Red Cross launches world's first 'Humanitarian Impact Bond' system

The International Committee of the Red Cross (ICRC) will build three physical rehabilitation centres in Mali, Nigeria and the Democratic Republic of Congo, funding the project through the recently launched Humanitarian Impact Bond system.

The scheme, which the ICRC described as the "first humanitarian impact bond", is based on a payment-by-results programme according to which "social Investors" will provide the necessary funds – 26m CHF ($27m; £20m) – to build the three centres over a five-year period.

Depending on the success of the project, the ICRC will then receive funds from so-called "outcome funders" - governments and organisations - and will funnel the money to the original investors, along with an annual return.

The "outcome funders" are the main funders of the project, but investors will initially provide the money and will absorb part of the risks. Their profit will depend on the success of the scheme, meaning that initial investors could receive the total amount of money invested, or just a part of it.

Independent auditors will verify the ICRC's reported efficiency in the three new centres, comparing it to existing centres.

"The Humanitarian Impact Bond is a new way to finance in fact long term important, key humanitarian projects," ICRC Director general, Yves Daccord told IBTimes UK.

"And what is new is we are willing to find a public private partnership to invest in very unstable environments, and this is maybe what is really new. So the Humanitarian Impact Bond is really a new investment tool, a new financial tool, which helps to finance differently."

The aim of the rehabilitation centres will be to provide assistance to people injured in violent conflicts, disease or accident.

Depending on the success of the scheme, the ICRC will replicate the model to fund other humanitarian projects in conflict-ridden countries such as Syria and Afghanistan.

"You immediately understand that you will have to continue to invest into water sanitation, health system, making sure that these systems do not collapse completely, otherwise people have no other choice but to leave their country," Daccord explained.

"And in that sense, a Humanitarian Impact Bond will be a very interesting tool to be able to work and to commit ourselves and both Outcome Funders with public money, but also private finance [will] have a really strong public private partnership to be able to do that over years."

Peter Maurer, the ICRC's president, said in a statement that this new system is "radical and innovative", and could modernise the current model for humanitarian action.

"We hope that once the pilot project is proven, it will demonstrate that non-traditional financing models can work," he said.

"There is great potential for investments that are built around improving the social, environmental and economic conditions so that humanitarian action advances in impact, effectiveness and scale in ways never seen before."