Hundreds of millions for social innovators

U.S. Senate lawmakers just passed a spending bill that will have a big impact for social innovators everywhere

Dear Unlock Aid community,

TL;DR: Late last week, the U.S. Senate Appropriations Committee passed a spending bill that was packed full of good news (and funding) for social innovators.

When we started Unlock Aid, we knew that social innovators needed a voice in Washington, DC to help unlock funding for the hardest problems facing the planet. Despite the dysfunction in America’s capital city, we learned quickly that both political parties wanted to see big changes to the way the United States spends more than $60B every year for global challenges, too – and especially to get more resources directly to those frontline groups and social innovators having the biggest impact on issues like food security, biodiversity, global health, and to promote inclusive economic growth.

Last week, U.S. Senate lawmakers just passed a spending bill will have a big impact for our community. Specifically, it addresses many of the challenges we’ve talked about since our earliest days that inhibit social innovators from doing more with public sector. For example, this bill provides:

1. New funding to scale innovators’ solutions beyond pilots, fixing the “missing middle” in global development

As we’ve explained before, one of the biggest barriers that social innovators experience when they work with large funders’ innovation units is that they can occasionally win funding to pilot a novel solution, but there’s rarely enough follow-on funding available to scale up what’s proven to work. This creates an entrepreneurial “Valley of Death” or “Missing Middle” for social innovators. This is also an issue that lawmakers like Representative Joaquin Castro (D-TX) and Senator Cory Booker (D-NJ) have challenged USAID to address.

Now the Senate proposes putting aside a minimum amount of money every year to start scaling funding for those solutions that are proven to work, creating an end-to-end funding pipeline for social innovators who work with USAID.

Further, lawmakers also want to make sure scale-up funding isn’t limited to this pot of funding alone – and that agencies like USAID must find ways to promote and incentivize staff who make scaling funding for proven innovations a priority. 

2. More funding for social innovators, including a 25% funding increase for offices like Development Innovation Ventures (DIV)

Delivering a $17-1 social return on investment, DIV provides tiered- and milestone-based funding largely to social enterprises and local organizations that can show evidence of cost-effectiveness, replicability, and sustainable business models.

The Senate recommends increasing their budget to $50M, a 25 percent increase over last year’s budget, which saw a 33 percent increase the year before that.

This matches what the U.S. House of Representatives proposed for DIV back in June (in spite of the House spending bill that proposed an overall cut to foreign aid), showing that there still are bipartisan examples of support for our most effective global development investments.

3. Fixes to procurement sludge to make it easier for the U.S. Government to work with social innovators and local partners

Last year, Congress increased the cap on pay-for-results Innovation Incentive Awards (IIAs) from $100,000 to $500,000. The year before, Congress also removed the limit on the number of IIAs USAID can issue every year. Now the Senate makes clear it wants USAID to scale funding for those organizations that have received IIAs.

Since IIAs pay retroactively for an intended result, there is significantly lower red tape associated with them. For example, registration in U.S. government systems is not required to receive an IIA, just verification of a successful result. Organizations do not need to invest tens of thousands of dollars to put together proposals, either. 

As USAID writes, “Innovation Incentive Awards are neither acquisitions nor assistance, so their flexibility may be ideal for new, local, and nontraditional partners.” Click here to learn more about this tool. Social innovators should ask their local USAID missions how they plan to increase the use of this tool!

Congress also wants to know how USAID plans to increase funding to local partners:

4. New minimum standards of cost effectiveness – good for social innovators

The Senate bill directs USAID to start using cost-effectiveness benchmarking as it designs its large future development programs. That’s a big win for social innovators, local organizations, and organizations that use direct cash transfers and microfinance, for example, which can often implement programs far more cost effectively than larger international aid groups.

5. More funding for offices and programs with a strong track record of working with local organizations, social innovators, and the private sector, and in innovation-enabling sectors like digital infrastructure

In addition to increasing funding for programs like DIV and creating dedicated funding to scale proven innovations, the Senate bill also increases funding for the Inter-American Development Foundation (which has a 100% local partner base) from $45M to $52M and the Clean Technology Fund from $125M to $150M. It also maintains $100M annual funding for Local Works and increases funding for the U.S. International Development Finance Corporation (DFC) and the Millennium Challenge Corporation (MCC).

Their bill also provides for major investments in sectors that will accelerate investments in digital innovation, innovation-enabling infrastructure, and accelerate creation of the global innovation economy, including:

• $65M for a Digital Transformation with Africa Fund to expand digital access on the continent;

• $21M to establish African trade and investment hubs to increase sustainable economic growth and two-way trade; 

• $100M for a Cyberspace, Digital Connectivity, and Related Technologies Fund to invest more in emerging technologies;

• $100M to enhance investments in critical minerals and supply chain security; and

• $110M for strategic infrastructure investments.

What happens now?

This is a major step forward but it isn’t the last one. Now the full Senate must pass this bill. Once they do, both chambers of the U.S. Congress – including the House and the Senate – must reconcile the differences between this bill and the version the House passed in June.

We expect to see a final, consolidated version that the president can sign towards the end of the year or early next year, after the November election. Then, agencies like USAID, State Department, the DFC, MCC and other agencies covered under this law will have a few months to start implementing the changes. For example, many of the things that our community fought for and passed into law in last year’s spending bill are starting to come online now. We’ll share more progress on this soon.

This bill highlights why it’s so important to have a voice for social innovators in Washington, DC. Changes like these will translate into hundreds of millions of dollars in new funding for organizations that are having a measurable, tangible impact on the communities they serve. Thank you for your help to make this happen.

To Progress,
Unlock Aid

P.S. Here is the full bill text and here is its report instructions to agencies like USAID, State Department, DFC, and MCC.