Recommendations

This exploration revealed three major recommendations to increase coordination and improve incentives for collaboration across the ecosystem. Geared toward stakeholders across all sectors, these recommendations are to:

1. Create a unified funding mechanism.
2. Emphasize self-sustaining business models.
3. Establish an open marketplace.

In addition, governments can help build the 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 to 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 APIs and collaborative arrangements, in order to drive the infrastructure approach and crowd-in private and other sources of capital. If implemented properly in an enabling ecosystem, these mutually reinforcing architectures can help countries maximize the utility of funding available for DPI, while reducing waste and improving capital efficiency.

A growing group of actors across governments, multilateral organizations, philanthropies, and the private sector are moving from an ecosystem in which individual funders support the building of discrete projects to a more comprehensive approach in resourcing the ecosystem. This includes global leaders’ commitment to implement and fund DPI through a newly established Digital Public Goods Charter,¹ the multi-sector commitment of $295 million (USD) to advance inclusive DPI,² and the launch of Co-Develop in response to the funder community’s desire to better incentivize experimentation and scaling of DPI platforms.

Elements to Consider for a Unified Funding Mechanism

Accommodate Both Traditional and Innovative Financing

A unified funding mechanism could be designed to provide funders and partners with a diverse portfolio of both traditional and innovative options. This would offer two major benefits: to align with funders’ varying budget resources, requirements, and restrictions; and to help secure and leverage both immediate and longer-term funding.

“A unified funding mechanism could be designed to provide … a diverse portfolio of both traditional and innovative options.”

Such a mechanism may be anchored by traditional funding in the form of direct bilateral and multilateral contributions from governments, philanthropies, and other private funders, and could be designed to accommodate both unrestricted and purpose-allocated funding. In addition, the platform could incorporate one or more innovative financing mechanisms in order to tap into new resources, derive more impact from the available resources, and attract multiyear funding commitments and longer-term investments. This could include securities and derivatives (for example, bonds and loan guarantees backed by philanthropies,³ bilateral development agencies, MDBs, or development finance institutions), results-based financing, trust funds, and other financial arrangements.

Of particular interest for DPI, a Financial Intermediary Fund (FIF) enables funds to be raised from a variety of public and private resources in a coordinated response to a global initiative, such as the provision of a global public good. Based on customizable arrangements, FIFs enable a financial intermediary institution to serve as Trustee, providing a range of agreed financial services that include receiving, holding, and investing contributed funds, and then transferring them, when and as instructed by the FIF governing body. For example, the World Bank, which serves as a Trustee of 26 FIFs, may also provide customized treasury management, bond issuance, hedging intermediation, monetization of carbon credits, or other financial services. In the case of the International Finance Facility-Immunisation (IFFIm), the World Bank uses long-term, legally binding donor pledges to back the issuance of vaccine bonds in capital markets to raise up-front money for Gavi, the Vaccine Alliance programs. (See Appendix 2 for more information on FIFs.)

However, such innovative financing mechanisms may not be appropriate for all funders for reasons that range from concerns about their cost-effectiveness and perceived feasibility, to policy and legal challenges posed by a need for making up-front, multiyear funding obligations, changes in tax law, or other issues.⁴ This underscores the importance of considering a diverse portfolio of options for funders, which could require creating new fiscal architecture through which to pool and allocate funds.

Designate a Governing Entity

Depending on the platform’s level of complexity, this may require designating an entity to coordinate the diverse funding streams and monitor the conditions and requirements under which DPI support may be provided to recipients. For example, several of the funding model examples examined in this paper featured the participation, and sometimes the creation, of a neutral third party (such as a multilateral organization, university, or other civil society organization) to oversee governance aspects of an initiative, and ensure its sustained funding, including the transition to self-sustainability.

Benefits of a Unified Funding Mechanism

In addition to maximizing the advantages of different funder categories, a unified funding mechanism could offer an array of benefits to move DPI forward:

• Establish a Center of Gravity to Align Incentives and Prioritize Investments Efficiently: A unified funding mechanism could align funder incentives from the onset of a project, providing clarity as to which sources of capital will be available to sustain critical phases of technology development and how investors can generate a financial (or social) return on their capital investments along the way. Further, it could provide much-needed governance to channel funds toward foundational multi-sector solutions and to help determine priority areas for investment. These could include technical assistance for solution design and implementation, local capacity building, testing and pilot project deployment, support for scaling, and the maintenance of code bases.
• Align Funding to Relevant Stages of Technology Development: Addressing the full life cycle of DPI development,⁵ a unified funding mechanism can draw on different types of funding actors, blend their capital, and allocate it to DPI projects according to phases, based on funders’ unique resources, requirements, and priorities. This end-to-end, phased capital allocation can de-risk each phase of technology development and increase the likelihood of long-term sustainability of DPI efforts.
• Reduce the First-Mover Disadvantage: Initially, the unified mechanism could make larger, coordinated investments in friendly jurisdictions that demonstrate a strong appetite for piloting solutions and a willingness to change existing processes, such as procurement. Pooled investments could fund change management strategies, software development, deployment plans, and project documentation. Deep investments in these areas could help bridge the capacity gap between the public and private sectors by supporting public interest technologists in government and civil society, improving the success of project pilots, and generating learnings for second-mover projects seeking to adopt similar solutions.
• Support Scaling through Dedicated Funding: Pooled financing could support the expansion of DPI projects that entities are already investing in, with the stipulation that those entities build open, replicable, and scalable systems. Once these open pilots are established, the unified funding mechanism can help scale solutions to other contexts by allocating funds for technical assistance and expertise, project planning and implementation development, and integration with legacy infrastructure. Ideally, the bulk of these funds should focus on jurisdictions that demonstrate an interest in change management but that lack the resources for DPI projects.
• Ensure Long-Run Product Sustainability of Critical DPI: Pooled financing architecture could include support for critical platforms that have achieved scale to multiple countries to ensure they continue to function properly. This can be separate from maintenance costs to support individual implementations on the ground. For example, DHIS2 raises specific funds for testing, maintenance, and updates to the core code base hosted at the University of Oslo that do not also support implementations on the ground.
• Create a Knowledge Hub for DPI: A unified funding mechanism that supports projects in countries around the world would have unique insights into common pain points and could provide solution support for civic innovators. A knowledge hub could help countries design more flexible and innovative digital procurement strategies⁶ that create incentives for vendors to build modular and interoperable systems, adopt customizable open source systems, or default to open source technical requirements for new projects. It could also retain staff to provide rapid response technical support for jurisdictions issuing requests for proposals and implementations of critical systems.

Continued funding beyond implementation is necessary to make critical security and functionality enhancements that ensure the long-term viability of any DPI deployment. Just as software products in the private sector are expected to undergo continual development, DPI systems need to have a dedicated staff, clear governance, and the financial resources to ensure the product continues to serve individuals and communities.

Two methods for generating sustainable support are:

• Fees for Services: Depending on the nature of the DPI solution, revenue streams could be created through a combination of transaction charges, fees for API access, license fees or royalties, or membership/subscription fees. These fees create a recurring source of revenue to reduce ongoing dependence on external funding sources. Drawing on the funding model examples in this report, ProZorro uses small fees on each public procurement transaction in Ukraine to finance its continual development, while the LACChain membership fees provide a level of network usage and technical support. Fees can be regressive and exclusionary depending on how they are administered (as discussed earlier). Public administrators should examine the impact of a fee on access before imposing one on identity management or other foundational systems.
• Government Earmarking of Tax Receipts: Jurisdictions could leverage tax earmarking to fund DPI efforts, thereby ensuring long-term capital availability. Historically, government earmarking of tax revenue to fund specific services or programs has been widely adopted across many national and subnational governments. Earmarking is defined as “the practice of assigning revenue—generally through statute or constitutional clause—from specific taxes or groups of taxes to specific government activities or areas of activity,” with the main goal to protect a certain category of expenditure from political fluctuations by linking it to a particular source of revenue.⁷ A classic example is a tax on gas that is used to fund physical public infrastructure such as highways. In this context, there seems to be a compelling case for the use of tax earmarking to fund DPI efforts, ensuring long-term capital to launch, scale, and maintain this critical form of infrastructure. U.S. states, for example, have a long history of earmarking substantial components of their tax receipts for critical government services. According to the Fiscal Affairs Program of the National Conference of State Legislatures’ quintessential analysis of state tax earmarking, U.S. states have, on average, earmarked close to 25 percent of tax receipts for a variety of specific purposes or programs since the late 1970s.⁸

Other forms of innovative financing may be necessary to support DPI, particularly in low-capacity environments and in underdeveloped economies, whose resource and tax bases are already stretched thin. However, a solution’s ability to generate support for its own sustainability should be seen as a good indicator of its long-term success. For more information, see the Principles for Digital Development’s Business Model Sustainability Toolkit.

An open, fully transparent three-sided marketplace for DPI could expedite market activation and innovation by each of these three classes of market participants: implementers (demand), technologists (supply), and funders (financing), while creating a central role for civil society to facilitate responsible digital solution development, deployment, and governance.

The objective would be to create a single destination for global DPI stakeholders to convene and form diverse teams to launch and manage DPI development projects and share best practices. A marketplace platform could include features that allow funders to de-risk the innovation, deployment, and maintenance of DPI and incentivize use across jurisdictions.

The marketplace could be composed of three main DPI stakeholders:

• Implementers, including governments (national, subnational, or municipal) or regional political and economic organizations (the European Union, African Union, and the like) that would initially deploy DPI for the benefit of their residents and organizations operating within the particular jurisdiction(s). Other implementers that see the value in leveraging DPI to solve critical issues in their sector could include businesses, banks, health institutions, start-ups, software developers, and nonprofit organizations.
• Technologists, including large and small software developers in the for-profit and nonprofit sectors, and the associated technology standards organizations, such as the United States’ National Institute of Standards and Technology or the Organization for the Advancement of Structured Information Standards.
• Funders, including governments and their foreign aid offices; philanthropies, with potential for expansion to sovereign wealth funds and other impact investors (principally those with an innovative technologies focus); international finance institutions; and regional finance institutions.

This type of funding architecture is similar to that of Gavi, the Vaccine Alliance, an institution that facilitates vaccination access in low-income countries by creating a three-sided marketplace that connects supply, demand, and sources of capital. Gavi provides the pharmaceutical industry with a demonstrable market opportunity by allowing countries to pool their needs and funders to support the gap between those needs and the price of delivery. DPI could be well suited for such a marketplace due to the potential to scale proven solutions across borders and sectors once they are developed. Like Gavi, institutions to support DPI are poised to make a profound impact on global well-being.

There are recent examples of governments developing or actively participating in digital marketplaces. The U.S. General Services Administration has instituted the Commercial Platforms program as a cross-agency, whole-of-government e-marketplace initiative to increase the usage of commercial digital marketplaces as a source for more efficient U.S. government procurement.⁹ In addition, the U.K. government has released their innovative digital marketplace, currently in beta, as a tool for public-sector organizations to find people and technology for digital projects. This new marketplace serves suppliers and public-sector buyers of digital technology and is a source for governments to find digital specialists, user research participants, and labs.¹⁰

Benefits of an Open Marketplace for DPI

“Ideally, a DPI marketplace could become a leading destination in the world for stakeholders to discover other jurisdictions with similar interests and needs.”

An open marketplace for DPI could bring much-needed transparency to the field and produce other valuable benefits, such as:

• Aggregate Demand for DPI among Multiple Jurisdictions: The field needs a trusted center of gravity for civic innovators and government officials to learn about new projects under development, open source projects underway, and successful existing solutions. Ideally, a DPI marketplace could become a leading destination in the world for stakeholders to discover other jurisdictions with similar interests and needs. Such a marketplace could aggregate demand across multiple jurisdictions to build once and deploy in several places.
• Match Funding to Demand More Efficiently: An open marketplace allowing countries to pool their demand could help funders support projects in response to explicit demand from governments and make a greater impact per dollar invested. In addition, the structure provided by a marketplace could clarify which funders are supporting specific investment domains to unify efforts and reduce duplication. The marketplace could provide much-needed transparency to clarify which funders are supporting experimentation and development of new DPI and which organizations are scaling existing systems that have proven successful.
• Vet Technology Providers Who Are Qualified to Build Replicable Solutions: If technology providers receive support from funders to develop a replicable system that can reach multiple jurisdictions, that solution could divide overall development costs across the benefiting jurisdictions, while providing an incentive to developers to build scalable solutions. The marketplace could offer documentation of vetted technologists capable of developing scalable DPI, providing greater visibility and accountability. It could also provide a venue for technologists to feature their products, services, and solutions built on the DPI infrastructure that may be of interest to other implementers and consumers.
• Expand the Role of Civil Society: Civil society organizations could play an important role in the development and governance of an open marketplace. New financing mechanisms for DPI solutions should build on top of existing platforms that provide centers of gravity for DPI and connect them to each other–such as DIAL’s Catalog of Digital Solutions, the Digital Public Goods Alliance’s Registry, and GovStack’s Building Blocks platforms.