Current DPI Funding Models

Currently, there is no single financing vehicle that dominates the emerging DPI funding landscape or is appropriate for all DPI initiatives. This report highlights a number of existing DPI funding models and provides a representative example for each (see Appendix 1 for more information on the individual use cases). In categorizing these examples, the test applied was whether the majority of the funds were provided by the particular source. The examples are not an endorsement of the implementing organizations or the solution; rather, they serve as real examples of how various funding models have previously been utilized to support DPI initiatives around the world.

The identified funding sources include:

• Government;
• Philanthropy;
• From Philanthropic to Self-Sustaining;
• Intergovernmental;
• Multilateral Organizations; and
• Diverse Funding Streams.

It is important to note that, while not included in this section as a primary funder of existing DPI examples, the private sector also has a role to play in the financing ecosystem. Historically, private-sector companies have often created and financed early versions of products or services such as railroads and energy grids that later became essential infrastructure.¹ While private capital is the main source of funding for broader digital transformation efforts currently underway, in the case of DPI, funding and incentives provided by the public, philanthropic, or multilateral sectors could also help address areas of development with limited commercial viability and provide critical support to convene, coordinate, and scale multiparty efforts.² Going forward, the private sector’s role merits deeper discussion, with an eye toward ensuring its activities are consistent with healthy democracies and competitive economies.

Civic innovators in government and the social sector are increasingly keen to devote public resources to implementing DPI as a foundation of national digital transformation efforts. DPI can support whole-of-government systems for identifying beneficiaries of services, sharing information across agencies, and facilitating cash payments and other flows of funds. Because DPI can also support innovative digital solutions that improve the operations and service delivery capabilities of other organizations (e.g., businesses, health institutions, nonprofit and civil society organizations, and the like), governments are often interested in building these capabilities for their residents. Public funding for DPI often comes from general tax revenue or other sources of public funding, which can be allocated to incentivize the use of common systems across government agencies or subnational government bodies.

One advantage of this model is that governments have skin in the game and are more likely to see technology projects through to success. However, potential challenges persist. Governments often lack the incentive to scale successful projects beyond their borders unless they can arrange a complex licensing process, stymieing the use of open source solutions. Many governments struggle with inflexible or internally siloed procurement processes, especially if they lack a designated body to deploy public-sector technology systems. Further, some governments, particularly those in the developing world, have limited funds and internal capacity for implementing digital solutions. There are also sociopolitical and data privacy risks to governments taking on too much control over a system that they solely fund.

One example of the government funding model is Aadhaar, India’s digital identity platform. There are well-documented security, privacy, human rights, and governance concerns related to the creation of one of the world’s biggest biometric databases, and these issues may be exacerbated by the lack of a cross-sector and multi-stakeholder approach to funding and oversight. However, for this research, we are interested in the Aadhaar solution as an example of a governmental funding approach to a population-wide digital solution. Read more about Aadhaar as a funding model in Appendix 1.

Philanthropic support has significantly strengthened foundational approaches to DPI. Philanthropies often have a higher risk tolerance than governments for experimenting and for testing new solutions. In addition, philanthropic capital may be better aligned to near real-time concerns, as they can often act more nimbly than other funders, which was proven in many ways during the COVID-19 pandemic. They can also de-risk technical development by providing early anchor funding in the form of grants for innovative solutions and may help crowd-in other funders. However, this funding model can sometimes lack long-term implementation and feasibility planning.

For these reasons, philanthropic capital is typically well aligned as initial or seed capital for exploring or piloting DPI proofs of concept. However, philanthropic support for any single initiative can change as projects become more or less aligned to their initial investment strategy. This puts essential digital infrastructure at risk if other stakeholders, such as government partners, are unable to allocate funds for long-term system maintenance.

Mojaloop is one example of this model, where philanthropic capital was leveraged to develop an open source technology solution for digital payments in Tanzania and Uganda (with ongoing pilots in Myanmar and Rwanda). Core operating costs of the nonprofit Mojaloop Foundation, which was formed to govern and amplify these efforts, are funded by grants from philanthropies and membership dues. Initial Sponsor Members are the Bill & Melinda Gates Foundation, Coil, Google, ModusBox, and the Rockefeller Foundation. While this digital system can be deployed across multiple jurisdictions, philanthropic funders will need support from other stakeholders to effectively create the infrastructure needed to scale such DPI solutions. Read more about Mojaloop as a funding model in Appendix 1.

One class of solutions leverages philanthropic capital for development costs and shifts to a self-sustaining funding source for future maintenance. This model of funding is particularly useful in developing economies, where scarce resources and underdeveloped digital ecosystems offer high-impact opportunities for funders. Philanthropic capital can serve as anchor funding to help incubate and de-risk solutions in difficult contexts, but it is unlikely to support critical e-government services in the long term. Moving to a self-sustaining model can help secure the longevity of a given solution.

However, it is important to note that certain self-sustaining funding sources may 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 without the government’s financial support.

Initially funded by small donations from local businesses, the ProZorro solution leveraged philanthropic seed funding to de-risk the development of a public procurement platform in Ukraine. ProZorro transitioned into a self-sustaining solution by charging small transaction fees to meet specific local needs. Information about ProZorro reflects the state of the platform before the 2022 Russian invasion of Ukraine. Read more about ProZorro as a funding model in Appendix 1.

Governments may collaborate and pool funding to support the development and rapid scaling of DPI across jurisdictions. This form of funding is most useful when one jurisdiction has successfully deployed or tested a system and shares the code base with other jurisdictions or even licenses the proven system for a royalty. To manage risk, governments can collaborate at the outset of a DPI development initiative or wait for early solution deployments in other jurisdictions to prove value for users before committing to join in the solution development effort. For example, the Oyster card digital transit payments solution was developed in London, and Transport for London licensed the successful solution to a service provider that won contracts to scale the system to New York, Brisbane, and Boston.³

Governments that collaborate to fund a solution can benefit from lower overall development and maintenance costs, although coordinating such joint efforts and sharing of resources may be a challenge. To the best of our knowledge, there is no global institution connecting governments to build common solutions at scale.

X-Road, which was initially funded by Estonia and Finland, and later by Iceland through the nonprofit Nordic Institute for Interoperability Solutions before being implemented in other nations, is an example of this intergovernmental approach. It created an open-source, scalable solution for unified data exchange among organizations and service providers that removes the first-mover risk for other jurisdictions. Read more about X-Road as a funding model in Appendix 1.

Multilateral organizations, ranging from organizations such as the UN to international financial institutions, can support the development of DPI by providing reliable financing to launch or sustain an initiative. They can also attract and coordinate different sources of capital and funder contributions, supply technical and policy expertise via headquarters or in-country program teams, attract users, and build in-country capacity. For example, multilateral development banks (MDBs) can provide a stable source of development finance through loans, grants, risk-sharing instruments, guarantees, and investments, with the infrastructure sector being the largest recipient of multilateral development outflows.⁴ Additionally, they generate significant economies of scale, work closely with recipient governments, and direct funds to cross-country initiatives. MDBs are particularly valuable for catalyzing, mobilizing, and crowding-in both public and private sources of funds.⁵ MDBs’ blended finance strategies could also include facilitating innovative finance mechanisms such as trust funds (see Appendix 2 for a discussion of Financial Intermediary Funds). For example, the World Bank’s Identification 4 Development (ID4D) Multi-Donor Trust Fund is shaping more than $1.5 billion (USD) in pipeline or committed financing for the implementation of digital ID and civil registration ecosystems in 35 countries.⁶

Multilateral organizations also play a key role in convening and coordinating organizations developing and deploying DPI. For example, the Digital Public Goods Alliance (DPGA) is a multi-stakeholder initiative co-hosted by the United Nations Development Programme (UNDP), UN Children’s Fund (UNICEF), and the Norwegian Agency for Development Cooperation (Norad) that facilitates the discovery, development, and use of digital public goods, as well as investment in them. The UNDP also recently launched Digital X, a partnerships for scale program to find, match, and scale proven digital solutions by brokering relationships with UNDP country offices and other partners.

However, some possible 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, although it is possible to earmark contributions.⁷

In one example of this model, the Inter-American Development Bank (IDB) led a cross-sector alliance to create a regional blockchain infrastructure and ecosystem, LACChain. The IDB provided the initial funding and staff to coordinate partner contributions and the technical development, conduct outreach to partners and users, launch the nonprofit governance entity, and develop the ecosystem. Private-sector partners contributed technical talent, legal expertise, and projects to run on the infrastructure, while nonprofit partners helped stand up the governance entity and provided additional technical, legal, and financial support. In the long term, LACChain is intended to be self-sustaining through membership fees and possibly funder support. Read more about LACChain as a funding model in Appendix 1.

Sustaining DPI initiatives over the long term may require financing from diverse funding streams in arrangements that can range from simple to complex. Funding sources could include those noted above, as well as sovereign wealth capital and private-sector investment, whether within the parameters of a public-private partnership or other investment mechanisms. Platforms can be designed with funders’ varying budget resources and requirements in mind, for example, with the ability to accommodate both traditional contributions and innovative financing mechanisms (see Recommendations for further discussion).

Diverse funding streams help diffuse the risk of the investment across multiple stakeholders and protect DPI initiatives from reliance on any single source of funding. They may also have the ancillary effect of increasing the visibility of DPI development projects to multiple governments for additional scaling. Collaborative funding models also allow stakeholders with different incentives to support common solutions. For example, a municipal jurisdiction may have an incentive to develop a solution that works for only its residents, but it may be willing to pilot an open source, scalable solution if philanthropic capital defrays some of the cost. If the pilot is successful, philanthropic partners could then scale the solution and make a broader impact across the country and globe, while coordinating with other sources of capital.

This funding category also presents certain challenges, including the difficulty in governing and coordinating the various funding actors and their objectives, as well as the need to align investment incentives for each stakeholder to the relevant stages of DPI development. Further, new mechanisms may be needed to create the fiscal architecture through which to pool and allocate funds.

An example of this model, District Health Information System 2 (DHIS2), is being used by ministries of health around the world for effective health data management, in collaboration with the private sector and civil society. Founded and governed by the University of Oslo, DHIS2 has received financing from global health agencies, the World Health Organization (WHO), Norad, the U.S. President’s Emergency Plan for AIDS Relief (PEPFAR), the Bill & Melinda Gates Foundation, and the U.S. Centers for Disease Control and Prevention (CDC), as well as long-term funding partners Gavi, the Vaccine Alliance, and the Global Fund to Fight AIDS, Tuberculosis and Malaria. Read more about DHIS2 as a funding model in Appendix 1.