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Harvard Case - The ICRC: The Humanitarian Impact Bond (Abridged)

"The ICRC: The Humanitarian Impact Bond (Abridged)" Harvard business case study is written by Vanina Farber, Shih-Han Huang. It deals with the challenges in the field of Finance. The case study is 31 page(s) long and it was first published on : Nov 8, 2023

At Fern Fort University, we recommend the ICRC proceed with the Humanitarian Impact Bond (HIB) pilot project in Yemen. This initiative presents a unique opportunity to leverage private capital to address a critical humanitarian need while demonstrating the viability of impact investing in conflict zones. The ICRC should carefully consider the risk management and financial analysis aspects of the project, ensuring a robust framework for measuring impact and achieving a sustainable return on investment.

2. Background

The International Committee of the Red Cross (ICRC) faces a significant challenge in funding its humanitarian operations, particularly in conflict zones like Yemen. The ICRC's traditional funding sources, primarily government contributions and public donations, are often insufficient to meet the growing needs. The ICRC is exploring alternative funding models, including the HIB, to address this funding gap and enhance its impact.

The HIB pilot project in Yemen aims to improve access to safe drinking water for displaced populations. The project will be implemented by the ICRC, with funding provided by private investors. The investors will receive a financial return based on the project's success in achieving its objectives.

3. Analysis of the Case Study

The HIB presents a compelling opportunity for the ICRC to:

  • Diversify its funding sources: The HIB can attract private capital, reducing reliance on traditional donors.
  • Increase impact: The performance-based nature of the HIB incentivizes the ICRC to achieve measurable results.
  • Demonstrate the viability of impact investing: Successful implementation of the HIB can showcase the potential of impact investing in conflict zones, attracting further investment.

However, the ICRC must carefully consider the following:

  • Risk assessment: The HIB involves significant risks, including political instability, security threats, and potential challenges in measuring impact.
  • Financial analysis: The ICRC must develop a robust financial model to ensure the project's financial viability and attract investors.
  • Transparency and accountability: The ICRC must maintain transparency and accountability throughout the project, building trust with investors.

4. Recommendations

  1. Develop a comprehensive risk management framework: This should include identifying potential risks, developing mitigation strategies, and establishing contingency plans.
  2. Conduct a thorough financial analysis: This should include a detailed cost-benefit analysis, a robust financial model, and a clear understanding of the project's potential return on investment.
  3. Establish clear impact measurement criteria: The ICRC should work with experts to define measurable and verifiable indicators for tracking the project's impact.
  4. Engage with potential investors: The ICRC should actively engage with investors, presenting the project's potential and addressing their concerns.
  5. Build strong partnerships: The ICRC should collaborate with local organizations and communities to ensure the project's success and sustainability.

5. Basis of Recommendations

These recommendations are based on the following considerations:

  • Core competencies and consistency with mission: The HIB aligns with the ICRC's core mission of providing humanitarian assistance and promoting international humanitarian law.
  • External customers and internal clients: The HIB addresses the needs of both the ICRC's beneficiaries and its investors.
  • Competitors: The HIB is a relatively new approach to humanitarian financing, with limited competition.
  • Attractiveness ' quantitative measures: The project's potential for a positive return on investment, combined with its potential for significant social impact, makes it attractive to investors.

6. Conclusion

The ICRC's HIB pilot project in Yemen presents a unique opportunity to leverage private capital for humanitarian aid in a conflict zone. By carefully managing risks, conducting thorough financial analysis, and establishing clear impact measurement criteria, the ICRC can successfully implement this project, demonstrating the potential of impact investing and achieving a significant positive impact on the lives of beneficiaries.

7. Discussion

Other alternatives not selected include:

  • Traditional fundraising: This option is limited by the ICRC's reliance on government contributions and public donations, which are often insufficient to meet the needs.
  • Grant funding: Grant funding is often tied to specific projects and may not be flexible enough to address the dynamic needs of conflict zones.

Risks and key assumptions:

  • Political instability: The project's success depends on a stable political environment.
  • Security threats: The project could be disrupted by security threats.
  • Challenges in measuring impact: Measuring the impact of humanitarian interventions in conflict zones can be challenging.

8. Next Steps

The ICRC should:

  • Develop a detailed project plan: This should include a timeline, budget, and key milestones.
  • Secure funding commitments: The ICRC should actively engage with potential investors and secure funding commitments.
  • Implement the project: The ICRC should implement the project in a transparent and accountable manner.
  • Monitor and evaluate the project's impact: The ICRC should regularly monitor and evaluate the project's impact, making adjustments as needed.

By taking these steps, the ICRC can successfully implement the HIB pilot project in Yemen, demonstrating the potential of impact investing to address critical humanitarian needs and achieving a significant positive impact on the lives of beneficiaries.

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Case Description

In July 2017, the International Committee of the Red Cross (ICRC) launched the world's first Humanitarian Impact Bond. This innovative finance pilot was an experiment by the ICRC to engage the private sector differently and diversify funding - critical given the widening humanitarian aid gap. It was a massive undertaking. The HIB, which had a maximum potential deal size of CHF 26 million, took over four years to plan and multiple stakeholders, including governments, foundations, investors and lawyers, to put together. How did the ICRC pull this off and what possibilities does innovative finance offer the humanitarian and private sectors? Drawing on a series of proprietary interviews with key characters, various internal documents shared by the ICRC, and secondary sources such as news reports, press releases and reports by third-party organizations, this abridged case delves into the ICRC's motivations for entering innovative finance, why it chose the HIB instrument, what it was, the hurdles and challenges of designing and setting up this complex instrument, and what the ICRC did to get the project off the ground. Participants interested in innovative finance, the humanitarian and/or development sectors, cross-sectoral/industry collaboration, and social innovation will find the case particularly interesting.

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