India's financial crisis

- Economist

Through the keyhole
Aug 18th 2013

ON SATURDAY morning August 17th India’s top policymakers gathered at a rather obscure event—the launch of an official history of the Reserve Bank of India (RBI), held in a room in the prime minister’s house in Delhi. Present were Manmohan Singh, the prime minister, and the past, present and future bosses of the central bank, among others. The day before there’d been a rout of India’s financial markets, as we described in a previous post. Here’s what I picked up at the event.

First, reality has bitten. There is a mood of distress, if not panic. This is a good thing. The economy faces “very difficult circumstances,” admits Mr Singh. While he and many of the others present held senior jobs during the previous balance-of-payments crisis, in 1990 and 1991, they have spent the past two years giving sugar-coated predictions even as the economy has slowed. Now though no one is disputing the fact that India is in trouble. Duvvuri Subbarao, the outgoing boss of the RBI, drummed in the message. “Does history repeat itself,” he asked, “as if we learn nothing from one crisis to another?”

Second, it is widely accepted that the capital controls announced on August 14th have backfired. The new rules limit the ability of Indian individuals and firms to take money out of the country and were put in place after clear signs of capital flight. However the changes have spooked foreign investors who worry that India might freeze their funds, too. The finance ministry has already tried to calm nerves. Although it probably won’t reverse the measures, the RBI is considering making it much clearer that more capital controls are not on the agenda. That would be helpful; people trust the bank more than the government.

Third, Raghuram Rajan, the incoming governor of the RBI, will assert himself sooner than expected and change the central bank’s tactics. On Friday, as markets tanked, he was in Singapore fulfilling an academic commitment that had been organised long before. He is due to take over formally on September 5th but he will be in Mumbai, where the RBI is headquartered, this week. He will try to end the impression of nervous hyperactivity that has built up in the past month. He will put his prestige on the line by trying to give a consistent and calming message to the markets: “We will not have a new policy every day.”

The rationale behind this new approach is as follows. The RBI’s existing measures might be enough to stabilise the rupee. (They include intervening in the money markets to jack up short-term interest rates, as well as the capital controls). Adjusted for higher productivity growth and higher inflation than the rest of the world, the rupee is theoretically worth, perhaps, somewhere between 55 and 60 to the dollar. So the market has already overshot a bit, offering more than 61 rupees per dollar at the weekend. And there are signs that exports are recovering, thanks to the devaluation and the recovery in the rich world. Exports grew by12% in July. India’s IT service companies, which generate foreign sales of about 4% of GDP, are expected to see an up-tick in business. A decisive improvement in the trade balance would make a world of difference.

Fourth, as the RBI calms down, the government will be expected to go into overdrive to narrow the trade deficit by fiat. By raising administered prices on imported fuel, demand could be contained. This will not be politically popular. Lower fuel subsidies will have the added benefit, though, of helping Palaniappan Chidambaram, the finance minister, hit his fiscal targets. The government will also try to end a blanket ban on iron-ore exports, which was imposed by the Supreme Court after a series of corruption scams. I’m sceptical this will work. Can the judges really be told what to do? I’ve just spoken to an expert who spent a week in July touring the mining belt in the states of Goa and Karnataka. His view is that it will take ages for the industry to crank production back up to its peak, when it was exporting ores worth $10 billion a year or so. Still, the central government will try.

Fifth, everyone wants to crack down further on gold imports—but is scared. India’s gold addiction is a nightmare; exclude gross bullion shipments into India and the reported current account deficit of 4.8% in the year to March 2013 would have been a far more manageable 2%. Accepted wisdom is that if you tighten the official rules, gold will still get into the country via smuggling, as was the case in the 1980s and early 1990s. But India’s demand for imported bullion has doubled since then, to 850 tonnes a year. It takes a lot of ingots hidden in suitcases to smuggle in that much. Taxes on gold imports have already been raised but there may be scope to raise them even further.

Sixth, the authorities are still missing a trick by ruling out the recapitalisation of India’s banks as a measure to restore confidence. Public-sector lenders that dominate the banking industry now have dodgy loans of 10-12% of the total. Almost 20% of infrastructure loans are in trouble. K.C. Chakrabarty, a deputy governor of the RBI, argues that most banks are state-backed and thus not at risk of failing. But they are viewed as radioactive zombies by investors and their rotten balance-sheets mean they are unable to lend, which might kick-start a recovery. America used its stress tests to force banks to get their houses in orderand to restore confidence in 2009. India should consider something similar. The tricky part is that the cost of recapitalising the banks might have to be borne by the government, which is already straining.

India has few good options, but the emerging plan could work. A big test will be whether the political leadership, which faces elections by May 2014, gets behind it. The urban middle class will be hurt most by the present crisis, but they are not the ones who decide elections in mainly rural India. Still, the wobbly economy may now become a bigger theme in the election campaign. That might focus minds and make it easier for the government to argue that its tough decisions are being made in the national interest.

http://www.economist.com/blogs/banyan/2013/08/india-s-financial-crisis

Made outside India

- Economist

As growth slows and reforms falter, economic activity is shifting out of India

 Aug 10th 2013

INDIA’S diaspora of 25m people is something to behold. In colonial times Indian labourers and traders spread across the world, from Fiji to the Caribbean. A second wave of Indians left between the 1970s and mid-1990s, when the economy was in a semi-socialist rut. Migrant workers rushed to the Persian Gulf and South-East Asia, then booming. Educated folk and entrepreneurs fled to the rich world. Plenty struck gold, including engineers in Silicon Valley and Lakshmi Mittal, boss of ArcelorMittal, a giant steel firm. Often they now have little to do with India beyond sending cash to relatives and groaning as the once-vaunted economic miracle fades.

Yet alongside this distant diaspora, a network of people and places is more directly engaged with India’s economy. Its most conspicuous element is the plutocrat who owns firms in India, but like his Russian and Chinese peers shops in Paris, educates his children in America and Britain and sometimes has foreign citizenship: Cyrus Mistry, the boss of Tata Sons, India’s biggest firm, has an Irish passport. At the network’s core, however, is not the gilded elite but offshore hubs, including Dubai and Singapore, often with sizeable Indian populations and with their own economic strengths.

The idea that some things are better done abroad is hardly new. Hong Kong was a gateway to imperial and then Red China. In 1985 Yash Chopra, an Indian film-maker, led a trend of shooting Bollywood “dream sequences”—in which the hero and heroine sing amid meadows and snowy crags—in Switzerland. The Alps were easier, cheaper and safer than the more familiar location of Kashmir.

Film buffs now view Swiss dream-sequences as cheesy, but India’s big offshore hubs are more in fashion than ever. They present a mirror image of India’s red tape, weak infrastructure and graft. Dubai is a prime example. For long-haul flights Indians prefer its airline, Emirates, to their own. More than 40% of long-haul journeys from India go via a non-Indian hub, often in the Gulf. Indian airports no longer make grown men cry (Delhi’s is first rate), but few foreign airlines want to make them their base. Indian planes are usually serviced in Dubai, Malaysia and Singapore, reflecting a history of penal taxes in India and high customs duties on imported spare parts.

A stroll round Dubai’s gold souk, a glittering warren of shops and discreet offices, housing bullion worth $3 billion-4 billion, points to another specialism—trading jewellery as well as precious stones and metals. A third of demand is from India, reckons Chandu Siroya, one of the market’s big participants. Indians go to Dubai to avoid taxes at home and because they trust its certification and inspection regime.

Dubai’s ports, air links and immigration rules also make it a better logistical base than India. Dawood Ibrahim, a Mumbai mafia don, ruled from Dubai by “remote control” before eloping to Pakistan in 1994. Since those wild days legitimate Indian firms have thrived in Dubai. Dabur, which makes herbal soaps, oils and creams, runs its international arm from there. Dodsal, which spans oil exploration in Africa to Pizza Huts in Hyderabad, is based in the emirate. Its boss, Rajen Kilachand, moved from Mumbai in 2003. “Dubai is a good place to headquarter yourself,” he says, adding that a “Who’s Who” of Indian tycoons has a presence. Dubai is gaining traction in finance, too. Rikin Patel, the chief executive of Que Capital, an investment bank, says Indian firms are raising debt in Dubai to avoid sky-high interest rates at home.

Treasure Island

About 5,000km (3,000 miles) south of Dubai lies Mauritius, an island so beautiful that Mark Twain said God had modelled heaven on it. About half its people are descended from labourers brought from India when Britain ruled both places. It is the main conduit for foreign investment into India with 30-40% of the stock of foreign capital sitting in funds domiciled in the island. A 1982 tax treaty allows investors using Mauritius to pay tax at the island’s rate (which, in practice, is zero), not the Indian rate. Foreigners also like the stability of Mauritius’s rules and its army of book-keepers and administrators. Many investors also use “P-Notes”—a kind of derivative with banks that gives them exposure to Indian shares without having the hassle of directly owning them.

Sri Lanka has testy relations with India, but Colombo is a vital port. About 30% of containers bound for India go via intermediate hubs fed by small vessels, either because big shipping lines do not want to deal with India’s customs regime or because their ships are too big for the country’s ports. About half of this trans-shipment business happens in Colombo. Its importance could increase now that a big extension to the port there has just opened. The project was funded by a Chinese firm probably too polite to admit that its investment is partly based on the idea that India’s ports will never be world-class.

A roll of the dice

Sri Lanka also wants to develop a casino industry. Gambling is illegal in almost all India, so people use offshore bookies or the internet. James Packer, an Australian business dynast with a gambling empire in Macau, is said to be considering creating a casino resort in Colombo aimed at attracting Indian high rollers.

The largest hub for Indian trade is probably Singapore. It is the centre for investment banking, which thrives offshore, owing to the tight regulation of India’s banks and debt markets. Reflecting this, the global exposure to India of Citigroup and Standard Chartered, the two foreign banks busiest in India, is 1.9 times the size of their regulated Indian bank subsidiaries.

Fund managers running money in India are often based in Singapore. India’s best financial newspaper, Mint, now has a Singapore edition. At least half of all rupee trading is offshore, says Ajay Shah of the National Institute of Public Finance and Policy in Delhi. Investors and firms do not like India’s fiddly rules and worry that the country may tighten capital controls if its currency falls too far, says one trader in Singapore. He denies, though, that the rupee’s fall is mainly the work of speculators abroad. “The onshore guys have as much of a role,” he says.

Indian e-commerce firms often get their data crunched in Singapore, using web-hosting and cloud-computing firms, such as Google and Amazon. Amitabh Misra, of Snapdeal, says bandwidth costs less, technology is better and you avoid India’s headaches—such as finding somewhere to work, coping with state-run telecoms firms and having to wait to import hardware.

Singapore is also a centre for legal services. International deals involving India often contain clauses which state that disputes be arbitrated outside India, with its clogged courts. Singapore, along with London and Paris, has become the preferred jurisdiction. “The level of comfort Indian companies get from Singapore is unmatched,” says Vivekananda N of the Singapore International Arbitration Centre.

When India’s economy thrived, in 2003-08, so did its offshore hubs. Singapore’s service exports to India tripled. Yet these centres may sometimes be a reverse barometer. If things improve in India, activity should shift to the mainland, and vice versa. By gradually improving its ports, for example, India has convinced more shipping lines to make direct stops.

The government wants to attract activity back to create jobs and boost foreign earnings. Pride plays a role, too—it is unbecoming for a potential superpower to have outsourced vital economic functions. India has far less control over Dubai and Singapore than China does over Hong Kong. Plenty of policy statements in recent years argue that India should become a global hub for aviation, legal arbitration, diamond trading and international finance.

In the real world, however, the question is whether activity is leaving India as its prospects have dimmed. A lead indicator is the purchase of gold by Indians—a form of capital flight. Gold imports have hit $50 billion a year, almost offsetting the boost the balance of payments gets from remittances from Indians abroad.

Some service industries do seem to be shifting from India. India’s balance of trade in business and financial services has slipped into modest deficit from a surplus five years ago. The number of big India-related corporate legal cases at Singapore’s arbitration centre has doubled since 2009, to 49 last year. It is setting up a Mumbai office to win more business. Trading of equity-index derivatives has shifted—a fifth of open positions are now in Singapore and DGCX, a Dubai exchange, is launching two rival products this year. A recent deal by Etihad, the airline of Abu Dhabi, to buy a stake in Jet, an Indian carrier, should see more long-haul traffic shift to the Gulf. (Jet’s boss, Naresh Goyal, lives in London.) More rupee trading seems to be taking place offshore.

The biggest worry is that heavy industry is getting itchy feet. Coal India, a state-owned mining monopoly sitting on some of the world’s biggest reserves, plans to spend billions of dollars buying mines abroad—red tape and political squabbles mean it is too difficult to expand production at home.

Some fear manufacturing is drifting offshore. In the five years to March 2012, for every dollar of direct foreign investment in Indian manufacturing, Indian firms invested 65 cents in manufacturing abroad. Some big firms such as Reliance Industries plan to invest heavily in India, but others such as Aditya Birla are wary. Its boss, Kumar Mangalam Birla, has said that he prefers to invest outside India—an echo of his father, who expanded in South-East Asia during India’s bleak years in the 1970s.

The Gulf has seen tentative signs of Indian manufacturers shifting base. Rohit Walia, of Alpen Capital, an investment bank, says that in the past year he has helped finance an $800m fertiliser plant and a $250m sugar plant. Both will be built in the United Arab Emirates, by Indian firms that will then re-export much of the output back home. The Gulf’s cheap power and easy planning regime make this more feasible than setting up a plant in India. “It’s a new trend,” says Mr Walia.

The temptation for India is to invent new rules to keep economic activity from moving abroad. In 2012 the government tried to override its treaty with Mauritius, only to scare investors so much that it had to back down. To try to plug its balance of payments, India is tightening rules on buying gold. The country’s ministry of finance is said to be examining the shift of currency-trading offshore. The government has intervened to insist that shareholder disputes arising from the Etihad-Jet deal be settled under Indian law—not English as originally proposed.

Yet in the long run, coercing Indians and foreigners to do their business in India would be self-defeating. Some may simply go on strike and it is far better that activity takes place abroad than not at all. Any rise in the share of offshore activity is best viewed as a warning system about what is most in need of reform at home.

The biggest warning sign would be if Indians themselves started to leave. Despite some mutterings among the professional classes, that does not seem to be happening. Still, if India does not kick-start its economy and reform, more than derivative trading and Bollywood singalongs will shift abroad.

 http://www.economist.com/news/international/21583285-growth-slows-and-reforms-falter-economic-activity-shifting-out-india-made-outside

Innovative development financing

How can more resources be applied toward development in the world’s poorest countries? Recent research has pointed to some promising ideas.

August 2013 | byEytan Bensoussan, Radha Ruparell, and Lynn Taliento

Of all the efforts devoted to improving economic and social conditions in developing countries, the most prominent has been the United Nations’ Millennium Development Goals (MDGs), which set targets for reducing poverty and improving education, gender equality, health, and sustainability by 2015. As is true with any type of development, meeting these targets depends on resources, and a large part of the resources devoted to the MDGs come from developed countries’ pledges for what is called Official Development Assistance (ODA). However, since peaking at $128.7 billion in annual net ODA in 2010, the annual total paid in ODA has declined for two years running, standing at $125.6 billion for 2012.¹

Clearly, more funds will be needed if the development goals are to be met. Moreover, market inefficiencies—such as unnecessary transaction costs, misaligned incentives, and lack of performance measures—often prevent the financial assistance that is available from achieving desired results.

Given the level of need, the uncertainty in the general macroeconomic environment, and the pressures on all government budgets, we looked into potential financing mechanisms and sources to complement traditional ODA.² We assessed a number of innovative ideas that we think merit further investigation and discussion. In this context, “innovative” refers to finance mechanisms that might mobilize, govern, or distribute funds beyond traditional donor-country ODA. Some have already been tried, others have not, and still others may carry new risks. The point of this article is not to recommend any specific solution but to shine some light on a collection of ideas we found particularly exciting as a way to either raise new funds or unlock value as society works to achieve the MDGs. Many of the ideas have the added benefit of creating a much-needed bridge for new actors, such as individuals, corporations, and emerging economies, to deeply integrate themselves into the development community.

In seeking out innovative sources of development financing, we looked across a wide range of potential contributors, including citizens, corporations, governments (of both developed and developing economies), and multilateral institutions. However, the reality is that even when other contributors are involved, most aid still flows through governments because they have the scale and responsibility to execute meaningful development-aid programs. Since we believe innovative financing should complement, rather than substitute for, government funding, our focus in this paper is on solutions in which governments are still a core part of the solution. However, we recognize there are also many good ideas that require minimal or no government involvement, such as citizen-focused fund-raising initiatives like Product RED or business-driven solutions such as bottom-of-the-pyramid ventures. Four ideas rose to the top when we screened our list based on the size of the opportunity (for example, the ability to unlock a meaningful level of additional financing or to meaningfully engage multiple actors), the technical feasibility of implementation within a short- to medium-term time frame, the potential to gain significant political momentum, and the existence of a clear and compelling role for government: unlocking value from diaspora flows, stimulating private-capital flows, encouraging private voluntary contributions through matching funds, and tackling sector-specific inefficiencies.

Unlocking value from diaspora flows

For years, people who have emigrated from developing countries have been sending remittances to support family and friends in their native homelands. Around $325 billion of remittances flow to developing countries every year. There are opportunities to unlock significant additional value from these flows.

First, the use of diaspora bonds could be expanded. The issuance of government bonds specifically targeted at a country’s emigrant population is a time-tested but underused way to raise money for development. For instance, the pioneers of diaspora bonds, Israel and India, have leveraged them over time to raise more than $25 billion and $11 billion, respectively.³ For sub-Saharan African countries, the World Bank has estimated that these instruments could raise as much as $5 billion to $10 billion annually, but so far their potential has been almost completely untapped.⁴ One could imagine exciting uses for these bonds, such as the funding of education or infrastructure. To assist this expansion, donor-country governments could give their counterparts in developing countries reliable demographic data that would facilitate the marketing of bonds to diaspora. Customizing the regulatory framework for the creation and sale of bonds in foreign countries at the international level could also help spread their use by lowering the costs of compliance across multiple jurisdictions and speed up the regulatory-approval process.

Second, data collected by the World Bank show that the average cost of sending money to a person’s home country is about 9 percent. At their 2009 summit in L’Aquila, the G8 countries made a commitment to cut the global average cost of these transactions down to 5 percent. Given the volume of annual remittance flows, each percentage point of lowered remittance costs could unlock as much as $3.3 billion per year for developing-country recipients. All players could continue efforts toward lowering these costs. For example, governments can eliminate exclusivity clauses with money-transfer providers to encourage competition, while the private sector can continue to launch mobile-phone payment systems, learning from programs in countries such as Kenya and the Philippines.

Stimulating private-capital flows

Private capital is an enormous source of global wealth that has not historically played as significant a role in development as its scale would suggest. This is not for lack of interest. Private capital is constantly seeking investment opportunities.⁵ However, it only commits to those prospects that meet its appetite for risk and reward. Due to a variety of factors, many opportunities in developing countries are often perceived as overly risky or uncertain for the majority of investors. Institutions that offer to guarantee portions of loans made for such investments help investors rebalance their assessments of risk and reward and subsequently unlock considerable capital into developing countries. For example, in the past decade, the World Bank has approved 28 guarantees worth a total of $1.4 billion. These guarantees have stimulated more than five dollars of private capital for every dollar spent by the World Bank.⁶ Yet this type of support remains a very small portion of the bank’s approach to financing in developing countries. Since the G20 summit in London in 2009, multilateral development banks have stepped up efforts to do a better job of leveraging private capital. There is an opportunity for the G8, the G20, or individual governments to use their influence and encourage multilateral development banks—and potentially bilateral agencies—to create innovative instruments that stimulate private flows. Since guarantees may be more difficult to get through national budget processes than traditional financing, a starting point could be to work on ways to address these institutional barriers.

One exciting way for private capital to contribute to development is by fueling the growth of small and medium-size enterprises (SMEs) in developing economies. Such companies are often underfunded in these regions because they typically are too small for commercial lending but too large for microcredit financing. There could be an opportunity for multiple players to collaborate in the creation of a set of financial instruments to serve this segment. Local commercial banks could provide the capital and deliver the funds when sharing some of the risk with large multilateral organizations or major foundations that provide first-loss guarantees. Donors could play a role in funding pilot programs or supporting demand-side capacity-building initiatives such as credit-scoring initiatives or skill building for entrepreneurs. One promising area to test this is the agricultural sector, a driving force of growth in many developing economies.

Two other growing sources of capital that hold many trillions of dollars of capital are sovereign-wealth funds and pension funds. Sovereign-wealth funds typically have longer investment time horizons and often have more flexibility in their investment rules than other types of investors. Although sovereign-wealth funds are not new, some recently have been forming innovative coalitions—bringing together such diverse players as Chinese funds, Middle Eastern funds, multinational corporations, and developing-country governments.

Not all sovereign-wealth funds are created equal; each has its own objectives and rules. One characteristic most of them do share, however, is that, like private investors, their investment decisions are driven by a risk-reward equation. Beyond financial rewards, many funds also seek political-security and industrial-policy dividends for their home countries. But the problem in Africa is that, at least for the time being, available capital may exceed the viable investment opportunities. While some asset classes such as infrastructure are more developed, others are not yet deep enough to attract large pools of capital. Multilateral development banks can potentially play a role by offering risk-sharing vehicles to improve the risk-reward profile and, over the long term, help foster an environment that encourages viable businesses to emerge so that capital can flow accordingly.

A new form of multistakeholder partnership intended to leverage private capital for scaling solutions to social problems is the social-impact bond (SIB). In a SIB, philanthropic funders and impact investors—not governments—take on the financial risk of expanding proven social programs. Nongovernment organizations deliver the social program to more people who need it; the government pays only if the program succeeds.

In the absence of SIBs, philanthropic donors fund pilots that demonstrate the efficacy of preventive programs, but then these programs—even though they work—are not expanded to the entire population that needs them. This is because only government has the reach and the resources to provide the multiyear funding required for scale-up. For their part, governments’ existing systems tend to focus on remediation, and fiscal constraints can make it tough for them to introduce alternative approaches. However, SIBs can facilitate the critical handoff from philanthropy—which provides the “risk capital” of social innovation by funding and testing new programs—to government, which has both the capital and policy influence to take programs to scale.

Since SIBs are a very new idea, all the potential applications have not been fully explored. However, SIBs appear best suited for behavior-change programs requiring intense case management and integrated assessment to ensure quality replication. To date, the social-impact bond is being piloted in the United Kingdom in the criminal-justice field. In the United States, New York City and the Commonwealth of Massachusetts recently announced plans to launch SIBs in the area of juvenile justice; Massachusetts also plans to launch an additional SIB to combat homelessness. The Center for Global Development is exploring how SIBs can be applied in international development.⁷

Encouraging private voluntary contributions through matching funds

Governments are in a unique position to encourage large amounts of voluntary contributions from private corporations and citizens by setting up matching programs. They are distinguished in having the credibility to intervene on social issues in a fair and responsible way, as well as the resources to implement matching programs at meaningful scale. For example, in 2010, the Canadian government set up a Pakistan Relief Fund that raised $47 million from individual citizens over a two-month period. This was based on a promise that the Canadian International Development Agency would match all citizen contributions of up to $100,000 each. The resulting total that went to the relief effort ($94 million) was almost five times some of the best-performing corporate matching campaigns. Government matching programs not only mobilize new resources but also, almost more importantly, engage a broader set of players in sharing the responsibility for global development. The GAVI Alliance (formerly the Global Alliance for Vaccines and Immunization) put in place an effort to raise a total of $260 million by 2015, with pledges from the UK government and the Bill & Melinda Gates Foundation to match a total of about $130 million in contributions from private corporations, foundations, and citizens.

Countries could commit to establishing a national-challenge fund that matches commitments from corporations and individuals up to a prespecified limit. Corporations, in addition to contributing their own funds, could employ innovative means to engage and raise funds from their employees and customers. Governments could identify priority development topics and select eligible private-sector recipients for challenge-fund proceeds. The most powerful partnerships would be ones where private-sector players could also contribute their core capabilities beyond straight financing, such as having telecom companies offer solutions based on mobile technology.

Tackling sector-specific inefficiencies

The ideas discussed in this article focus on raising revenues, and most could technically be applied to a variety of purposes (for example, health, water, education). Countries could also find powerful ways to unlock the value of their development dollars by examining particular market inefficiencies of specific sectors that can benefit from development aid. Take health, for example. One market inefficiency is that large private-sector pharmaceutical companies have little incentive to invest in research and development for developing-country health issues. To create these missing incentives, several countries created an “advance market commitment” that provided reassurances in the market for a new pneumococcal vaccine. This was a groundbreaking approach that used dollars donated for vaccine purchase to their maximum effect.

Innovation, which is largely about thoughtful trial and error, is needed to catch up on the world’s bold development aspirations. Taking a chance with new finance mechanisms may lead to some failures, but one big success can be a global game changer. Each step along the way can help enrich the global development community by pulling in new resources and helping existing stakeholders work better together.

About the authors

Eytan Bensoussan is a consultant in McKinsey’s Montréal office, Radha Ruparell is a consultant in the New York office, and Lynn Taliento is a principal in the Washington, DC, office.

http://www.mckinsey.com/Insights/Social_Sector/Innovative_development_financing?cid=other-eml-alt-mip-mck-oth-1308