New bond taps investors for aid projects in war zones

Red Cross turns to social investors to finance rehabilitation centres for disabled people in Africa

The International Committee of the Red Cross (ICRC) has launched what it says is the world’s first “humanitarian impact bond”, a funding vehicle which aims to attract private capital to help those in conflict zones, while giving investors a return on their money.

Social investors have pooled CHF26 ($27m) in five-year funding to pay for three physical rehabilitation centres to be built and run in Nigeria, Mali and the Democratic Republic of Congo, with returns dependent on how effective the scheme is.

The ICRC already operates 139 rehabilitation projects in 34 countries, helping almost 330,000 people with physiotherapy and mobility devices including wheelchairs, artificial limbs and braces.

Private investors Lombard Odier and New Re, part of global insurer Munich Re, are among those who have backed the bond. If the ICRC centres perform well, the investors will be repaid – and potentially make a profit, paid by the Belgian, British, Italian and Swiss governments and Spanish charitable foundation La Caixa.

If the scheme performs badly, both investors and the ICRC risk losing money.

The performance targets are based on the efficiency of the ICRC’s existing centres, and measured by how many people are fitted with mobility devices, adjusting for staff numbers.

ICRC president Peter Maurer said the bond offered an opportunity to “test a new economic model” designed to transform the delivery of aid in conflict-torn countries.

“This funding instrument is a radical, innovative, but at the same time, logical step for the ICRC,” he said. “There is great potential for investments that are built around improving social, environmental and economic conditions.”

The bond’s debut comes amid growing appetite among private investors for both social and financial returns. For aid agencies, pressured by the rising number of complex crises, there is also a need to look beyond traditional donors to new funding tools, said Maximilian Martin, global head of philanthropy at Lombard Odier.

“[The funding model] brings the learnings from the past decade of experimentation with social impact bond models to the humanitarian sector for the first time,” he said.

“Its pay-for-outcomes approach transfers innovation risk from traditional public sector humanitarian donors to private investors.”

Of the 90 million people with physical disabilities worldwide in need of a mobility aid, the ICRC estimates only 10 per cent have access to adequate rehabilitation.