Funding models for ODEs

Initial financing

Given that ODEs are meant to be ‘public goods’, the initial financing for the build should be done using public sector or philanthropic capital. This is important for creating a level-playing field without giving undue advantage to any market player, and for keeping vested interests of different actors at bay.

Public Sector funding

This could include funds from central or state governments. Government bodies can also avail concessional loans from national and international development finance institutions to unlock the capital earmarked for infrastructure. These loans can be repaid over the longer term. Examples include Aadhaar and Gov.UK’s open technology infrastructure: Pay, Notify, and Verify.

Philanthropic funding

These grants typically stem from three types of sources:
i) private foundations or development finance institutions,
ii) corporate foundations,
iii) iindividuals via crowdsourcing campaigns or donations.

In addition to monetary support, philanthropic contributions to ODEs can also be extended through the provision of technology products and / or services, either free or at subsidized rate.

Operational financing

The maintenance and scale-up of ODEs requires recurring expenditure for which financing mechanisms beyond public sector or philanthropic grants can be explored. Two options for cost recovery are provided below.

User fee

Charged directly to the user in exchange for the services delivered. It can be a one-time charge (e.g. fee for registration, verification, listing, etc.), a recurring subscription fee (monthly or annual) or a pay-per-use model. Depending on the type of platform, pay-per-use charges can be in the form of a transaction fee, convenience fee or download (API or data) charges.

Service fee

Charged to the users who require customization or assistance with the implementation of the platform. It usually comprises two types of charges, one-time and recurring. The one-time fee may include charges for site visits and platform deployment, while the recurring fee may include charges for platform maintenance, training, and user support. These fees can also support continued improvements to the digital platform. This is especially relevant for open source digital platforms.

Other innovative means of funding

Government bodies can also explore other innovative means of funding ODEs to fulfil the initial and ongoing operational financing requirements of ODEs.

Pooling savings into a Digital Investment Fund

ODEs can generate savings due to enhanced transparency and efficiency in service delivery. Some ODEs might also generate secondary revenue for the government. All or some of these savings or new streams of revenue can be redeployed into a special digital investment fund that is earmarked for the initial financing of new ODEs.

PPPs with Majority Shareholding Retained by the Government

ODEs can adopt a PPP model similar to the one used for financing physical infrastructure. In many instances, private sector entities co-finance the initial set-up with the public sector, using a combination of debt and equity financing, while ensuring broad-based shareholding and representation. The private sector players can subsequently recover their investment either directly by collecting revenues generated by the ODE or through deferred payments from the public sector partner. In case of PPP models, while private entities may earn a return on their investment, considering the ‘public good’ nature of ODEs, instances of unfair value capture (or profit maximization) should be avoided.

Variabilization of the Costs Associated with the Technology Vendor

One of the largest cost heads associated with public sector-backed ODEs is platform development and maintenance – often paid to the managed service providers (MSPs). Hence, it is important to optimally manage this cost. By linking the post-launch MSP payout to platform performance, the ODE can convert the fixed cost to a variable cost. This model serves to not only manage the technology cost but also lower the commercial risk for the ODE accountable institution.