A Field Guide to Innovative Finance

As foreign aid and government funding contracts, and foundation giving is increasingly stretched thin, many mission-driven organizations are looking to private capital as a source of funding to sustain operations and meet rising demand for their services. "Innovative finance" seems to promise a path to that private capital.

That promise, however, is rarely met. Innovative finance seldom creates new money for organizations to spend, and is usually a poor fit for closing operational funding gaps. Additionally, the total capital in the innovative finance space is tiny compared to adjacent sources, such as the global capital markets, individual philanthropy, and commercial debt. Put plainly: if your goal is more money in the door, innovative finance is rarely the fastest or largest path.

So why learn about it? Because in the right situation, innovative finance tools can do what conventional funding cannot: change how capital is mobilized, how risk is allocated, when funding becomes available, and how incentives are structured to improve outcomes.

Also, if you work at a nonprofit, NGO or foundation, the requests to "look at innovative financing" will happen. Understanding innovative finance gives you the flexibility to deploy it well when it fits, and turn it down, with confidence, when it doesn't.

If innovative finance is unfamiliar terrain, we built this primer to help you on your journey. It is meant to be a comprehensive roadmap of the common forms of innovative finance, when they help, and where they fall short.

Please reach out with your questions.