Innovative humanitarian finance: examining the promises and realities of impact bonds in humanitarian and refugee response

Abstract

This article contributes to scholarship on innovative humanitarian finance by examining the application of impact bonds—an outcome‐based financing mechanism where investors fund projects upfront and are repaid with interest if they succeed. Amid consistent funding shortfalls, impact bonds were framed as a radical transformation in how aid can be financed and delivered. By sharing financial risk with investors and linking payment to results, they were meant to attract private capital and enhance aid effectiveness. However, this study reveals a gap between the expectations and realities of impact bonds through case studies of two pilots: the Humanitarian Impact Bond (International Committee of the Red Cross); and the Refugee Impact Bond (Near East Foundation). In practice, impact bonds did not generate additional funds for the humanitarian sector, transfer significant risk to investors, or outperform traditionally financed programmes. The article therefore underscores the need for a rigorous evaluation of new financing mechanisms before adoption.