Facing our Greatest Immediate Challenge – The Role of Philanthropy
With the largest ever number of forcibly displaced people worldwide, there is a massive and urgent need for private impact capital to help bridge the humanitarian funding gap and support market-based interventions that offer sustainable livelihoods for people on the move.
Atotal of 13.6 million people were displaced from their homes by conflict and natural disasters in 2018, taking the global total population of forcibly displaced individuals up to 70.8 million – the largest number at any time since World War II. Contrary to popular perception, 84% of these displaced reside in developing countries, where resource scarcity is even more acute and the ability of governments to effectively address the needs of these people is fundamentally challenged.
Yet while immense capital transfers are required to help developing countries integrate displaced populations with host communities, developed nations continue to shrink away from the global leadership that this challenge requires.
Globally, a US$5 billion funding gap exists between the UN’s requirements and available funds to meet the immediate needs of all displaced people while only 1% of UN Sustainable Development Goals (SDG) funds are directed towards displacement. Irrespective of opinions on donor funding effectiveness, it is clear that traditional development assistance alone cannot address this challenge.
Globally, a US$5 billion funding gap exists between the UN’s requirements and available funds to meet the immediate needs of all displaced people while only 1% of UN Sustainable Development Goals (SDG) funds are directed towards displacement.
Social impact opportunities
Philanthropic and impact investing institutions are recognising that increasing displacement trends represent an opportunity for social impact. Through catalytic grants and development-focused impact investments provided to social-purpose businesses that serve, employ or are owned by refugees, funders can create sustainable solutions to the global displacement crisis.
Philanthropic and impact investing institutions are recognising that increasing displacement trends represent an opportunity for social impact.
Network facilitators such as Innovest Advisory, Tent Foundation and the Refugee Investment Network (RIN) are spearheading this new frontier in philanthropy and impact investing. They are serving as a bridge between social impact funders including foundations, family offices, impact investment funds, development finance institutions (DFIs), NGOs, government aid agencies and displacement-inclusive enterprises in host and source countries. Accordingly, private and public capital is now helping to close these huge funding gaps. One high profile example is George Soros’ commitment to invest $500 million via his Open Society Foundations (OSF) in companies that serve the displaced.
Access to finance
Key thematic trends are emerging. One is the recognition that displaced people require access to Philanthropy Impact Magazine: 22 – SUMMER 2019 www.philanthropy-impact.org The role of philanthropy and impact investing in unlocking the potential of displaced peoples 23 finance in order to rebuild assets and foster longterm self-reliance. However, financial institutions in developing countries often view displaced individuals as too risky.
Refugees and migrants are less likely to possess identification, collateral or credit history and they are often considered a flight risk. Yet evidence from the efforts of initiatives such as the Dutch NPM platform and Kiva.org is disproving these perceptions. Kiva’s World Refugee Fund, is a crowd-lending platform that has distributed $12.5 million in microloans from retail social investors to 15,000 displaced entrepreneurs over the last two years, achieving a 95.5% repayment rate across its portfolio.
The Kiva is now seeking to increase its fund to $100 million by 2024. In the private equity space, efforts are also underway. The Global Displacement Fund, an upcoming $50 million private equity strategy by Developing World Markets for which Innovest is serving a dedicated impact advisor, will seek to invest in financial institutions and businesses that serve displaced people.
Use of technology
Another key thematic is the use of technology to overcome physical barriers for displaced people that prevent travel for employment opportunities or accessing essential public services. Migrant Nations, is a new collaboration of UN agencies, refugee hosting nations and private organisations that aims to harness new digital tools to overcome identification and employment access, securing new pathways to livelihood opportunities for displaced people. One example of such solutions is WorkAround, a social enterprise founded by a refugee entrepreneur Wafaa Arbash that addresses these access barriers by remotely training highly-educated and internetconnected Syrian refugees in ‘micro-work’.
This provides highly skilled refugees with fair, dignified work while also serving the growing need of global companies to prepare data for machine-learning algorithms. In a similar vein, NaTakallam is an award-winning social enterprise that offers language tutoring and cultural exchange as well as translation services, delivered by displaced persons and refugees.
Financial innovation Financial innovation to mitigate risk is also a key priority in this space. Network actors such as RIN and the World Bank are building blended-finance platforms which will seek to crowd in private investment by derisking commercially-orientated capital with grant funding and concessional finance. The Development Impact Bond for Syrian Refugees, backed by the IKEA Foundation, is another innovative approach where private funders will be repaid with a return that is conditional on partner NGOs achieving development targets for refugee training and business start-up in Lebanon and Jordan.
In 2018, Business Fights Poverty launched the Business and Refugees Challenge with Innovest Advisory to identify ways to mobilise business action for refugees. Meanwhile, the Tent Foundation has galvanised over 70 companies to support the refugee response beyond charitable contributions, by using their core expertise, resources and stakeholder influence for impact.
The number of enterprises in developing countries who have committed to support sustainable livelihoods for the displaced grows:
• Pawame, a Kenyan-based social enterprise distributing solar home systems is creating jobs by distributing its systems and empowering the lives of refugees in Kakuma camp.
• KIMS Microfinance has provided over $750,000 in financing to support economic integration of 1,000+ refugees and IDPs in Somalia through business loans and training.
• The First Syrian Exporters Group is a consortium of 10 refugee-owned SMEs based in Eastern Turkey in the ready-made garments sector. Starting from scratch in 2012, these businesses now employ over 1,300 staff, 60% of whom are refugees, the rest being Turkish nationals. Meanwhile, multinational companies are discovering the business case for refugee investment. Vodafone has brought 3G to Nyarugusu refugee camp, Tanzania, which yields higher returns per user than the Tanzanian average. The camp now has access to digital payments, education and healthcare, illustrating the positive externalities of refugee investment.
As RIN’s Paradigm Shift report attests, ‘it is a tragedy that history provides so few examples of humanitarians and investors working together...it is time for history to stop repeating itself.’ Efforts now underway by this consortium of aligned stakeholders is set to change this narrative.