As the dynamics of conflict shift towards being more protracted and more urbanized, so too do people’s needs.
Approx. 6 minute reading time

6 min

The ICRC is examining new approaches that meet the demands of emergencies as well as longer-term, larger-scale responses. The ICRC’s Innovation Facilitation Team caught up with ICRC President Peter Maurer to discuss how the ICRC is changing its response, and why new finance models are needed.

Innovation Facilitation Team (IFT):

Why did the ICRC start looking towards new ways of financing its work?

Peter Maurer (PM):

What made us think about innovative financial mechanisms, two or three years ago, was the increasing gap between the needs landscape and our ability to raise funds to cover those needs.

I remember some of the first conversations in Davos at that time, where some financial institutions asked me, “What we can do for you?”

Our first reflex was to ask for funding: we had a gap, and we knew what needed to be done. But the financial institutions said, “Well that’s not actually how we want to help you. We don’t really want to be philanthropists: we want to see how we can help you by doing what we do best.”

And this was the start of the discussions on creating the world’s first Humanitarian Impact Bond.

It was a learning exercise: translating humanitarian into finance, and finance into humanitarian. This involves the logic of collecting data, measuring impacts, and knowing what impact you want to create and how different financial structures can help.

Markets come with an investment logic. And inherent in this logic is the idea of returns. When we told them returns can’t be produced on investment in the humanitarian setting, they asked “But what can you produce?”

What we can produce is the positive impact for people and so it became essential to work out how to measure this.

IFT

The ICRC’s exploration of innovative financing is part of a wider transformation of financial markets, with greater differentiation by investors. Can you tell us a little about how the market for investment in humanitarian impact came about?

PM

In my mind, the development of climate change finance was a breakthrough. I think that’s when financial markets became more involved in societal issues, and investors wanted to structure products that can both supply money for global issues as well as supplying money for the economic system.

Over the last 15-20 years we started to see new financial products emerge. The financial markets reacted to the global financial crisis, migration, climate change, and began to build social issues more into their structures and started asking “Is there anything we can do to help by creating financial products that help respond to societal challenges?”.

IFT

Can you explain how this approach unlocks new money, and the role that traditional donors of humanitarian action – states – play?

PM

I learned that the investor community is much more differentiated than I had anticipated. Motivations are broad – ranging from the most generous – the impact philanthropist who gives you money, and only expects social impact not financial interest – to those who primarily expect the capital plus dividend returned. And there are also those investors who accept a less than market return, but want a mix of return and impact.

I also started to understand that these markets would not be able to develop if States did not provide some form of guarantee. So I spent a lot of time with the Swiss, Belgian and Italian governments, who invested State funding into the Humanitarian Impact Bond. This opened the door for private capital to flow to the project. For these models to be successful, States must continue to finance humanitarian and development aid through traditional channels but must also de-risk investments (for example by providing guarantees) which enables the unlocking of private capital. This is obviously a complex area in which we all need to explore and find what fits best.

These financial mechanisms are not solely about funding: the benefits are multiple – learning how to improve impact, bringing in new actors, and being able to do different kinds of projects that we wouldn’t be able to do with traditional funding.

To get these models off the ground, it is essential to build – political and financial literacy – on all sides. You don’t need to be a specialist – I am not. I just learned by doing, and I encourage others in the organisation to do the same.

IFT

In five years’ time, what do you think the ICRC’s financial landscape will look like?

PM

We will – and must – continue to have a solid percentage of our budget financed traditionally – through States. And I would hope that this part of the budget will be financed by a greater number of States than today.

We will must continue the traditional model of resource mobilisation. And we will also have a portfolio of new financial products designed to address specific challenges. In all cases, the solutions should put people affected at the centre to design responses with them.
It will be key to invest in the capacities of people and communities affected by crisis and conflict, so that they have opportunities to create greater sustainability. We will use financing to draw in the skills and capabilities of new actors, so we can achieve impact that no single actor could achieve on its own.

Some of the exciting projects that we are at the very early stages of exploring now that might come to fruition over next five years include: a public-private partnership for a longer-term water infrastructure project in Goma; an impact bond with a focus on education; and a pay-for-results mechanism to train surgical staff. I look forward to seeing these projects come to life and make a difference in the lives of people most in need.