Role of private financing in solving social problems in developing economies

Abstract

Riding on the tremendous growth across the world in the past few decades, some economies have grown by leaps and bounds, uplifting the social state of their citizens. However, many countries have been left behind and are still struggling to provide basic amenities and decent living conditions to its citizen. According to recent world bank data, around 800 million people, i.e., 9.2% of the world's population, live in extreme poverty. Social problems are widening the rich and poor divide across nations. This, coupled with extreme weather conditions, and global pandemics, is putting millions of others at significant risk. The United Nations Sustainable Development Goals (SDG) plan to achieve a more equitable and sustainable future by 2030. However, the nations will fail to achieve the target within the stipulated timeline. There is a massive gap in funding available to fund SDGs.The traditional Government led funding is proving both insufficient and ineffective. Through this report, we try and identify the present status of the success of SDGs and the role of Government as an enabler of private sector investment. The motivation of the private sector to invest in the social sector. We study some successful private investments in social sector projects worldwide and success stories from India in select sectors like healthcare, education, skill development, infrastructure, and agriculture. We also share findings from these initiatives and policy recommendations. There is a funding gap to the tune of $2.5 trillion annually to fund the SDGs. India needs to double the investments in social sector projects from the current 7% of GDP to 13% of GDP expenditure to achieve SDG by 2030. The role of the Government in attracting and retaining private sector investment for social good is becoming more critical now than ever. The Government's contribution in terms of initial risk capital, creating an environment of stability, and understanding and responding to the needs and motivation of different social investors cannot be emphasized more. In addition to the existing community of investors like venture funds, banks, and financial institutions, a new category of institutions and individuals are showing an increasing interest in investments in social sector projects. Trusts, family offices, philanthropic organizations, High Net Worth Individuals (HNIs), and individuals present massive opportunities and potential for investment in social sector initiatives. They are to be attracted and engaged through better communication and innovative models. The Governments would do well to remove the triple constraints of capacity, capture, and corruption in their economies as it allows the economy to innovate, connect and compete in the global market. As the economy shows promise by better integrating into the international markets, it becomes a viable option for private capital investments. The initiatives help the private funding to get involved as they can better assess their risks and take opportunities to invest in the economy or the project undertakings of the country. Another way to get institutions and individuals involved in funding social projects is through advocacy and communication. The Indian Government's massive mobilization of funds for COVID-19 is an example of how Government, multilateral organizations like the WorldBank and Asian Development banks, corporates, and individuals contribute to addressing social problems. The World Bank committed $2.75 billion, and PM CARES fund mopped up around $2 billion. Incentivising and acknowledging the institution and individuals who contribute to the social projects is vital to receive their continued support and motivate others to commit to social causes. The use of technology for collecting, managing, and delivering services, along with monitoring, evaluation, and reporting, brings transparency and credibility and will help get increased contributions and commitments from individuals and institutions to support social projects.