Innovative Finance Taxonomy in USAID Language

The purpose of “White Paper #2: Innovative Finance Taxonomy in USAID Language” outlines common terms in the innovative finance field that are applicable to USAID, provides what the traditional definitions for these terms are, and presents an alternative definition using concise and easy to understand terminology for USAID staff. This document will be a reference point for USAID staff members interested in leveraging innovative finance approaches in activity design. The paper will break down barriers for understanding innovative finance, not just in theory, but implementation so they can be appropriately utilized in activity design. The result will be more ways for the private sector to finance development outcomes through USAID programming and therefore create an opportunity to maximize results for USAID’s global investments. 

White Paper #2 lays a strategic and foundational understanding for USAID’s ongoing and future work incorporating innovative finance into activity design by ensuring that terms are used appropriately and consistently across the Agency. The paper also provides clarity for innovative finance terms that coincide or moderately vary from what is in reference documents such as the FAR, ADS, and AIDAR to further ensure terms are accurately used by all USAID staff. This document is meant to supplement the rigorous training Agency staff must undergo in federal regulations and the terminology underlying those regulations to the greatest extent possible, not provide a separate and siloed taxonomy. The taxonomy also utilizes relevant terms related to innovative finance and clear definitions from other internal reference documents from USAID including the Private Sector Engagement (PSE) Strategy, Pay-forPerformance Primer, and Setting, Pricing, and Administering Performance Metrics in Pay-For-Results Programming report. When clear and applicable definitions exist from external sources such as the OECD and the World Bank, those definitions are presented to avoid duplicating or unnecessarily rephrasing already streamlined definitions. 

This paper is not a taxonomy for all terms in the innovative finance field. Terms outlined in Section 2 were strategically selected based on usability for USAID staff. Translated definitions into USAID vernacular (column 3 in Section 2), are written in a way to be widely understood for USAID staff regardless of technical specialty, title, role, or physical location. 

Innovative finance is not a tool only for economic growth activities. Innovative finance is a way to finance any development outcome in technical areas such as health, environment, democracy and governance and so on and therefore must be discussed in a way that non-finance professionals can easily understand. 

In summary, White Paper #2 is a document fully tailored to USAID’s needs. At the conclusion of reading this reference document there should be an increased understanding of: 

• Concise terminology commonly used in innovative finance and how terms relate to one another; 
• The various innovative finance mechanisms available to USAID staff; 
• How innovative finance can, by nature, facilitate private sector engagement; and 
• How innovative finance mechanisms have been, are or could be applied to activity design across the agency.