The Start Network commits to developing a layered menu of new funding mechanisms to enable faster, more effective humanitarian response by frontline NGOs and their civil society partners. This commitment builds upon the success of the first NGO-managed pooled fund for rapid humanitarian response, designed and implemented by the Start Network, which is currently supported by three government donors (DFID, IrishAid and the Dutch Government) to a disbursement capacity of $12 million per year. Funds are allocated within a maximum of 72 hours of the declaration of a crisis - faster than any other pooled fund. The Start Network commits to scale the Start Fund in order to offer NGOs more rapid support to everyday, small-medium scale crises.
In addition to scaling the Start Fund, the Start Network commits to piloting and (if successful) launching three additional financial mechanisms which will enable front line NGOs to be better financially prepared to respond to a wider range of higher impact events, such as major droughts or epidemics. These higher impact events require a diverse, layered menu of financial instruments. This is a unique risk management strategy that has not previously been explored in the humanitarian NGO sector. The three additional products are:
1. Loan facility: The first dedicated loan facility for humanitarian NGOs will be prototyped and launched to offer advance funding in situations where NGOs face lengthy delays in accessing traditional funding. Loans will be repaid in the period following a disaster or event when grants and external sources to funding become available.
2. Parametric Insurance: An insurance product will be designed and piloted based on drought forecast modelling linked to pre-set triggers for pay-outs. This will provide predictable funding for early response to major drought-induced food crises in 12-15 countries.
3. Catastrophe bonds: Lessons learnt in the recent Ebola crisis will form the basis for an NGO pandemic bond as a means to ensure early funding for front line actors to contain emerging epidemics with the potential to scale. Bonds would only be used for early stages of major events when other donors are not present.
The Start Network is comprised of 24 major global humanitarian NGOs, collaborating on innovative projects to help connect crisis-affected people with the best possible response. These NGOs collectively work across 200 countries and territories. The success of the commitment will be contingent on additional partnerships with organizations in the financial, insurance and philanthropy sectors who can bring new ideas, techniques and investment.
During a three year period, the Start Network will continue to scale the Start Fund, with the goal of attracting new and different types of donors (foundations, corporate, private philanthropy) in addition to the governments already onboard. NGOs that receive Start Funds will report back individually 15 days after the end of each project, enabling a clear picture of beneficiary impact over the course of this commitment.
During a three year period, the Start Network will continue to scale the Start Fund, with the goal of attracting new and different types of donors (foundations, corporate, private philanthropy) in addition to the governments already on board. NGOs that receive Start Funds will report back individually 15 days after the end of each project, enabling a clear picture of beneficiary impact over the course of this commitment.
In addition, the three new financial mechanisms (loans, insurance, bonds) will be designed and tested over the three year period. As these mechanisms are innovative in their nature, the sequence of activities below may be modified to respond to new opportunities or challenges.
Year 1 (2015)
From January to September, the Start Network has begun to lay the groundwork for this commitment. This has included starting conversations with donors and potential partners and initiating the preliminary design work for the drought insurance product and the loan facility. By the end of 2015, the Start Network will launch the development phase for the drought insurance product, finalize a feasibility study for the loan facility, and identify partnerships to take forward the pandemic bond concept.
Year 2 (2016)
The development phase of the drought insurance product will near completion, the mechanisms will undergo in-depth testing in two to three countries at the country level, the premiums will be ready to be priced and donors will be finalized. The loan facility design will move into product development, including associated legal work and securing investors, and the pandemic bond feasibility study will be underway.
Year 3 (2017)
If successfully developed, the drought insurance product will be activated, and the first pay-outs made if there is a drought in one of the 12-15 target countries. The loan facility will be active, and the model adjusted based on learning. The full prototype for the pandemic bond will be complete and, if successful, a product will launch.
By the end of 2017, the Start Network aims to have a layered menu of financial mechanisms, which it can offer to fund quick and effective humanitarian response by front line NGOs and their civil society partners. An indirect goal is that this commitment will demonstrate the benefits of better financial preparedness thereby prompting wider catalytic change in funding models within the humanitarian sector.
Money exists for disasters but the system is slow, reactive and inefficient. According to a Kings College London Humanitarian Futures Programme report in 2013, seventy percent of front-line crisis relief is provided by non-governmental organizations (NGOs) and civil society actors. However, these organisations are constrained by an outdated funding distribution model, which is slow to provide the needed monetary resources. In major crises such as droughts (e.g. Horn of Africa Crisis 2011), displacement (e.g. Syria) and epidemics (e.g. Ebola crisis) - attention from institutional donors and the general public is often triggered by media headlines. By the time these crises hit the headlines, however, they have already escalated to a point where many lives have been lost, livelihoods destroyed, and hard-won development gains undermined. In addition, according to the 2011 Global Assessment Report on Disaster Risk Reduction, much human suffering occurs in cyclical small-scale crises (landslides, floods, disease outbreaks) happening all around the world which never gain media attention.
A more proactive and systematic approach to financial preparedness would transform this model. In most crises, except for earthquakes, there are early warning signs that a given situation is deteriorating. Faster response to these signals would enable better protection of vulnerable communities, and quicker response times to save lives. For example, it is widely recognized that in major droughts, it is much more (cost-) effective to provide families with cash and livelihoods support to enable them to protect their assets early on, rather than waiting to respond to a famine several months later, as noted in a 2012 paper by Cabot-Venton et al. However, faster response requires funding to be available at an early enough stage to support these efforts.
New funding mechanisms that can channel predictable and quick resources to frontline NGOs and their civil society partners have the potential to bring about a paradigm shift in the way in which the humanitarian industry supports the most vulnerable communities at a global level.