In Africa, humanitarian needs are quickly outpacing funding available. If current trends continue, humanitarian assistance costs are forecasted to rise to $50 billion by 2030.
And by then, more than 80% of the world’s poor will live in areas that are conflict-affected and deemed fragile, according to the Organisation for Economic Co-operation and Development (OECD).
The funding shortfall comes at a time when there is a rise in natural disasters, climate-induced humanitarian problems and conflicts are becoming more complex and protracted. Also, the rapid spread of COVID-19 not only threatens people and communities across the globe but could compound existing vulnerability in fragile places in an unprecedented manner.
As humanitarian contexts rapidly change and the funding gap widens, organisations must push forward to diversify their funding sources.
Moving beyond traditional donors, innovative financial mechanisms have the potential to make a significant contribution to redressing funding shortfalls in the continent. For example, in Kenya, faith-based financing, such as traditional tools of Islamic Finance, have been channeled for humanitarian purposes.
Instruments such as Zakat have been used to meet humanitarian needs. Zakat is an annual donation made by Muslims consisting of 2.5% of one year’s cumulative wealth. Although a religious obligation, it is often perceived as a wealth purifier.
Estimates of Zakat range from $232 billion to $560 billion per year, according to the Islamic Development Bank.
In 2018, the International Federation of the Red Cross and Red Crescent Societies (IFRC) mobilised Zakat funds raised in Malaysia to finance a drought assistance programme in the Kenyan county of Kitui. $1.2 million worth of Zakat was used to help communities in Kitui to recover from climate-change induced drought by enhancing water and food security.
Innovative finance tools were also implemented to raise funding to build and operate physical rehabilitation centres in Mali, Nigeria and the Democratic Republic of Congo.
The International Committee of the Red Cross (ICRC) launched the first Humanitarian Impact Bond in 2017 raising 26 million Swiss francs to provide crucial services for people with disabilities such as rehabilitation.
The five-year bond is a first in the humanitarian sector and helped secure long-term funding from private impact investors for humanitarian projects. Impact bonds are a type of results based financing that aims to reward service providers (such as the ICRC) for positive results.
Independent auditors will assess the efficiency of the ICRC’s operation of the rehabilitation centers. If the project is deemed a success, then the outcome funders pay back investors partially, in full or with a return – this is determined by pre-agreed outcomes. The outcome funders in this case are Western governments and foundations.
As humanitarian organizations struggle with the shortfall, these innovative financing models and others are testing tools for humanitarian actors to help plug the gap and create greater impact.
It was estimated that approximately $28.8 billion was needed to help respond to humanitarian crises this year – this was before the COVID-19 pandemic spread quickly. These figures will be much worse after the impact of the virus is felt.
Looking ahead, the economic hit of the coronavirus will inevitably mean government aid budgets and donations will dwindle. So now more than ever there is an opportunity for humanitarian organizations to evolve their funding going beyond immediate relief to building resilience.