The first humanitarian bond issued in 2017 is a type of Development Impact Bond.
Development Impact Bonds bridge the funding gap between the public and private sectors and transfer the investment risk to non-governmental players. Built around the public-private partnership model, today, there are 194 impact bonds contracted with $441 million capital paid upfront for implementing the projects or interventions that target specific preventive social outcomes for a financial return. Impact Bonds are of two types i.e., social impact bonds and development impact bonds.
Graph: Source Brookings | The middle Road
Development Impact Bonds are implemented in low- and medium-income countries. Unlike a government entity for a social development bond, the outcome payer is a third-party example of a donor. Over the past decade, various thematic bonds focusing on education and healthcare have emerged. To know more about Impact Bonds, buy the online course from The middle Road here.
International Committee of the Red Cross (ICRC) launched the first Humanitarian Impact Bond for people with disabilities in Mali (Mopti), Nigeria (Maiduguri), and the Democratic Republic of Congo (Kinshasa). La Caixa Foundation and the governments of Belgium, Italy, the United Kingdom, and Switzerland are funding the outcomes. The Government of the Netherlands provided upfront grant finance for designing the bond. The service provider International Committee of the Red Cross (Physical Rehabilitation Programme), would use the upfront capital to increase the efficiency of Physical Rehabilitation Program Centers and support at least 3600 disabled people to regain mobility. Also known as Programme for Humanitarian Impact Investment (PHII), ICRC wants to address a global systemic problem among the 90 million disabled people. Only 10 percent of these disabled people have access to physical rehabilitation support. ICRC has pooled capital from private investors for five years to provide interventions to help disabled people in post-conflict countries Mali, Nigeria, and Congo improve mobility. The $26.2 million (exchange rate 1.00525 11/10/2019) bond is structured to accelerate the efficiency of 107 physical rehabilitation centers using enhanced data management through an ICT Digital Centre Management System tool.
Impact Bonds, pay-for-success bonds, are financial instruments that reward a monetary return for achieving stated social outcomes targeted by the interventions. This bond provides a 7 percent return if the bond reaches or outperforms pre-determined objectives. Investors could lose up to 40 percent of their capital if the outcomes are not achieved. However, the service provider has invested ten percent of its capital in mitigating investors’ concerns. A third party evaluates the outcomes, and in this case, Philanthropy Associates would be conducting the impact evaluation. The idea enables the African development sector, the next two years significant for analysing the social impact of this instrument. The pandemic effect might have hurt the project’s outcome, and the success of this project could catalyze the global mobilization of capital within the region.