Refugee Lens Investing | July 18, 2024

New tools for humanitarian relief in crisis zones: blended finance, offtake contracts and debt swaps

Jessica Pothering
ImpactAlpha Editor

Jessica Pothering

In the northwest Jordanian city of Irbid, ground was broken early this year on a water project that will bring piped water for the first time to 120,000 people. 

About 20% of the beneficiaries are Syrian refugees, who fled across the border since the civil war started in their country 13 years ago, and who are unlikely to return home any time soon, if ever. 

The International Rescue Committee, a global humanitarian NGO, is advising the European Bank for Reconstruction and Development and the Jordanian government to ensure Irbid’s refugee population benefits from the new water infrastructure. It hopes the Irbid water project can serve as a model for how investors can help stabilize and rebuild communities transitioning from conflict and crisis. 

More than 117 million people have been displaced worldwide because of conflict or natural disaster. About a two-thirds are displaced within their own territorial borders. 

“First responders don’t know how to deliver the services communities need, which are infrastructure, water, energy, jobs,” says Ellen Brooks of the International Rescue Committee. “These are things the private sector and development investors know how to do. It’s about off-taking humanitarian outcomes that shouldn’t just be in the humanitarian sector anymore.”

Innovative finance

Humanitarian crises now last 17 years on average. Humanitarian aid delivered as short-term grants won’t cut it. 

“It’s not working in these contexts,” says Brooks.

Despite the political rhetoric in the US and Europe about migration, most people who have fled across borders arrive in neighboring low-income, resource-constrained countries. Many host countries are also highly vulnerable to climate change. 

Host countries’ fragility means that long-term stabilization and integration models are needed in addition to short-term crisis response. Such approaches require a different kind of capital and expertise than what most humanitarian organizations have available, says Brooks.

Global humanitarian organizations have launched in-house financing arms in recent years to address entrenched social and economic issues affecting the vulnerable communities they serve. UNICEF, Save the Children and MercyCorps, for example, all have venture capital funds to fund young social enterprises delivering essential products and services, like access to finance, energy, healthcare and education. 

The IRC has taken a different approach. Its Airbel Impact Lab aims to catalyze private sector finance to long-term refugee communities by advising and assembling deals for other investors. Under Brooks, a former banker, the Lab’s four-year-old innovative finance team has built a portfolio of projects that includes building critical infrastructure, strengthening refugee entrepreneurial ecosystems, and adapting novel climate finance models for humanitarian needs. 

“The humanitarian sector and the private sector do not communicate with one another and have no idea what the other one is doing,” says Brooks. “We’re trying to get people to cross over sectors and share complementary skills and capacities so that the outcome of an investment is greater than the sum of its parts.”

Concessional capital and financial derisking mechanisms can “incentivize private capital at the scale it’s needed,” she adds.

Private capital can also stretch increasingly strained aid budgets. Nearly 90% of all humanitarian aid comes from just 10 donor governments. Last year, two-thirds of the funding needed by aid organizations – $41 billion – went unfunded. What did come in went to hot zones like Ukraine, Gaza and Sudan.

“That’s where it should go, because those people are in a crisis situation,” Brooks says. But in other fragile places, “just because the money is leaving, doesn’t mean people’s needs have gone away.”

Procurement as investment

The IRC’s humanitarian work dates back to the 1930s, when Albert Einstein helped establish the organization to aid people fleeing Nazi persecution. The New York-based NGO has since served 35 million people in 40 crisis-affected countries. 

The IRC has been working with Syrian refugees in Jordan since the early days of the Syrian civil war. In Jordan, extreme water scarcity is putting pressure on local communities and risks increasing the vulnerability of refugees and tension with their Jordanian hosts. 

In the Irbid water project, the IRC has served as the voice for the Syrian refugee community in project planning and with the development finance partner EBRD.

“These are invisible communities. These are people who don’t show up to community meetings, or if they do, they don’t speak up,” says Brooks. Yet “20% of the community is Syrian refugees who are going to live there forever now. There’s no going back to where they came from.”

The IRC has also formed a partnership with the startup AquaPoro Ventures to capture water from the air into potable water. The NGO is an early off-taker of AquaPoro’s water to supply health clinics at lower costs than the IRC’s current water supplier, a test of the organization’s “procurement as investment” strategy. 

The IRC is also building from 20 years of experience lending to and supporting refugee entrepreneurs by introducing other investors to refugee-led businesses. It’s working with Cairo-based venture capital firm Flat6Labs to build an investment pipeline in refugee communities in Jordan.

In Kenya, the IRC is working with a renewable minigrid developer and operator to supply power to the Kakuma refugee camp. The 30-year-old camp was set up for Sudanese refugees and  has developed into a sprawling, permanent home to more than 200,000 people. Nearly all basic services in the camp are still aid-funded. The IRC is providing technical assistance and could become a power customer once the grid is operational.

“We know siloed approaches are not working, so let’s find ways to work on financial models together that have verifiable social outcomes,” says Brooks

Refugee-lens investing

Investment flows to refugees and displaced communities add up to hundreds of millions of dollars. The amount required is far greater – compared to the tens of billions needed for humanitarian work worldwide. 

A refugee-lens investing ecosystem has been shepherded by the Refugee Investment Network, a Washington, DC-based nonprofit that advocates for policy change and connects organizations, social enterprises and funders to investment opportunities. RIN publishes country-specific investment reports and in 2022, hosted a refugee-lens investing Summit in Nairobi with impact investment firm Acumen. 

Acumen is one of a small number of investors that has developed a refugee-lens investment strategy. Developing World Markets, Kiva and the Danish Refugee Council have gone a step further with dedicated fund vehicles for refugees and displaced communities. 

Development finance institutions and multilateral development banks are starting to use tools to derisk and leverage limited capital. In Lebanon, the World Bank’s International Finance Corp. provided a $5 million loan and $2 million risk-sharing facility to microfinance organization Al-Majmoua to increase lending to refugee-led micro businesses. The IFC is also working with the Dutch government on a $17.5 million blended-finance fund for refugee-focused projects in Africa and the Middle East. 

In Somalia, the World Bank’s Multilateral Investment Guarantee Agency provided a $5.7 million political risk guarantee for investors in a hybrid solar power plant developed by Kube Energy and CrossBoundary Energy in the southern town of Baidoa.

Once de-risked, investments can fit in commercial infrastructure rather than philanthropic humanitarian portfolios. For the Kube Energy and CrossBoundary Energy project, for example, “when an investor looks at it, they see much more of a solar financing project than a Somalia project,” observes Brooks.

Climate migration

The IRC’s early work in building up refugee-lens investing is helping private investors understand how refugees and displaced communities are affected by investment decision-making and how to consider refugees in their deal structuring. The NGO has developed a playbook for other humanitarian organizations to play a similar advisory in order to catalyze more private capital into refugee and displaced communities. Brooks sees opportunities for humanitarian organizations to use technical assistance grants for investment advisory work in communities they serve.

“The crux of the role is translation,” Brooks says. “We can’t always convince investors to go to [new] places, but we can convince them to be more inclusive in their investment decision-making.”

Without that lens, says Brooks, “you’re going to have continued conflict and unease between communities that are going to stay mixed for the foreseeable future.”

Indeed, in the next 25 years, more than 200 million people could become climate refugees and more than one billion could move voluntarily as climate migrants. Climate disasters and the impacts of migration are hitting already vulnerable and under-resourced countries the hardest. 

“Everything that we do is climate, full stop,” Brooks says. 

The IRC is working on a financing mechanism that would help debt-burdened countries refinance a portion of their sovereign debt in exchange for commitments to humanitarian outcomes. Debt swaps for social outcomes are a spin on debt-for-nature swaps that countries like Ecuador, Barbados, Gabon, the Seychelles and others are using to finance nature conservation. 

There’s no shortage of places with both high amounts of debt and high amounts of need. 

“People are on the frontline of climate change,” Brooks says. The goal is to get funding “to frontline communities that are responding to the climate crisis, or to the people who have the least least agency to respond.”“We’re not trying to say we have the answer. We’re saying we have an answer,” she says. “So let’s work together, let’s iterate, let’s try new things.”