What makes funding and financing* digital technology so difficult?

This blog is part of a series aimed at exploring the scalability of financing digital technology and the procurement process for digital tools in the development sector, specifically for low-and-middle-income countries (LMICs). Our aim is to better understand the drivers and market-shaping activities that attract supply options for digital that otherwise might not be available to LMICs, improving access and price.

Digital technology is a tool to achieve a goal, not an end in itself – which should inform how the international development community thinks about, collects data on, and invests in it. Information, communication and technology (ICT) and digital technology are also broad terms that can cover everything from software and hardware, to connectivity and digital data. Not to mention the people and the policies needed to enable the implementation and use of technology.

At the Digital Impact Alliance (DIAL), we understand that financing and investing in digital technology is a challenge. Funders and implementers often grapple with unclear concepts, demarcations, and unreliable data. We do not have accurate investment and impact data partly because digital is a way of working that cuts across use cases and does not fit neatly into one sector; it ends up being a line item in a budget that cannot be accurately pulled out or consolidated into reporting structures. Good data remains the basis for good decision making, Broadband Search for example, has done an extensive study of connectivity costing and pricing in the US where financing digital tech also encounters barriers, even state by state. However, in the absence of a body that tracks and measures funding flows toward ICT and digital technology, we are each left to piece together our own picture of these investments.

The April 2018 report Closing the Investment Gap from the World Wide Web Foundation and the Alliance for Affordable Internet is a great resource that considers investments made by Multilateral Development Banks (MBD) that were directly targeted towards the ICT sector or had ICT as a primary project component. MDB investments in the ICT sector have been relatively small (only 1% of MDB cumulative commitments to projects in low- and middle-income countries over the 2012-16 period). Additionally, they found that approximately 50% of MDB commitments to the ICT sector are focused on infrastructure buildout, 25% goes to fostering ICT usage, and less than 5% goes to supporting regulation and policy development.

The 1% investment in ICT greatly underestimates the true transformative power and potential of digital technology and ignores the cross-sectoral benefits that are why the development community invests in digital in the first place.

Similarly, the 2018 DIAL Global Digital Ecosystem Study found that traditional development funding often does not support scaling proven technology, although donors are beginning to tackle “pilotitis” through exploring financing and pooling initiatives. Whether these initiatives are effective remains an open question. Some examples include:

• Representatives from ten funding organizations came together in 2018 to createThe Principles of Donor Alignment for Digital Health to reduce fragmentation and duplication, and increase interoperability within and across developing countries. These principles build on the Principles for Digital Development and focus simply on the donor perspective, but currently remain limited to health investments. DIAL is advocating for a wider adoption.
• UNICEF, Norway, Sierra Leone, the India-based think tank iSPIRT, have agreed to jointly establish an alliance and a platform for sharing digital public goods, as recommended by the High-level Panel on Digital Co-operation – to ensure that fair, equitable, and open access to digital public goods is available globally. Working with ITU and other partners, UNICEF will in addition be developing a common bid for school connectivity, the GIGA project will map schools and connectivity gaps, pool demand to create a “common bid”, and develop a financing platform that implements the common bid.
• Digital Square provides a forum for donors and implementers in the digital health space to create and sustain digital health systems in emerging economies. They coordinate more than $30 million from 13 digital health donors and promote the development, adoption, and reuse of health software global goods. DIAL is currently on the Governing Board.
• In 2018, USAID’s Center for Digital Development launched a program to aggregate demand for broadband internet. The initial work was done alongside NetHope in Uganda and now through the Digital Frontiers project, DAI is helping USAID missions implement a demand aggregation approach to improve service and decrease costs for broadband connectivity.

The benefits of digital technology are not always confined by national borders, particularly in the case of software, applications, and the internet. On the other hand, the benefits of investing in connectivity or ICT hardware can be limited to a national level. In our work, we are finding that the vertical structures that exist in how development organizations, governments, and countries invest in and deploy ICT investments limit the realization of the full benefits of digital technology.

DIAL believes that there need to be drastic changes in how the development sector approaches technology funding if we are to achieve the SDGs. We see the continued application of traditional operating and funding models to an area that does not recognize these parameters nor fit these models. By examining and questioning the traditional business models we believe it is possible to drive change to ensure better quality of service to the underserved through technology.

If you are interested in the concept of using innovative financing mechanisms, procurement of digital, or leveraging demand aggregation for scaling the use of technology in international development, we would like to hear from you. You can reach us at Info@dial.global.

*While used interchangeably – funding and financing mean different things. Funding provides a project with cash that does not need to be repaid this can be done through receiving grants, taxes, or fees. While financing refers to a process of receiving money typically for a project today that will need to be paid back (typically with interest if done through debt or via ownership if done through equity) in the future through funding.