Innovative Finance and the Arts
Financing the arts has always been a challenge. Projects are too risky, claimed to have unclear impacts, and oftentimes support only individual artists. Over the years, we have used a variety of sources of finance for the arts, ranging from individual donors to public dollars. In order to get funding for arts and culture projects, what if we proposed to use innovative financing techniques?
Let’s borrow from international development. In recent times the international development community has gravitated toward innovative finance as a way to fundraise. Innovative financing can be a range of non-traditional fundraising mechanisms through "innovative" projects such as micro-contributions, taxes, public-private partnerships and market-based financial transaction. This could be, for example, using public dollars as a risk pool to get even greater funding from private donors.
International development has a large focus on health, education, and conservation. But, when we look at health in its numerous holistic forms, health and art become intuitively connected. International development is also a form of community development. With the rise of terminology such as “creative placemaking” and “arts and community development”, there is a clear correlation between what the arts can do to develop communities, and our traditional forms of international development. So why can we not merge these methods to help fundraise for international arts projects?
One way we can achieve more financing for the arts world is through blended finance. Blended finance is the idea of blending different donors’ money into one fund to help support a project. Take for example building a cultural center in Bangladesh. The project may cost a total of 55million. Public donors don’t have enough funding for all of this, and private donors often don’t want to invest due to risk. This is where blended finance techniques can come into play. A foundation that looks to support the arts but may not have a lot of capital to support, can put in 5million for tier 1 funding. This funding is used as a first risk funding incase the project fails, also known as a risk pool. Then a government institution or a Development fund institute that originally may have not supported an arts project because of the stricter rules for the use of taxpayer money, has lower risk and can kick in 20 million as tier 2 funding. If the project passes the initial risk phase, the development fund contributes. Finally, a private institute like a financial institute who is interested in development and supporting the arts can kick in 30 million. Traditionally this type of organization would not invest due to the high risk of the projects rate of return, but because the risk is mitigated so much by other sources of financing from foundations and public dollars, financial institute is more resilient to risk.
This concept can be taken further with the idea of volume guarantees. Volume guarantees have been used in the immunization in developing countries to acquire large donations from a private entity if the country can guarantee that a certain level of vaccines will be purchased. Similarly, what if we used a model that will incentivize investors if we can guarantee that a certain number of students enroll in an arts school leading to an agreed upon value of profit, or that a certain number of businesses will be guaranteed to make a certain amount of profit?
Innovative financing techniques have long provided funding to the healthcare and climate change spaces, both of which have a variety of small and medium businesses helping execute impact and make a profit. Similarly, the arts world has a variety of businesses, ranging from creative enterprises and art schools to public markets and performing arts institutions. Using these for-profit arts businesses as an avenue to help ensure financial returns for community arts projects can be a strong leverage for investors to support these projects.
No innovative financing opportunity can work until the arts world begins to speak the language of investors and donors. Since most innovative financing investments go towards the sustainable development field,it is not until we can communicate arts using sustainable development vocabulary that we will be able to fully obtain funding. This can be health, education, economic development, or more. Through the multiplier effect, arts creates numerous jobs, economic growth, improves our health and wellness, and ultimately helps create more livable communities. We have proven time after time that arts improves other sectors of the economy and ultimately creates a healthier community. Using this vocabulary and providing direct evidence for the financial impact of the arts will be the key to acquiring this diverse array of funding.