Dr Tim Crocker-Buqué

"All human beings are born free and equal in dignity and rights"

Lessons in Bond Financing for Stronger Health Systems


This article was originally published at Devex.com in September 2016, and was authored by Dr Tim Crocker-Buque and Sandra Mounier-Jack. 


The International Finance Facility for Immunisation (IFFIm) remains unique in international development in terms of its function and success at accessing capital markets to raise much-needed funds for immunisation. It was established as an independent organisation in 2006 to raise funds for Gavi, the Vaccine Alliance, in order to scale up vaccine programmes in low-income countries. Instead of Gavi receiving annual donations from governments, which would mean incremental increases in vaccine coverage over time, IFFIm takes legally binding pledges made for around 20 years and releases the equivalent amount in vaccine bonds on international capital markets. Investors buy the bonds thus providing the funds to IFFIm immediately, and as governments make their annual payments to IFFIm the bondholders are repaid over time. This enables the full amount of a pledge to be accessed immediately and enable vaccine coverage to be scaled up much more quickly. So far IFFIm has raised $5.2bn for Gavi, around a third of its funding to date.

As a result of IFFIm’s perceived success, bond financing has been proposed as a way of raising funds for a wide variety of issues in international development, including malaria control, non-communicable diseases, and education . It also featured as a key outcome of the Addis Ababa Action Agenda, following the Third International Conference on Financing For Development.

Last year we undertook an evaluation of IFFIm stakeholders to investigate how it is perceived and to evaluate donors’ intentions to continue to fund using bond financing. The results were published in the Bulletin of the World Health Organisation.

So what lessons can we learn from the experience of IFFIm? The first is that bond financing was successful in raising significant funds that were used to quickly establish Gavi as an organisation with global significance. However, this bond financing also came with costs – governance, treasury management, releasing bonds and and the interest rate paid to investors. Ethically it is important for donors and provider organisations to know that accessing funds in this way is good value for money. Related to that, another lesson is that the additional financing must be tied to specific, quantifiable outcomes. Together, these are two of the greatest problems with IFFIm – it has been generally difficult to work out how it contributed to Gavi’s outcomes in terms of vaccine coverage and lives saved. Lastly, IFFIm’s establishment required a tremendous amount of political will, which may not be forthcoming in the post-2008 crash era.

New innovative financing mechanisms have begun to emerge in the form of Development Impact Bonds, which are more outcomes focussed. However, despite the name, these are different entities, primarily because they do not access global capital markets. In essence they are an outcomes-based financial relationship between a development organisation (be it a government or NGO) and a financing organisation. They also have their own problems, including lengthy negotiation periods, high transaction costs and in capturing the required data across the many different organisations involved.

To evaluate whether bond financing is a suitable mechanism to find an international development issue, we propose applying the following four criteria:

  1. Can the financing be secured elsewhere? If donor or grant funding can be secured then bond financing should not be used, due to the additional costs.
  2. Is the financing for a once-only cost? Bond financing is not sustainable long-term, so should not be used for things that require on-going costs such as for maintenance, repairs or staffing.
  3. Is there a tangible benefit to accessing funds early? A robust theory of change should be applied in order to establish how financing will make a measurable difference to this issue and where front-loading funds has an additional benefit.
  4. Is there a plan to measure the outcomes of the financing? This is essential to measure progress and undertake a cost-benefit analysis in order to learn lessons for the future.

A good example would be to access funds for an acute outbreak of infectious disease, such as the recent Ebola outbreak. If governments had made legally binding pledges to an IFFIm-like mechanism, bonds could have been released and funds accessed early, rather than waiting until the crisis was over.

In terms of our criteria, the funding had been pledged, but was not yet available, thus satisfying condition 1; the acute outbreak was a once-only cost; accessing the funds on time could have brought it under control sooner; and the outcomes could have been clearly measured through disease surveillance. However, a mechanism to raise fund this way needs to be in place before an outbreak begins. It will be too late if we wait until the next crisis is upon us, which is why there needs to be clarity about the role that bond financing can play in development and consideration of establishing an IFFIm-like international institution to be able to access capital in this way at the time it is most needed.

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This entry was posted on 17/11/2016 by in Uncategorized.


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