Risk Financing


The Start Network is developing and testing two new financing instruments that aim to deploy funds in a faster, more efficient way to civil society responders.

The first instruments being tested, aim to protect communities at risk of major droughts.

Sorce and her son Abdallah in the drought-stricken Oromia region of Ethiopia. Credit: UNOCHA/Charlotte Cans

About Drought Risk Financing


Despite advances in forecasting techniques, delays have become a ‘defining characteristic’ of food security response, with aid arriving only after a crisis escalates.

Research suggests that earlier response, such as protective cash transfers, livelihoods interventions, seed distribution etc. can protect communities, bolster their resilience and do all this at a lower cost than traditional ‘late’ humanitarian response. However, even when a humanitarian crisis is unfolding, funds of sufficient quantity usually do not materialize until too late.

 

The Start Network is addressing this problem by working on two new financing instruments that will enable responders to access rapid funds for early drought mitigation activities to protect communities at risk.

 

Underpinning both facilities is a disaster risk financing approach, that involves scientific modelling of drought risks, focused scenario-based contingency planning and pre-positioned financing

 

Through this programme, we aim to shift humanitarian response away from its current reactionary ‘begging bowl’ model of voluntary contributions to an anticipatory one - enabling early, pre-planned and pre-financed interventions that save lives, livelihoods and costs.

The Drought Financing Facility


Envisaged as a network of national facilities, each facility will mobilise the collective capacities of NGOs and donors to protect populations at risk of emerging drought crises.  
 

 

How it works


The risk management approach of the facilities involves three key components:

 

- Science-based risk modelling that allows us to understand and quantify the risks of drought in our areas of operation. This draws on a scientific model developed by our partners that can capture drought risk in any country using estimates of soils moisture combined with knowledge of agricultural cropping patterns and land cover topology

- Contingency planning/Scenario Based Response Planning that outlines what drought mitigation activities will be carried out when and by whom under different crisis scenarios, thereby facilitating a more timely and coordinated response

- Pre-positioned financing to deliver response plans, including insurance mechanisms that automatically release funding based on pre-defined triggers of emerging major drought. The model takes a risk-layering approach with contingency funds used for more frequent but relatively minor events, while insurance reacts to only less frequent but severe events.

 

Piloting the facilities

We are prototyping the Drought Financing Facility in two locations, Pakistan and Zimbabwe and Start Network's members and wider stakeholders are being supported through the design steps required to establish a national pilot. This is a participatory process that involves the Start Network NGOs, their community partners and wider stakeholders such as Government, UN or other.

 

The preliminary design process is concluding mid 2017, with active pilots scheduled for 2018. 

 

This programme, the first of its kind, is led by Start's member NGOs, with the facilities being developed in partnership with GlobalAgRisk, with funding from the Humanitarian Innovation Fund until June 2017.

The African Risk Capacity Replica Programme


African Risk Capacity (ARC) is an organisation mandated by the African Union to help African Union Member States manage natural disaster risk.

 

ARC provides a three-pronged approach to self-management of climate risk by its member states (early warning, contingency planning and access to financing) by offering parametric insurance which unlocks the finance needed to implement an early response to a pending disaster. 

 

Member States can purchase drought insurance policies from ARC Ltd,  and receive payouts for pre-approved contingency plans.

 

Replica Insurance supports, mirrors and builds on this approach to disaster risk management. Non-governmental partners (like the Start Network) are supported by donors to pay matching insurance premiums. If rainfall levels fall below a pre-defined threshold, they will receive matching pay outs at the same time as the government, to implement timely and coordinated actions to protect communities at risk.

 

The Start Network and World Food Programme are the first designated partners of the ARC Replica initiative. This initiative will be piloted in early 2018, with support from the German Government (KFW).

Latest news


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Further Information

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