Financing Digital Public Infrastructure: Approaches to Sustain Digital Transformation

Digital Public Infrastructure (DPI)—systems like digital ID, payments, and data exchange—is increasingly vital for societal functions, yet its development and funding often lag behind needs, a gap highlighted by the COVID-19 pandemic (p. 7, 12). This report examines the challenges of sustainably financing DPI and proposes solutions to build more inclusive and effective digital ecosystems globally. It provides insights into current funding models and recommendations for policymakers, funders, technologists, and civil society actors seeking to advance DPI (p. 10).

Core Arguments & Findings

What is Digital Public Infrastructure (DPI)?

DPI refers to the solutions and systems enabling essential society-wide functions and services in public and private sectors, including digital ID/verification, civil registries, payments, data exchange, and information systems (p. 12-13). Effective DPI should:

• Reach population scale.
• Be replicable, interoperable, and adopted across organizations/jurisdictions.
• Facilitate cross-sector use cases.
• Include public accountability and governance for transparency and oversight (p. 13).

The core value proposition is enabling governments and organizations to develop replicable, open solutions, share best practices, and use common standards, rather than building duplicative, siloed systems (p. 13).

Why Sustainable Financing is Essential Now

Momentum for institutionalizing DPI has grown significantly post-pandemic, with major funding commitments ($295MUSDannouncedatUNGA2022),initiativeslikethe<ahref="/concepts/digital-public-goods"class="concept-link"data-definition="DigitalPublicGoods(DPGs)areopen-sourcedigitalsolutionsthatadheretoprivacyandsecuritystandards,designedtohelpachievetheSustainableDevelopmentGoalsandavailableaspublicgoods.">DigitalPublicGoods</a>Charter,andlinkstoglobalinfrastructuregoals(e.g.,G{7}^{\prime }s$600B Partnership for Global Infrastructure) (p. 14). Aligning stakeholders and establishing sustainable financing architecture now is critical to ensure DPI develops as a secure, inclusive, and participatory ecosystem (p. 14).

Current DPI Funding Models

No single funding model dominates. The report identifies six primary approaches, analyzing strengths, weaknesses, and examples (p. 15):

• ### Government Funding

  • Governments fund DPI for national benefit (e.g., service delivery, economic activity).
  • Pros: Have “skin in the game,” likely to see projects through.
  • Cons: Lack incentives to scale beyond borders, inflexible procurement, limited funds/capacity (esp. developing countries), potential socio-political/privacy risks if solely government-controlled (p. 16).
  • Example: India’s Aadhaar digital identity system (p. 16, 35).

• ### Philanthropic Funding

  • Philanthropies provide initial/seed capital, often for proofs of concept.
  • Pros: Higher risk tolerance, nimble, can de-risk innovation, crowd-in other funders.
  • Cons: Funding can shift with strategic priorities, may lack long-term implementation/maintenance planning, putting essential infrastructure at risk (p. 16-17).
  • Example: Mojaloop open-source payment software, initially backed by the Gates Foundation (p. 17, 36-37).

• ### From Philanthropic to Self-Sustaining

  • Leverages initial philanthropic capital to de-risk development, then transitions to a self-funding model (e.g., fees).
  • Pros: Useful in resource-scarce contexts, helps ensure long-term viability.
  • Cons: Self-sustaining sources (like fees) can be regressive or exclusionary if not carefully designed (p. 17).
  • Example: Ukraine’s ProZorro public procurement platform, started with donations/grants, now uses transaction fees (p. 17, 37-38).

• ### Intergovernmental Funding

  • Multiple governments collaborate and pool funding, often sharing/adapting a solution developed by one.
  • Pros: Lowers costs, facilitates scaling across jurisdictions, manages risk.
  • Cons: Coordination can be challenging; requires willing partners; no global institution currently facilitates this systematically (p. 18).
  • Example: X-Road secure data exchange layer, initiated by Estonia and Finland (p. 18, 39-40).

• ### Multilateral Organization Funding

  • Organizations like the UN, World Bank, or regional development banks provide financing, expertise, and coordination.
  • Pros: Reliable finance (loans, grants), coordinate capital, technical/policy expertise, attract users, build capacity, convene stakeholders, crowd-in funds (p. 18).
  • Cons: Institutional complexity, potentially higher costs, less donor control (p. 19).
  • Example: LACChain regional blockchain infrastructure, initiated by the Inter-American Development Bank (IDB) (p. 19, 40-41).

• ### Diverse Funding Streams

  • Combines funding from multiple sources (govt, philanthropy, multilateral, private sector, etc.).
  • Pros: Diffuses risk, increases visibility, protects from reliance on single source, allows stakeholders with different incentives to support common solutions.
  • Cons: Difficulty in governing/coordinating actors and objectives, aligning incentives across stages, creating mechanisms to pool/allocate funds (p. 19-20).
  • Example: District Health Information System 2 (DHIS2), governed by University of Oslo, funded by various global health agencies, governments, and foundations (p. 20, 42-43).

Sustainable Funding Challenges

The current DPI funding landscape is fractured and faces several interrelated barriers (p. 21-24):

• Coordination and Incentive Issues:
  • Lack of Coordination: No central mechanism exists to synchronize efforts, leading to duplication and fragmentation (p. 21).
  • Misalignment of Incentives: Different funders (e.g., private sector vs. philanthropy) have varying goals and risk appetites, especially regarding foundational, less profitable layers (p. 21).
• Systemic & Structural Barriers:
  • Lack of Enabling Regulations: Absence of rules facilitating new business models (e.g., open APIs for public records) discourages private investment (p. 21).
  • Siloed, Sector-Based Funding: Funding often targets specific sectors (health, education) or applications, underfunding foundational, cross-sectoral infrastructure (p. 22).
  • Disconnect between Tech & Funding Cycles: Funding timelines may not align with technology development needs, causing delays or shutdowns (p. 22).
  • Barriers to Discoverability: Difficulty finding existing open-source solutions hinders reuse and scaling (p. 22).
  • Lack of Capacity Building: Countries often lack dedicated teams and expertise to navigate, implement, and maintain open-source DPI (p. 22).
• Resource & Political Constraints:
  • Insufficient Funding: Significant gap between estimated needs (e.g., $30B in LMICs) and available funds, leading to duplicative country-level efforts (p. 23).
  • Innovation Aversion & First-Mover Disadvantage: Governments are often reluctant to pioneer new DPI due to political/financial risks and bureaucratic hurdles (p. 23).
  • Competing Priorities & Political Will: DPI projects require strong, sustained political support and resources to navigate organizational change (p. 24).
  • Complex Government Procurement: Outdated, cumbersome processes often favor large vendors and proprietary systems, leading to vendor lock-in and increased costs (p. 24).

Key Statistics & Data

• Preliminary estimates suggest DPI funding needs in Low- and Middle-Income Countries (LMICs) alone are approximately **$30billionUSD\ast \ast ($20B for digital health, $6BforuniversalID,$2B for real-time payments) (p. 23).
• Global commitments announced in 2022 included $295 million USD from multi-sector funders to advance inclusive DPI (p. 14).
• The G7’s Partnership for Global Infrastructure aims to mobilize $600 billion USD by 2027 for infrastructure, including ICT networks, offering potential for DPI investment (p. 14).

Methodology

The report’s findings are based on research initiated in March 2021 by New America’s Digital Impact and Governance Initiative (DIGI). It involved convening key stakeholders and conducting interviews with over a dozen experts from various sectors (World Bank, IDB, DHIS2, Mojaloop, etc.). The analysis examined existing funding models for DPI, highlighting six representative examples to illustrate strengths and challenges (p. 11). This serves as an initial landscape examination rather than an exhaustive list or endorsement of specific technologies (p. 11).

Key Conclusions & Recommendations

Creating a new financing architecture—shifting from ad-hoc funding to strategic financing—is crucial for developing and scaling open DPI. The report offers three key recommendations (p. 25):

1. Create a Unified Funding Mechanism:

   • Concept: Pool disparate funding sources under a common framework to improve coordination, impact, and efficiency (p. 25).
   • Features: Accommodate both traditional (grants, contributions) and innovative financing (e.g., Financial Intermediary Funds (FIFs), results-based finance, bonds backed by pledges) (p. 25-26, Appendix 2). Designate a neutral governing entity (p. 27).
   • Benefits: Establish a center of gravity to align incentives and prioritize investments; align funding to different stages of tech development; reduce first-mover risks through pooled investments; support scaling of proven solutions; ensure long-run sustainability of critical platforms; create a knowledge hub for best practices and technical support (p. 27-28).

2. Emphasize Self-Sustaining Business Models:

   • Rationale: Long-term viability requires dedicated resources beyond initial implementation (p. 28).
   • Methods:
     • Fees for Services: Transaction charges, API access fees, licenses, or membership dues (e.g., ProZorro, LACChain). Must be designed carefully to avoid being regressive or exclusionary (p. 29).
     • Government Earmarking of Tax Receipts: Dedicating specific tax revenues (like a gas tax for highways) to fund DPI ensures long-term capital availability and protects against political fluctuations (p. 29).
   • Sustainability should be a key indicator of long-term success (p. 29).

3. Establish an Open Marketplace: