Innovative Financing for Humanitarian Aid: Can Impact Bonds Help Bridge the Humanitarian Funding Gap?

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The UN estimates 235 million people worldwide needed humanitarian assistance in 2021, a stark increase from 168 million people in 2019 (UNOCHA, 2021). This increase is a result of not only continuing conflicts and displacement, but also the devastating effects of the COVID-19 pandemic and climate change that have pushed more people into hunger and extreme poverty. Meanwhile, funding for humanitarian assistance has not increased proportionately to address rising needs. In 2021, 48% of the global appeal for humanitarian assistance was funded, the lowest ratio since the UN started tracking this data (UNOCHA, 2022). This requires innovative ways to finance humanitarian assistance and deliver aid more effectively and efficiently. My research will examine whether impact bond is a suitable financing instrument for humanitarian action. Impact bond is a type of results-based financing, in which a private investor provides upfront capital to a service provider to deliver a social project, and an outcome funder repays the investor with a return on their investment upon the successful achievement of pre-determined outcomes. The investor bears the cost fully or partially if the project fails to achieve the desired outcomes.