Lessons in bond financing for stronger health systems

By Tim Crocker-Buqué, Sandra Mounier-Jack 12 September 2016

Staff members of the Teaching Hospital in El Geneina, West Darfur, receive the first vaccination treatment on yellow fever. Why is bond financing so important in global health care and preparing for epidemics? Photo by: Albert González Farran / UNAMID / CC BY-NC-ND

The International Finance Facility for Immunization remains unique in international development. Originally established in 2006 to raise funds for Gavi, the Vaccine Alliance, it targets capital markets to raise much-needed funds for immunization.

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 the independent organization 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 $5.2 billion for Gavi, around a third of its funding to date, with the aim of scaling up vaccine programs in low-income countries.

How is IFFIm perceived by stakeholders?

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 will be published in the bulletin of the World Health Organization next month (an online first edition is available here).

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, noncommunicable 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 in Addis Ababa, Ethiopia.

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 organization with global significance.

However, this bond financing also came with costs — governance, treasury management, releasing bonds and the interest rate paid to investors. Ethically it is important for donors and provider organizations 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 organization (whether a government or nongovernmental organization) and a financing organization. They also have their own problems, including lengthy negotiation periods, high transaction costs and in capturing the required data across the many different organizations involved.

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

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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 one; 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 funds 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.

Making Markets Work is an online conversation to explore what’s being done to make global health care markets accessible to people at the base of the pyramid. Over 10 weeks, we will amplify the discussion around effective health financing, analyze key challenges blocking universal market access in the health care supply chain, and explore the key strategies to make markets more effective. Join us as we look at this important issue, and share your thoughts by tagging #MakingMarketsWork and @Devex.

About the authors

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Tim Crocker-Buqué

Dr. Tim Crocker-Buqué is a public health doctor undertaking a Ph.D. in the Health Protection Research Unit in Immunisation at the London School of Hygiene and Tropical Medicine. He also manages a health partnerships scheme funded by the Tropical Health Education Trust and the U.K. Department for International Development between two U.K. universities and two partners in Ethiopia.


Oped sandramounier jack ed
Sandra Mounier-Jack

Sandra Mounier-Jack is a senior lecturer in health policy at the London School of Hygiene and Tropical Medicine, specializing in health systems, vaccine policy and vaccination program implementation. She is currently leading in a five year program evaluating the delivery of the English vaccination program and is working on a comprehensive review of lessons learned from HPV vaccine introduction demonstration projects in low and middle income countries. She has been a member of the GAVI Independent Review Committee since 2012.


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