology development cycles, with funding expiring just as systems begin to demonstrate impact;
• Barriers to discoverability of successful DPI solutions, with no single repository that holds the complete breadth of DPI solutions;
• Lack of funding for capacity building, preventing some countries from working with the private sector or implementing systems themselves;
• Insufficient funding, requiring a transition to more efficient infrastructure models;
• Innovation aversion and first-mover disadvantage, leaving many governments unwilling to accept the financial or social risk of deploying new DPI on their own;
• Competing priorities and political will, preventing teams from receiving the resources, capacity, and oversight needed to navigate organizational challenges; and
• Complex government procurement processes, resulting in cumbersome systems, vendor lock-in, and increased costs.

Through this process, we found that creating new financing architecture to align incentives and funding from a diverse set of actors—shifting from a funding approach to a financing approach¹—may best support the development and scaling of open DPI across jurisdictions. This paper identifies three key recommendations:

1. Create a unified funding mechanism: A unified funding mechanism could pool disparate funding sources under a common framework to promote coordination, derive more impact from available resources through both traditional and innovative financing mechanisms, and prioritize investments more efficiently. This architecture could create incentives for experimentation and participation, underpin multi-stakeholder governance models, support local technical capacity, facilitate scaling, and help ensure that successful products stay relevant. Pooled funding to support DPI could reduce first-mover risks, help provide a knowledge hub for the field, and address often overlooked, but critical, maintenance costs.
2. Emphasize self-sustaining scale business models: Solutions that are self-sustaining or have achieved long-term funding commitments are much more likely to succeed. Stakeholders should prioritize building solutions with explicit plans for how they will continually support themselves.
3. Establish an open marketplace: An open, transparent marketplace could connect implementers and technology providers with sources of funding, helping to aggregate demand and better coordinate the development of shared solutions. A marketplace could also provide both funders and civic innovators with more clarity on existing DPI solutions and certify technology providers that are qualified to build them. Civil society should have a key role in governing this institution and serve as an oversight body for the coalitions it facilitates.

In addition, governments can help build an ecosystem where such shared DPI efforts can thrive. This should include developing whole-of-government strategies for DPI that identify priority infrastructure investments, establish pro-innovation regulations that will make DPI more accessible, elicit proposals for public-private partnerships, incentivize private-sector companies to develop open solutions and build in-country capacity, and strengthen interoperability through open application programming interfaces (API) and collaborative arrangements, in order to drive the infrastructure approach and crowd-in private and other sources of capital.

It is time for open collaboration toward healthier and more sustainable digital ecosystems worldwide. DPI that is responsibly developed and deployed can provide a resilient foundation for public administration and economic activities, as well as support social progress across a range of Sustainable Development Goals.² While financing is just one of the areas that needs attention to create an inclusive and sustainable digital future, we hope the questions, analyses, and recommendations raised in this report will help advance this global effort.

As the field of DPI continues to grow, this report is intended to serve as a resource for digital government decision makers and civil servants, technologists, funders, and civil society actors who are exploring ways to fund and sustain DPI solutions, whether at the local, country, or global level. Given the breadth of multi-stakeholder funding arrangements, these categories may overlap. Outlined below is how we anticipate different audiences can best harness this content.

• Digital government decision makers and civil servants: This report encourages government actors to consider DPI as a tool to address common challenges, ranging from access to public services and the improvement of digital solution delivery to issues often present at the intersection of technology and democracy. Awareness of possible financing models, including those that leverage the contributions of multiple sectors, could help inform policy and funding decisions.
• Technologists: Private-sector technology providers, public interest technologists, open source vendors, and in-house experts in government and multilateral organizations can play a key role in developing and sustaining scalable DPI solutions. Understanding existing and possible funding approaches can assist in the development and deployment of such solutions.
• Funders: Governments, philanthropies, private-sector actors, finance experts at multilateral organizations, and other funders can use this report to prioritize DPI among currently funded digital initiatives and weigh the benefits of both traditional and innovative financing.
• Civil society actors: This report discusses how civil society entities, such as universities or other nonprofit institutions, can play a role in the governance and monitoring of projects and help to ensure sustained funding.

In March 2021, New America’s Digital Impact and Governance Initiative (DIGI) convened key stakeholders to explore the financing architecture necessary for developing the field of DPI. The lack of a common financing architecture to support the development of replicable systems built by multi-stakeholder coalitions was identified as a critical gap. This report examines different models for financing DPI across various sectors, including government, philanthropy, international development organizations, and multilateral organizations.

The findings below are informed by interviews with more than a dozen experts from organizations across each of these sectors, including the World Bank, the Inter-American Development Bank, DHIS2, and Mojaloop, and builds on insights shared by funders and government leaders. Six representative funding models from this process are highlighted as examples to demonstrate how DPI has been funded to date and to illuminate the strengths and challenges of each model. Finally, this report outlines recommendations for future financing approaches for DPI initiatives and presents learning questions for further consideration.

This report is neither an exhaustive list of financing options nor an analysis of the merits or an endorsement of any particular DPI technology or solution; rather, it is an initial landscape examination of possible financing approaches. While this conversation is perhaps most advanced in the international development community addressing the needs of low- and middle-income countries (LMICs), DIGI sees value in considering and promoting DPI at a global level for the benefit of individuals and open societies across all income levels. It is our expectation that this discussion will continue to mature as knowledge of DPI and the availability of DPI examples expand.