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EXECUTIVE SUMMARY

This report has been prepared to provide an overview and assessment of innovative financing concepts and instruments that could be applied to support the response to refugee crises, as well as recommendations to further develop the financing of response to refugee crises, based on the outputs of an Innovation Lab held in late 2018 as well as desk-based research.
New approaches are required to address the growing scale, duration, and impact of refugee crises worldwide.

This is highlighted by the recent adoption of the Global Compact on Refugees, which aims to establish an internationally-agreed, stronger and more equitable response to refugee crises, focused on sustainable livelihoods for both refugees and host communities. The success of such approaches and of the broader scope of sustainable humanitarian and development responses must be supported by the securing and structuring of adequate funding, and new financing tools and methods are needed to realise this aim. The humanitarian system is becoming increasingly strained, and preliminary analysis undertaken for this report indicates that alternative expenditures on refugee response, compared to the ‘traditional’ style of humanitarian response that has been employed to date, have the potential to save billions of dollars in humanitarian funding and avert human suffering.

The research conducted in preparation for the Innovation Lab identified five core challenges in financing responses to refugee crises, namely the speed of the arrival of financing, the sustained duration of financing, the use (shape) of financing, the incentivisation of host countries through financing, and the increasing global frequency and severity of crises placing further demand on current humanitarian financing. In this strained financing context, the role of innovative finance has become increasingly important. Innovative financing for responses to refugee crises could include the development of new financial mechanisms, or the adaptation and application of non-traditional mechanisms (particularly those from capital and insurance markets) to meet humanitarian and development financing needs.

In response to these challenges and opportunities, an Innovation Lab was co-convened by the Centre for Disaster Protection and the International Rescue Committee Airbel Center, with sessions hosted in London and New York City in late 2018 bringing together experts from the humanitarian, development, finance, insurance and policy fields. The Innovation Lab aimed to generate a broad range of innovative financing solutions, with the most feasible to then be developed further.

There was a range of financial solutions proposed at the Innovation Lab, including: > Insurance and Insurance Linked Securities Two parametric instruments, that could be structured as catastrophe bonds or as parametric insurance:

(1) Global Refugee Finance Catastrophe Bond Designed to cover high severity scenarios, involving multiple countries/crises and large refugee flows, to ensure that sufficient resources are available even in periods of exceptionally high need.

(2) Humanitarian Catastrophe Bond Designed to manage emergency liquidity and enable the rapid deployment of funds, conditional on pre-agreed policy measures.

Both of these instrument types also enable multiple parties to pool their risk, such as in regional or global risk pools, to improve the diversification of the instrument and in turn reduce the cost of the instrument relative to its risk exposure.

Other Securitised Instruments One asset-backed security, utilising securitisation to repackage small assets and structure risk in layers, with an aim to attract large flows of private capital:

(3) Humanitarian Blended Bond Collateralised Debt Obligation structure designed to support large scale infrastructure investment in host countries. > Instruments related to Host Country Incentivisation (4) Host Incentivising Development Impact Bond Designed to incentivise current or potential host countries, with financing conditional on the achievement of pre-agreed results/impact of hosting policies or programmes.

(5) Resettlement Challenge Fund Designed for current or potential host countries to submit funding proposals, for hosting policies or programmes developed by the host and refugee communities themselves.

A number of additional financial instruments were also discussed at the Innovation Lab, although not developed into full proposals, including:

Other Credit Instruments These instrument types can enable faster, more reliable access to funds, and with conditionality of access to credit can also enable greater risk management and results incentivisation:

(6) Contingent Credit (7) Credit Guarantees

Debt Relief Instruments These instruments were discussed as particularly relevant in the refugee financing context, as often host countries are low-middle income countries with existing debt burdens, and so debt relief can act as a strong incentive and opportunity for collaboration.

(8) Debt Swaps > Other Sources of Funding (9) Revolving Funds Options discussed at the Innovation Lab included a revolving fund held centrally, for example by the UN or World Bank, and could be contributed to through a levy on UN members or GCR signatories.

It was evident through the output of the Innovation Lab and the level of stakeholder engagement that there are significant opportunities to further develop innovative financing structures to better support the response to refugee crises, ultimately to improve the lives of refugees. The Innovation Lab yielded a range of specific suggestions on new financing approaches, set out in this report, alongside some overarching insights and recommendations on how to continue the development of innovative financing initiatives for future refugee crises: