Are humanitarian bonds the answer to aid shortfalls?
The world faces a 41% annual shortfall in humanitarian and development assistance, according to figures cited during the World Economic Forum’s recent conference on the Middle East and North Africa. An instrument so new that people haven’t agreed on a name promises to help draw private investment capital into a realm once reserved for the public sector and philanthropists.
Usually dubbed Development Impact Bonds, or sometimes Humanitarian Bonds, the instruments mimic Social Development Bonds (SDB), which became popular in the UK, US and EU. SDBs pull in cash from investors for promising projects; then a nongovernmental organization implements the program, and the public sector—for instance, a municipality—pays investors back with a premium if the program meets certain pre-established benchmarks. In the case of Development/Humanitarian Impact Bonds, the local public sector is replaced by a philanthropic foundation and/or a foreign aid agency such as America`s USAID.
Nine such bonds have been launched, with a total worth estimated at $60 million. They include a landmark issue two years ago by the International Committee of the Red Cross to help people with disabilities in conflict-plagued regions of Africa. Since this is so new, only one scheme has so far run its course—a girls’ education program in Rajasthan, India. Investors who punted via the USB Optimus Foundation have been duly compensated.