Using Blended Finance to Solve Global Health Challenges
Over the last half century, USAID programming has resulted in tremendous gains in global health. Around the world, USAID’s global health activities have saved lives, protected vulnerable populations from disease, decreased infant and maternal mortality rates, and promoted stable communities.
However, much work is yet to be done to achieve the health targets set by the 2015 Sustainable Development Goals (SDGs), and a significant funding shortfall creates barriers in achieving these goals. Since 2013, development assistance has remained stagnant. The annual investment gap for reaching the health SDGs in low- and middle-income countries now stands at $314 billion. At the same time, the long-term impact of the COVID-19 pandemic’s economic devastation and strain on health systems remains unknown.
In short, traditional grant funding alone is not sufficient: it cannot fill these gaps nor address the challenges that global health programs aim to solve. However, by working with private sector partners, donors and development agencies can create innovative solutions for improving health outcomes and use the world’s deepest pools of capital to finance them.
Blended finance—the strategic use of public and philanthropic resources to mobilize private capital that aligns with development objectives—can be an important tool for achieving global health outcomes, and USAID has many blended finance instruments—market landscape assessments, catalytic capital, transaction advisory services to reduce transaction costs , and more—available in its development toolkit.
In 2019, USAID’s Center for Impact and Innovation and its Global Health Bureau partnered with USAID INVEST, an initiative that mobilizes private capital for better development results, and Kois Invest, a leading impact investing company, to create Greater Than the Sum of its Parts: Blended Finance Roadmap for Global Health.
The roadmap is a practical resource to build the technical capacity of USAID and other donors to attract new financiers and partners who can assist in tackling health challenges and closing the Health SDG funding gap. It consists of six steps USAID personnel can take to engage in blended finance transactions that support global health development objectives.
“Many Missions struggle to find the right entry point for engaging in blended finance from among the many possible opportunities,” explains INVEST Chief of Party Kristi Ragan. “The roadmap can help them get over the hurdle of figuring out what to do. By working through the easy-to-follow process that it lays out, Mission staff can arrive at a prioritized set of activities to support that are well aligned with USAID’s health goals.”
By testing the road map in India, Tanzania, and Liberia—three countries with differing health care systems and investment environments—and showcasing illustrative transactions for both Tanzania and India, USAID and INVEST demonstrated the flexibility and utility of blended finance across health financing contexts.
“The result of the deep dive engagements with India, Liberia, and Tanzania was that the conversations about the application of the roadmap ended up building capacity of each Mission to engage in blended finance for activities in global health as well as other sectors,” says Ragan. “Each of these Missions is now working with INVEST on a set of activities for mobilizing private capital.”
Recently, in partnership with USAID/Tanzania, INVEST began implementing an activity that directly builds off the roadmap’s illustrative transaction. In Tanzania, faith-based organizations own or manage about 40 percent of the country’s hospitals. However, new national policies designed to move the nation toward government-provided healthcare has resulted in the cancelation of the service-level agreements between the government and faith-based hospitals.
An overreliance on service-level agreements has resulted in management inefficiencies across the faith-based hospital network. Nonetheless, when it comes to providing care, these organizations have unparalleled reach, and with more modern management and access to financing, they have the potential to expand services rapidly, which is especially important given the increasing and continued demand for health care services brought on by the COVID-19 pandemic. However, without government service-level agreements, these faith-based hospitals cannot cover their costs and are likely to collapse.
USAID/Tanzania and INVEST have been assessing blended finance interventions to help these hospitals access the financing they need to improve their long-term financial sustainability and strengthen their network’s management practice and business model. Additionally, INVEST and USAID will work with hospital board members to help educate them about where they can access funding and the best practices for ensuring their future financial survival.
INVEST has many other activities that are employing blended finance interventions to improve global health results and battle the effects of COVID-19.
For instance, in Vietnam, USAID and INVEST are working to help community-based organizations (CBOs), important providers of primary health care, diversify their income streams and business models. Since the 1990s, USAID has worked extensively with CBOs as a means of delivering care to HIV/AIDS patients under the U.S. President’s Emergency Plan for AIDs Relief (PEPFAR). These organizations play a pivotal role in providing treatment for HIV/AIDS as well as other communicable diseases. With PEPFAR funding likely to decrease, USAID aims to help ensure the financial sustainability of CBOs by helping them access new sources of income, enabling these organizations to continue to provide quality, uninterrupted services to communities.
In East Africa, in support of the Prosper Africa initiative, USAID via INVEST is providing advisory services to support the design, structuring, and fundraising for a debt financing vehicle that will enable a leading medical supply distributor to expand its reach and serve more hospitals throughout the region. Access to medical equipment remains increasingly important for hospitals as the coronavirus pandemic continues and new, more-infectious variants of the disease spread, bringing with them the potential for increased hospitalization rates.
“Every day, we hear about the continued, devastating health and economic consequences of COVID-19, and we must address both,” says Ragan. “Mobilizing investment to sustain and grow critical businesses, particularly those delivering health products and services, is needed now more than ever. While working with the private sector can help drive innovative solutions, this pandemic has shown that the private sector cannot solve the problem of COVID-19 on its own: it will only succeed in distributing its PPE, disinfectants, and vaccines with the help and coordination of the public sector. There is a globally recognized imperative for both business and government to collaborate closely to fight the pandemic. This type of collaboration can help us solve other health challenges, too.”