Disrupting the Poverty Trap

End Poverty.

End Hunger.

Ensure Healthy Lives and Promote Well-Being.

These are three of the seventeen Sustainable Development Goals (SDGs) that the world will adopt formally at a special UN summit in New York this month—setting the global development agenda for the next fifteen years. At a time when the growth of one in four children is stunted, one in nine people in the world don’t have enough to eat, and 1 billion people live on $1.25—or less—per day, these admittedly lofty goals are more necessary than ever before. With a cost of up to $4.5 trillion annually in developing countries alone, achieving the SDGs will come with a hefty price tag.

Established Social Protection Models Will Not Get Us There

The developed world has made great strides during the last century to ensure that its citizens are not left impoverished and without basic necessities. National social protection programs in Europe and the United States such as social security, unemployment benefits, and food stamp programs were designed to build the capacity of individuals to withstand social and economic stresses, and have been cornerstones of encouraging progress. The developing world can also proudly tout its own more recent successes: Brazil’s Bolsa Família and Mexico’s Prospera programs cover millions of families and have both shown strong results in combatting dire poverty.

“Eighty percent of the global population has no access to comprehensive social protection.”

Despite these successes, the reality remains that 80 percent of the global population has no access to comprehensive social protection. Scaling established social protection models requires substantial funding that neither the fiscally constrained budgets of the developing countries nor the relatively modest Overseas Development Aid (ODA) funds have the capacity to cover.

Seeking Alternative Solutions through Innovative Finance

Not many people would look to financial innovation as a solution for alleviating poverty and hunger and improving the health and well-being of vulnerable people in the developing world. But modern realities call for modern thinking. Championed by a small group of bold practitioners, we are indeed seeing emerging solutions that look to disrupt the poverty trap by both rapidly mobilization funding when social and economic shocks occur and securing steady flows of funds to address chronic problems.

African Risk Capacity (ARC)—a specialized agency of the African Union—is working on insuring 160 million people in Africa through sovereign risk insurance. Disasters like drought, flooding, cyclone, and disease outbreak continue to expose the African continent to undue economic hardship, perpetuating an endless cycle of poverty. Operational since 2014, early results indicate that the ARC not only has the potential to improve food consumption for disaster-impacted families, but also to prevent them from being forced to sell their livestock and migrate to cities. By purchasing risk insurance, countries are able to shift the disaster risk and associated economic cost away from governments and their citizens to the global capital markets, a group better positioned to assume the risk. With well-crafted contingency plans in place, governments also have an effective protocol for channeling the insurance payout as relief to the people that need it the most, when they need it the most.

Global unity funds represent yet another ascendant model. These are multi-billion dollar international funds created with money collected from micro-levies on service transactions of global industries. The most prominent example is UNITAID, which has raised over $2.5 billion for the fight against HIV, tuberculosis, and malaria to-date. Most of the funds have come from a $1 levy on all economy-class airline tickets and $40 on business-class tickets originating from nine countries. The micro-levy on each individual transaction is insignificant and has not impacted the commercial viability of the industry—yet once aggregated across countries, it provides a substantial source of funding for a critical social good. UNITAID funds have helped to provide HIV testing for 1.5 million infants and 8 million pregnant women, 750,000 AIDS treatments for children, 1 million tuberculosis treatments, and 350 million malaria treatments.

Along the same line, UNITLIFE—set to launch later this month—will introduce a voluntary micro-levy on state-run extractive enterprises in Africa. The flow of funds will come from fees such as 10 cents per barrel of oil and 20 cents per gram of gold, creating a pan-African multi-billion dollar stream of funding for the fight against chronic malnutrition. Multiple African countries including Mali, Niger, and the Republic of Congo have already signed up.

At a time when social challenges are increasingly complex and costly, it’s no longer viable to rely solely on the social protection models that lifted the developed world out of destitution. It’s time to look towards mechanisms like sovereign risk insurance and global unity funds to raise the money that will ensure that the SDG ambition of no poverty, no hunger, and well-being for everyone has a real chance to become reality.