Appendix 1: Funding Model Examples

Note: Information about the solutions suggested below is current as of September 1, 2022, based on interviews with key stakeholders and publicly available information.

Solution: Aadhaar is a digitally enabled identity system that allows governments, businesses, start-ups, and software developers to leverage India’s robust digital infrastructure to address a myriad of critical issues. This innovative software solution brings millions of Indians into the formal digital economy and fosters innovation to develop new products to reduce friction across health care, finance, and education.

Deployed: India

Problems Addressed: Aadhaar allows businesses to perform e-Know Your Customer (eKYC) digital verification using biometrics or mobile one-time passwords. These capabilities have helped hundreds of millions of residents access bank accounts in India. Aadhaar also includes a new digital identity system allowing for efficient transfer of government benefits and subsidies. Lastly, Aadhaar helps reduce the use of physical documents via its e-signing and digital issuance and document verification capabilities.

Key features and Development Stage: The project has reached scale in India via IndiaStack, based on the number of active users (more than 1 billion) as well as the number of digital identity verifications (67 billion). A number of applications, such as India’s vaccine registration platform Co-Win, have leveraged these systems to reach population scale.

Funding: Aadhaar is funded by the Indian government. iSPIRT, a nonprofit think tank supporting public-purpose tech products, has been involved in the development of Aadhaar and provides pro bono support for entrepreneurs looking to make use of business opportunities provided by Aadhaar.

Governance: Aadhaar’s digital identity system (known as Aadhaar Authentication) and eKYC APIs are owned and governed by the Unique Identification Authority of India, a statutory authority established under the provisions of the Aadhaar Act, 2016 by the Government of India, under the Ministry of Electronics and Information Technology.

Advantages: Governments that fund the development and implementation of solutions have skin in the game and are more likely to see technology projects through to success.

Potential Challenges: Domestic and international civil society organizations have raised valid concerns about the security and governance of Aadhaar, along with the process by which it was rolled out. In considering government-funded models more generally, one challenge is that governments do not have the incentive to scale successful projects beyond their borders unless they can arrange a complex licensing process, stymieing the use of open source solutions. Further, many governments struggle with inflexible and/or internally siloed procurement processes, especially if they lack a designated body to deploy public-sector technology systems. Another challenge, particularly in developing economies, is that some governments have limited available funds and internal capacity for the development and maintenance of digital solutions.

Solution: Mojaloop is an open source technology solution that can be leveraged in several ways to develop interoperable and digital payment systems that enable safe, efficient, and affordable transactions. Payments can be made among individuals, banks, government agencies, merchants, telecommunication network providers, and technology companies. Mojaloop technology is helping to connect the underserved (and the historically unbanked) with the global digital economy.

Deployed: Mojaloop is being deployed in Tanzania and Uganda (with ongoing pilots in Myanmar and Rwanda).

Problems Addressed: Many people in the world do not have much-needed access to banks and other financial institutions or products. As such, they face many challenges, including the necessity to use cash for their consumer transactions, lack of electronic accounts to store funds, inability to transfer funds to family members in an emergency, and inability to electronically receive employment wages, or stimulus checks, as we have witnessed during the COVID-19 pandemic. Further, merchants, manufacturers, and other businesses can leverage Mojaloop open source technology to prevent, deter, and fight financial fraud.

Key Features and Development Stage: Mojaloop technology is principally aligned to the following functional scenarios:

• Efficient transfer of funds from person-to-person;
• Individual checking accounts and point-of-sale e-payments benefiting consumers and merchants;
• Consumer purchase of goods via e-wallet accounts;
• Payroll and other bulk payments for small and medium-sized enterprises;
• Enterprise risk management via tiered risk framework;
• Enterprise fraud detection and development/maintenance of blacklists; and
• Financial services account management.

The initiative has been active for several years and is endorsed by several funders, technology companies, monetary authorities, and a community of developers.¹ It is unclear whether the project has reached scale in each of the jurisdictions it is deployed in.

Funding: The Mojaloop open source software was developed by a multitude of volunteer software developers, coordinated by the core team at Mojaloop. Operating costs of the Mojaloop Foundation are funded by foundation membership dues and grants from philanthropies. Initial Sponsor Members are the Bill & Melinda Gates Foundation, Coil, Google, ModusBox, and the Rockefeller Foundation.

Governance: The Mojaloop code was launched in 2017 by the Bill & Melinda Gates Foundation, as part of an open source community project, and the Mojaloop Foundation was formed as a charitable, not-for-profit entity in 2020 to govern, amplify, and formalize those efforts.

Advantages: Philanthropic funders are more likely to invest in experimentation and test new solutions on a time horizon that governments may be unwilling to support. Whereas governments may be cautious to support higher-risk projects due to political considerations, philanthropies often have greater risk tolerance to de-risk new solutions.

Potential Challenges: Philanthropic support for any single initiative can change as projects become more or less aligned to their initial investment strategy. That puts essential digital infrastructure at risk if the government fails to allocate funds to maintain the system.

Note: Information about ProZorro reflects the state of the platform before the 2022 Russian invasion of Ukraine. Due to the shifting situation on the ground, this report may not contain up-to-date information.

Solution: ProZorro is a public procurement platform in Ukraine, enabling public electronic procurement transactions, storing all public data, and providing access to contract tenders. State enterprise representatives publish tender announcements, and businesses compete in the auction process, all with the help of an electronic auctions digital module.

Deployed: ProZorro is active only in Ukraine, but the system has been used as a template for MTender, a similar system that has achieved success in Moldova. MTender has saved the country over $25 million (USD),² with a mere $1.2 million development cost. Elements of ProZorro monitoring software have also scaled in Kazakhstan, Tajikistan, and Uzbekistan.

Problems Addressed: Ukraine was reportedly losing more than €2 billion (EUR) annually from procurement corruption and limited competition for public bids: an estimated €1 billion (EUR) in “corruption tax,” and similarly, an estimated €1.1 billion (EUR) in annual losses resulting from limited competition for public bids.

Key Features and Development Stage: ProZorro was designed as a transparent procurement platform, and has the following features:

• Compulsory auction for price reduction;
• Open source code available for audit;
• Agile product development; and
• Public business intelligence (analytics) portal ensuring full transparency of the public procurement process.

Automatic screening of several factors allows the government to identify corruption-prone tenders. It also contains training modules, an e-library of typical procurement specifications, and relevant procurement related legislation in one place, to improve efficiencies. The project has been active since 2016 and appears to have reached scale in Ukraine.

Funding: ProZorro was initially funded by small donations from local businesses which were interested in reforming the procurement process. Civic innovators who were developing ProZorro then turned to large global philanthropies and bilateral funders, who funded the project development costs through trusted intermediary nonprofits. Since then, the solution has become self-sustaining by charging small fees for every transaction to support maintenance, updates, and system delivery.

Governance: It has been developed and governed by what the Ukrainian government refers to as the “golden triangle”:

• Government institutions (around procurement rules and data storage);
• Commercial procurement platforms (private sector); and
• Civil society (to monitor and control procurement).

Several international partners—the Eurasia Foundation, Transparency International, USAID, and UK Aid—also contribute to the success of ProZorro.

Advantages: Philanthropic capital can help incubate solutions in difficult contexts, but it is unlikely to support critical e-government services in the long term. Moving to a model that is self-sustaining, often by the government, can secure the longevity of a given solution.

Potential Challenges: Self-sustaining funding sources can be regressive, depending on how they are administered. For example, if verifying an ID costs more than local residents can afford, a digital ID solution could become exclusionary.

Solution: X-Road is an open source software and ecosystem solution providing unified data exchange between organizations and service providers.

Deployed: X-Road was founded in Estonia and is also implemented in the Faroe Islands, Finland, Iceland, Japan, and Kyrgyzstan. Similar technology based on the Estonian interoperability experience has also been implemented in El Salvador,³ Namibia, and Ukraine. The history of code releases and solution rollouts is available on X-Road's website.

Problems Addressed: The need for safe, secure, and efficient cross-border data exchange between organizations.

Key Features and Development Stage: Features include web address management; message routing; access rights management; organization, machine, and transport level authentication; time stamping; digital stamping of messages; logging; and error handling.

Funding: The project was initially funded by Finland and Estonia, and later by Iceland, through the Nordic Institute for Interoperability Solutions (NIIS). The platform has also benefited extensively from private-sector support and development contributions.

Governance: NIIS assumed governance responsibility for X-Road in 2018. NIIS is a nonprofit association and collaboration platform with the mission to ensure the strategic development and maintenance of X-Road and other cross-border digital government infrastructure assets. Estonia, Finland, and Iceland are the members of NIIS. Cooperation between Estonia and Finland began in 2013, upon execution of a memorandum of understanding (MOU) by the prime ministers of the two nations. The MOU initiated cooperation to develop a software environment enabling secure connectivity, searches, and data transfers between the governments and private databases. Iceland later became a partner within NIIS in 2018.

Advantages: Governments that work together to fund a solution face lower overall development and maintenance costs. This method can save public funds, de-risk innovative solutions, and help governments share successful, proven solutions.

Potential Challenges: Coordinating the actions and resources between the various governments participating in development and implementation of DPI solutions can be challenging. Currently, these communications most often occur through word of mouth. To the best of our knowledge, there is no global institution connecting governments to build common solutions at scale.

Solution: In 2019, the Inter-American Development Bank’s Innovation Lab (IDB Lab) founded the LACChain Global Alliance with more than 60 cross-sector partners to develop a blockchain infrastructure and ecosystem in Latin America and the Caribbean (LAC). This blockchain infrastructure is a public good intended for projects across many sectors with an impact on economic development and inclusion. Ecosystem efforts include academic training programs, a marketplace (L-Store) to share information about products and solutions that entities have established on the infrastructure, and a search feature to help connect projects seeking financing with those seeking to invest.

Deployed: LACChain serves Latin America and the Caribbean, with stakeholders across 16 countries active in the ecosystem. Government entities, enterprises, and the IDB have deployed more than 50 pilot projects on the LACChain infrastructure for cross-sector use cases ranging from cross-border payments to agricultural supply chain traceability, vaccine and academic certification, and customs and trade.

Problems Addressed: LACChain was launched to address the absence of neutrally governed, general purpose infrastructure; silos in the ecosystem; information scarcity; regulatory uncertainty; high usage costs; carbon footprints; and thousands of blockchain networks that were not suitable for the scalability of government and enterprise use cases.

Key Features and Development Stage: LACChain offers a public-permissioned blockchain infrastructure, including a mainnet and a testnet. The infrastructure aims to become a quantum-safe blockchain network of networks consisting of three layers. Two of them, the public-permissioned blockchain ledger and a digital identity, are already available; the third, a tokenized money layer, is still under development. Features include:

• Nonprofit governance and orchestration provided by nonprofit LACNet;
• Environmentally friendly technology with no impact on carbon footprint;
• Open source technology supported by private-sector partners ConsenSys and Linux Foundation, complemented with open source tools developed by the LACNet tech team;
• GAS distribution protocol per node and block, avoiding denial of service attacks and allowing traceability of which node introduces each transaction;
• A 24/7 monitoring system; and
• Integration with IPFS registry for decentralized storage of heavy public files.⁴

Funding: The IDB provided the initial four-year funding for IDB Lab staff to manage the alliance, coordinate diverse funding streams, coordinate and lead the technical development, conduct outreach to new partners and users, launch the LACNet nonprofit governance entity, and develop the ecosystem. Private-sector partners contributed cash and in-kind resources, including technical talent to help build the infrastructure and participate in working groups to develop code and documentation; legal expertise and participation in legal working groups; projects to run on the infrastructure; and marketing and communication support. Nonprofit partners assisted in standing up LACNet, the nonprofit governance entity, and provided technical, legal, and financial support. After the initial four years of the project, the goal is for the LACNet governance entity and the LACChain infrastructure to be self-sustaining through membership fees and neutral donations from public, private, and multilateral entities. The membership model provides a level of network usage per block, as well as individualized technical support.

Governance:

• Centralized orchestration: The IDB, along with regional nonprofit partners LACNIC and RedCLARA, founded LACNet, a nonprofit, neutral entity based in Uruguay to orchestrate the blockchain infrastructure, establishing a contractual legal framework between all node operators in compliance with ISO standards.​ LACNet will also manage membership, provide maintenance and support for the networks, and maintain the technical and legal teams;
• Decentralized governance: All node operators can participate in the technical aspects of the network through working groups; and
• Decentralized operation: Open infrastructure for any entity to deploy and manage its own node, validator, boot, writer, and observer.

Advantages: Having reliable multiyear funding and staff support from a neutral and recognized multilateral organization is helpful in launching infrastructure initiatives, securing critical support from other alliance partners, attracting users of the infrastructure, and setting up a comprehensive transition to a self-sustaining model.

Potential Challenges: In general, disadvantages of channeling funds through multilateral bodies include institutional complexity and higher absolute costs due to cumbersome compliance procedures, as well as less donor control, visibility, and preferences.⁵ Challenges of LACChain’s approach include the need to secure contributions from different sectors—and eventually, sufficient membership fees—to sustain the initiative past the initial funding. Further, this model requires managing possible “co-opetition” by separating collaboration and competition among alliance partners, including achieving alignment between partners’ interests in developing and using scalable infrastructure; recognizing partners’ need to pursue business opportunities based on the infrastructure and enabling equal access to opportunities; and remaining agnostic about partners and solutions.

Solution: DHIS2 is an open source software system to report and disseminate data for a variety of health programs; it has recently expanded into non-health use cases.

Deployed: DHIS2 is in use by ministries of health in 73 countries, principally in the Global South. Sixty of them have achieved national scale.

Problems Addressed: It supports a wide range of use cases within the health sector, including universal health data management. The solution leverages disease-specific modules to teach critical information to patient users. DHIS2 has been the foundation for certain governments’ COVID-19 response, including digital tools for vaccine distribution and management, as well as analytics to improve response.

Key Features and Development Stage: There is a flexible and modular core platform that encourages local innovation. The software is open source, free of any licensing fees. The platform supports a wide range of uses, within and outside the health sector. It leverages a standards-based health app that includes health systems and disease-specific modules, developed in collaboration with the World Health Organization. It also has a shared and integrated data warehouse for essential health data. Some DHIS2 applications:

• COVID-19 digital health data toolkit and data-driven deployment of vaccines;
• Real-time end-user vaccine stock management (DHIS2 Android);
• COVID-19 vaccine registry and tools to manage adverse events following immunizations; and
• Test cases in a few jurisdictions to generate COVID-19 test certificates and travel passes.

The platform has reached scale based on the number of jurisdictions in which it is currently used.

Funding: It is financed and endorsed by global health agencies, the WHO, Norad, PEPFAR, the Bill & Melinda Gates Foundation, and the CDC (each of these organizations has played a role in funding or supporting the platform at some point in its history). Gavi and the Global Fund are long-term funding partners.

Governance: DHIS2 was founded by the University of Oslo and continues to be governed by leaders in the Department of Informatics.

Advantages: Pooling diverse funds allows stakeholders with different incentives to support common solutions. For example, a municipal jurisdiction may have an incentive to develop a solution that works only for its residents, but it may be willing to pilot an open source, scalable solution if philanthropic capital defrays some of the cost. Philanthropic partners could then extend the successful pilot and make a broader impact across the country and globe, while coordinating with other sources of capital.

Potential Challenges: The main challenges to this model are coordinating the various funding actors, aligning investment incentives from each stakeholder to relevant stages of DPI development, and creating the fiscal architecture through which to pool and allocate funds.