When you are baking, you know every single ingredient serves for a different function, and if the backbone of the recipe is lacking, you soon realise your product is unsavoury. Just as baking, the humanitarian system has ingredients that bring out the humanitarian support’s full efficiency – and sustainable financing is the most fundamental one of them.
Currently our life-saving humanitarian assistance in times of emergencies, it goes without saying, mainly rely on crisis-driven funding mechanisms. These donations bank on a small set of traditional donors. The funds coming from these donors are being used to respond the crisis on short-term emergency response and early recovery efforts.
But the changing environment of these crises with long-lasting conflicts and protracted natural hazards requires more sustainable resources for long-term plans and early response capacity. What we need is to shift away from the current reactive system that we have and be much more focused on preparation, resilience and acting early yet the shift in that direction currently is not quick enough or at the necessary scale.
While donations have a significant role that enables humanitarian organisations to offer their support to people in need, existing funding mechanisms are becoming inadequate to cover the skyrocketing costs of aid; leaving the humanitarian financing tasteless.
Indeed, the humanitarian financing gap is expanding vastly. I believe the key indicator that shows the expansion here is the Global Humanitarian Overviews published annually by the OCHA. If we compare the UN appeals for humanitarian funding between 2021 and 2022, we will see how financial requirements to respond the existing crises have bounced from $29 billion to $41 billion only in one year. What’s more tragic is that the appeal 2022 was less than half funded for the first time in the history. If the current humanitarian situation continues, we expect the costs of humanitarian efforts to increase more than $50 billion dollars per year.
This illustrates how undiversified humanitarian financial resources are outpaced by the increase in humanitarian needs, and how it is leaving humanitarian organizations with an unsustainable financial system – bringing out the need for a developed recipe that includes new flavours to improve our humanitarian financing models to ensure sustainable financing in the sector.
Given the current economic situation, rising depts have increased the competition for financial resources between humanitarian organizations. The humanitarian system was falling behind on pledges to bring help to those who need the most. To ameliorate the situation, the humanitarian community have started pondering on forming new income generation mechanisms to fund its emergency preparation, anticipatory action and resilience activities.
Just like trust funding, crowdfunding, Islamic funding mechanism as zakat, forecast-based financing models and other pooled/unearmarked funding tools came to the light with this sustainable finance trend, humanitarian organizations also started to consider social impact businesses.
But, what are these social impact businesses?
The official term for social impact business is still ambiguous. But to get down to the nitty-gritty, we see that companies started to adopt philanthropic values to make a social impact and achieve a positive change against the humanitarian challenges.
Their new business models that adopt humanitarian values that can be a part of the humanitarian financing and create a diverse funding mechanism. And day by day, we are witnessing how social entrepreneurship is evolving into social purpose-driven business models that can have sustainable impact in the humanitarian field with a large scale. Looking at the social enterprises, we often see successful and sustainable business models that also comes with an efficient volunteer service capacity. Within this perspective, just to give a small example, we know that there are many social ventures within the commercial food sector that uses a significant portion of their profits to fund people in need; tackling social issues in an environment sensitive manner.
So, how can we spice up our humanitarian financing model?
I think as the Red Community, we need to bake the developing social impact business models into our financing system. Adopting the business mindset and merging it with our humanitarian endeavours will take us from the misty nature of donation-based mechanisms and create a self-sustainable system that scales us up to cover our humanitarian operations.
Although not a financial scaling model, another fine instance to innovative funding tools would be the “Humanitarian Impact Bond’’ launched by the ICRC in 2017, to encourage social investments from the private sector and support its health programmes to transform financing of humanitarian support in conflict-hit countries, raising 26 million CHF capital at that time. In this model, ICRC cooperates with Bank Lombard Odier to attract investments from “Social Investors” to enable its activities in a predetermined theme to expand its programmes. At the end of the 5th year, “Outcome Funders” – the governments of Belgium, Switzerland, Italy, the UK and “la Caixa” Foundation – will pay for the ICRC according to the results achieved. ICRC then will pay back the social investors partially, fully or with an additional return, depending on its performance in terms of efficiency of its programme. Independent auditors will verify the ICRC’s reported efficiency. As the World’s largest physical rehabilitation services provider in developing and fragile countries, ICRC supported nearly 330,000 people with its innovative funding mechanism.
At Turk Kızılay, we are investing in Research & Development practices, innovations and incorporated companies to sustain our goodness operations and channelling the revenue obtained from these companies to fuel our humanitarian support efforts. We have companies working in logistics, asset management, shelter systems, home-based health care and many other business fields, we are investing in revenue-generating businesses with a social impact mindset.
What else can be done for a full flavour?
- We can increase the capacity, efficiency and the field of work of our social enterprises by diversifying our funding mechanisms.
- We can replicate and implement new financing methods by partnering with other social enterprises with an enchanted cooperation with other business actors; aligning our humanitarian funding mechanisms with commercial companies.
At this point, it is obvious that humanitarian financing gap will not be addressed with private capital or additional funds alone but with political solutions and reducing needs by preventative measures and prior readiness. This is especially due to the challenge of persuading private investors to invest in fragile contexts. Other challenging factor is the political and cultural stance of private donors which is somewhat shaped by what they consume in terms of information.
However new financing models will allow us to design new ways of working across the humanitarian sector and private sector with more local engagement and ultimately new solutions. We need to continue explore and replicate those new possibilities and hopefully scale up in near future to have the cherry on the cake.