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Impact bonds target the growing refugee crisis

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Published: 31 July 2023

Impact bonds and social inclusion bonds are being used to help tackle the challenges encountered by millions of refugees and their host communities.

Boat crossings have fed a humanitarian crisis that has found governments struggling to keep pace | Rescuers seen helping migrants to get onboard near Capo Passero, Sicily, Italy on 24 July 24, 2023. Valeria Ferraro / Anadolu Agency

In brief

  • Development impact bonds (DIBs) use performance-based metrics designed to enable funders to support refugees.
  • Social inclusion bonds have also been deployed in Europe to help integrate migrant populations.
  • DIBs’ outcome structures could improve monitoring and ensure better collaboration across stakeholders.

Successive waves of migration have forced the issue of refugees to the top of the international agenda. Boat crossings have fed a humanitarian crisis that has found governments struggling to keep pace.

Relief agencies’ crisis responses have sought to mitigate this through short-term funding. Yet for millions of refugees, the need for jobs, training and accommodation goes well beyond what has been provided. Pressure is also mounting on host governments’ economic and social infrastructure, which in the case of the immediate neighbours of Syria – which has seen 13 million displaced since 2011 – remains highly fragile.

This has compelled impact investors to step into the breach. Two years ago saw the launch of first development impact bond (DIB) targeted at refugees, backed by the IKEA Foundation and KOIS Invest, aimed at Syrian refugees in Jordan and Lebanon. This funds a micro-enterprise creation programme, delivered by the Near East Foundation UK (NEF), to help refugees and vulnerable host communities recover their livelihoods and build their resilience.

The Jordan bond has received $13m (€11.8m) in commitments and when the Lebanon tranche is closed, it will reach $20m.  

Outcomes contracts

Analysts see impact bonds particularly suited to address complex human behaviour-dependent social challenges. Distinct from capital market debt instruments, these bonds are outcomes contracts with a pay-for-success structure. The aim is to address the mismatch between humanitarian funding, which is short-lived, and the nature of the crisis, where refugees spent five years or more in camps. 

As Emily Gustafsson-Wright, senior fellow at the Center for Universal Education at the Brookings Institution, told Impact Investor, impact bonds could be a good fit for programmes seeking to integrate refugee populations, “because the focus on the outcomes allows for more flexibility and tailoring of the services to meet the needs of the beneficiary populations”.

The main criteria that defines the DIB structure is that it draws on upfront capital, often provided by private investors, for the delivery of specific interventions. Investors are reimbursed with returns, from outcome funders, based on the achievement of predetermined outcomes.

Ayesha Bery, Convergence Finance

Determining payment metrics is central to the concept. Those used by NEF are job survival rate, and household spending on basic needs. ”NEF had already been gathering data that could be applied to these metrics, and they were deemed powerful yet simple enough to tie payments towards, because of their clear measurability,” Ayesha Bery, manager at Convergence Finance, which provided grants to KOIS, told Impact Investor.

KOIS, together with NEF, led the structuring of the refugee DIB and worked closely together to make sure that the intervention itself would suit a DIB structure. NEF had been delivering economic skills training programmes to refugees for some time, but needed to adapt it to fit a DIB timeframe and payment schedule.

KOIS already had experience designing the first social impact bonds in continental Europe, focused on social and economic reintegration of first-generation migrants in Belgium.


On the heels of that project, KOIS further studied barriers to integration for migrants and refugees, to identify potential financial solutions. “But when you study the same topic in your own backyard, and then when you studied in an emerging country context, the challenge changes,” Serena Guarnaschelli, a partner at KOIS, told Impact Investor.

KOIS found that despite there being tonnes of money for skilling, it was not necessarily connected to the outcomes it sought to achieve. “Donors did not always really know how much they paid for a job, rather they knew how much to pay for training,” said Guarnaschelli.

Impact bonds have faced other challenges, including identifying outcome funders (government or third parties) who pay investors their investment plus a return if agreed upon outcomes are achieved. “The hesitation of outcome funders to engage could be due to a lack of  the tool or because politically, they perceive it as risky, or aren’t willing to pay for the social program,” said Gustafsson-Wright, whose research focus is on impact bonds.

Impact bonds are not the only game in town when it comes to refugees. The Council of Europe Development Bank (CEB), a multilateral development bank, has issued social inclusion bonds which have supported countries receiving Ukrainian refugees displaced when Russia invaded in 2022. CEB financing is expected to aid two million refugees.

As Felix Grote, head of long-term funding at CEB told Impact Investor, these are tradable bonds rather than impact bonds, issued  in alignment with International Capital Market Association (ICMA) social bond principles.

Felix Grote | Council of Europe Development Bank (CEB)

CEB issued one euros-denominated social inclusion bond targeted at Ukraine refugees in April 2022. Two months later it went ahead with the second, US-dollar denominated bond. “We can very proudly say that this was our most successful USD bond ever. The book building happened in record time, we had the highest oversubscription and the quality of the investors was really, really impressive,” said Grote.

For an issuer it’s a flexible and adaptable instrument, said Grote. “For example, during the pandemic we were the first to issue COVID response social bonds and, last year, the bonds targeting the Ukraine-refugee crisis.”

The beauty is that CEB didn’t have to change the structure of the social inclusion bond framework because the eligible social loan sectors – housing, education, health and job integration – make a lot of sense for refugees too.

Growing sector

There is growing scope for such instruments to make headway.

KOIS has already structured a second tranche with the same partner, NEF, in Lebanon. “We’re looking at some of the same investors, plus additional funders that might be interested in the Lebanon setup. It’s a different geography, but actually the structure is ready to go,” Guarnaschelli said.

Strong service providers are needed as well as data related to the delivery of the services and the outcomes.

Constraints observed so far are not necessarily on the impact investor side, said Gustafsson-Wright, who noted that if constraints were addressed, there would likely be many impact investors who would be interested in investing in impact bond projects given the potential for concrete measured impact and a return.

The claimed success rate for DIBs is high. Among the near 250 projects launched so far globally, only a handful have not paid out returns.

An additional benefit attractive to impact investors is the potential systemic impact of these bonds. “This is because the outcomes structure often leads to the improvement of monitoring, evaluation and performance management and better collaboration across stakeholders which could have long lasting effects,” said Gustafsson-Wright.

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