Exploring the Different Financing Models for Digital Public Infrastructure and Why They Matter

David Eaves, Associate Professor in Digital Government, UCL Institute for Innovation and Public PurposeMansi Kedia, Senior Fellow, Indian Council for Research on International Economic RelationsExploring the Different Financing Models for Digital Public Infrastructure and Why They MatterbriefpolicyKey Points • Despite increasing instances of digital public infrastructure (DPI) deployment, there is little public information on how different DPIs are financed and practically no publicly available estimates on how much it costs to implement a DPI.• Financing of DPIs is a complex issue involving decision-making on public policy objectives, operations, stakeholder management, and governance. • Financing of DPIs can be understood using the strategic triangle framework that weaves together three key elements of any policy priority: (i) public value, (ii) operational feasibility, and (iii) support or political feasibility. • Policy discussions on financing of DPIs should include both capital and operational costs of a DPI. • The G20 should build know-how on financing models for DPIs, including financing DPIs for low-income countries, and encourage the acceptance of different financing choices adopted by countries.No. 2024-6 (April)© 2024 Asian Development Bank InstituteISSN 2411-6734DOI: https://doi.org/10.56506/VYDL5566This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.1. Introduction Digital public infrastructure (DPI) is a new conceptual model for services—such as identity, monetary transactions, credential management, and data exchange—that are essential to participating in society and markets in the digital era.1 With the right governance and financing, DPIs can improve “know your customer” provisions, facilitating access to private and public services, and improve access to banking and financial services. During the COVID-19 pandemic, countries with DPIs were able to deposit money directly into the bank accounts of target populations quickly, efficiently, and with reduced risk of leakage.2 There is significant and growing interest by countries around the world in DPI. How its components are adopted and financed carries both risks and opportunities.DPIs have two key conceptual elements. As infrastructure, they cut through the siloed approach of designing and implementing digital solutions with interoperable, society-scale programs that shift innovation and competition to activities that take place atop it. For example, a single electrical grid, by standardizing voltage and amperage, eliminates competition around the delivery of power but creates vast competitive markets around items (like appliances) that use power. As public infrastructure, DPIs prioritize access and inclusion over profits, similar to how electricity and water are provisioned in much of the world. Because DPIs are a combination of software, standards, and policy, they can be replicated and adopted by countries more quickly than their physical infrastructure counterparts. For example, the Modular Open-Source Identity Platform, a digital public good3 born out of Aadhaar, India’s homegrown digital identity programme 1 Eaves, D., and J. Sandman. 2023. What Is Digital Public Infrastructure? UCL IIPP Blog. April. https://medium.com/iipp-blog/what-is-digital-public-infrastructure-6fbfa74f2f8c (accessed 10 April 2023).2 India’s World Class Digital Infra Worth Emulating by Many Nations. Outlook. April 2023. https://www.outlookindia.com/business/india-s-world-class-digital-infra-worth-emulating-by-many-nations-imf-paper-news-276531 (accessed 6 Jun 2023). 3 Digital Public Goods Alliance (DPGA) Registry. https://digitalpublicgoods.net/registry/modular-open-source-identity-platform.html (accessed 23 May, 2023). ADBI Policy Brief No. 2024-6 (April)2(one of the world’s leading DPIs), is being implemented in several other countries, including Sri Lanka, Ethiopia, Morocco, the Philippines, Guinea, and Togo.4Given the rapid spread of this new type of infrastructure, how DPIs are financed is quickly becoming a complex issue that encompasses questions of objectives, operations, stakeholder management, and governance. Importantly, financing does not relate only to the initial capital, but recurring costs related to maintenance and upgrading the system. The lifetime investment is much more critical than the funding required for setting up a DPI, made readily available by governments, multilateral organizations, and philanthropic institutions. Indeed, while there are important lessons that can be drawn from physical infrastructure projects, there may also be limits. Software does not always adhere to the principle of high upfront capital cost and (relatively) low ongoing operational