According to some, Humanitarian Impact Bonding could be driving future interventions in the field of international development. Firstly conceived in the US and in the UK, this innovative business model is receiving more and more recognition among development cooperation partners, allowing private investors to benefit from a share capital increase while pursuing a social objective.
With humanitarian challenges increasing all over the world, aid requests have raised dramatically and funding mechanisms have to evolve to keep up with current needs: humanitarian impact bonding could allow development actors to diversify financial mechanisms and attract funds in a more stable way. In this context, the International Committee of the Red Cross (ICRC), the largest humanitarian network in the world, was the first one to test this model, and Italy is part of this ambitious pilot project together with the governments of Belgium, Switzerland, UK and the Spanish charity “La Caixa” Foundation. Different actors intervene in the scheme: it begins with capital from private sector social investors, who will allow ICRC to develop its 5-year project. In this case, the funds will be used to build and run three new medical centers in Nigeria, Mali and the Democratic Republic of Congo, to provide physical rehabilitation services and assistance for thousands of people with disabilities. The donors, acting as outcome funders, make a conditional pledge (26 million Swiss Francs, which almost equals 23 million Euros), through which they commit to pay ICRC at the end of the 5-year project: these funds will be used by the ICRC to pay back the social investors, who made the initial investment. Depending on project performance, social investors will be repaid partially, in full or with an additional return. The efficiency of the centers will be verified and evaluated by independent auditors: if the performance is above the established benchmark, investors will receive the initial investment plus a return. One of the main points of strength of this model is the fact that it is a results-oriented system, built on a systematic result and impact evaluation focused on the beneficiaries. The results-based approach allows the donor to cover the risk of the private investor, while investors are rewarded by the bond.
This new aid provision model could be extremely effective in improving the existing humanitarian action and better serve the needs and priorities of a growingly complex international scenario. Such challenges lead international development actors to ask themselves whether their action is replacing the potential role of local private sector: this dilemma is easily bypassed through the humanitarian impact bonding system, as it should stimulate local economic dynamics and foster local development. The strategy is also compliant with SDG 17: Partnership for the Goals, which calls for action to align development objectives with partner countries priorities also through the mobilization of private resources.