How the first Humanitarian Impact Bond will transform financing of aid
16 February 2018
A sticking plaster. It’s a somewhat glib metaphor to describe the aid once provided by humanitarian organisations working in conflict zones. A short-term fix to address people’s immediate needs.
But times have changed. Faced with increasingly protracted conflicts and immense human suffering, we are now holding together the very fabric of society in some contexts.
In my 22 years with the International Committee of the Red Cross (ICRC), I do not recall such a challenging humanitarian landscape. Conflicts are no longer temporary interruptions in people’s lives; they are socio-economic catastrophes that inflict prolonged suffering. And with increased humanitarian need comes huge financial demands.
Our proposed field operations budget for this year is $1.8 billion (£1.4 billion) – 80% higher than our budget in 2010.
Another way of illustrating the challenges we face is by looking at our 10 largest operations: Syria, Iraq, South Sudan, Yemen, Nigeria, Somalia, Congo, Afghanistan, Ukraine and Myanmar. Before you read on, take a guess at the average length of our presence in these countries. Five years? Ten? Twenty?
The answer is 37.
When the humanitarian challenges have increased so dramatically, then your funding also has to evolve. We cannot only rely on our traditional donors to meet the funding demands, which is why we have created the world’s first Humanitarian Impact Bond.
The ICRC launched this innovative way of funding with our partners last year. It has been created to encourage social investment from the private sector to support our physical rehabilitation programmes.
Of the 90 million people with physical disabilities who need a mobility device worldwide, only 10% on average have access to adequate rehabilitation services. This leads to both social and economic exclusion.
The capital raised by the Humanitarian Impact Bond will be used to build three new physical rehabilitation centres in Nigeria, Mali and Democratic Republic of Congo – all of which have been hit hard by conflict. Thousands of people stand to benefit.
The centres will be built in areas with extremely limited social safety nets, where people with disabilities often go years without adequate treatment or support. They will be run by the ICRC together with local partners, and training will also be provided to local medical professionals.
So how does it work?
The Humanitarian Impact Bond is a pilot project legally known as the Program for Humanitarian Impact Investment. It is modelled on the concept of social impact bonds, but has been adapted to ensure the ICRC’s impartiality and independence are not infringed in any way.
Here’s how it works:
- The outcome funders – the governments of Belgium, Switzerland, Italy, the UK and “Fondation la Caixa” – make a conditional pledge to pay the ICRC for concrete results achieved in five years. The outcome value is 26 million Swiss Francs – though their eventual payment varies according to the results achieved by the ICRC.
- On the basis that the outcome funders will pay the ICRC in five years, social investors from the private sector make their investments. This money enables us to carry out the five-year programme.
- In the first three years, we build and equip three new physical rehabilitation centres in Mopti, Maiduguri and Kinshasa, as well as train new staff.
- We provide quarterly reports to the outcome funders and social investors on the progress of the programme.
- At the end of the 5th year, the outcome funders pay the ICRC according to the results achieved. These funds will in turn be used to pay back the social investors partially, in full or with an additional return, depending on the efficiency of the new centres.
Independent auditors will verify our performance. Our “efficiency” – the ratio of how many people receive mobility devices per physical rehabilitation professional – is compared to existing centres in Africa.
If the efficiency of the new centres is above the benchmark, the social investor will receive its investment plus an annual return. If the performance is below the benchmark, then it will lose a certain amount of the initial investment.
We believe this way of procuring new funding is radical, innovative and entirely logical. It is an opportunity not only to modernise the existing model for humanitarian action, but to test a new economic model to support people in need.
There is great potential for investments that are built around improving the social, environmental and economic conditions. Everyone stands to benefit from its success.
Helen will be speaking at the Is there any impact in impact investing? session at the Bond Conference, 26 February, where you can hear more about the Humanitarian Impact Bond as well as other innovative forms of financing.