Islamic Finance

U.S. NGO planning dev’t impact bond to empower Syrian women refugees, sukuk possible

*CORRECTION: Corrections have been made throughout to clarify that the structure to be issued is a development impact bond and not a development impact sukuk; and that the IKEA Foundation has confirmed its intention but not commitment to be a funder of the development impact bond

New York-based Near East Foundation (NEF) is planning to issue the first tranche of $14.94 million of a development impact bond next April to fund Syrian women refugees in Lebanon and Jordan.

“The first tranche will fund the NEF’s livelihood programme over three and a half years from April 2019, focusing on growing and starting home-based businesses with the support of local organisations in Lebanon and Jordan,” Charles-Antoine Janssen, founder and managing director of Mumbai-based Kois Invest, a finance advisory firm that structured the bond, told Salaam Gateway.

NEF is a social and economic development non-governmental organisation (NGO) that focuses on vulnerable communities in the Middle East and Africa.

Kois Invest said it is ready to structure the development impact bond as a sukuk if the majority of investors and funders ask for such a structure and if all stakeholders agree to it. "A sukuk structure could be the next step for the development impact bond but it cannot be confirmed at this stage," the firm told Salaam Gateway in a statement. 

Janssen said that annual budgets of $2.4 million in Lebanon and $2.7 million in Jordan will be used to target around 5,500 beneficiaries, of whom 75 percent will be women while 50 percent will be refugees.

“These women or female-led households will be provided business skills, vocational training and cash disbursements over the duration of the programme,” Janssen told Salaam Gateway in Kuala Lumpur on October 3.

Turkey has taken in the majority of refugees from Syria, over 3.6 million, based on the latest figures from the United Nations refugee agency UNHCR. However, in Lebanon and Jordan, Syrian refugees make up a larger percentage of local populations. Around 976,000 Syrian refugees account for 16 percent of Lebanon’s population and 671,000 make up 7 percent in Jordan.

The ballooning of the labour market and household population in these countries has put more stress on local services and infrastructure, which the NEF’s programme hopes to alleviate, Janssen said.

The development impact bond is structured in such a way that social investors put up the $14.94 million to fund NEF’s programme. Depending on whether the “developmental impact” and the 8 percent internal rate of return targets are achieved, outcome funders will reimburse investors fully, partially or with an additional return at the end of the 3.5 years.

Outcome funders provide investments only when positive social outcomes are confirmed.

This is similar to the 26 million Swiss franc ($26.2 million) humanitarian impact bond Kois Invest designed for the International Committee for the Red Cross (ICRC) last year, Janssen said. ICRC’s was the first humanitarian impact bond issued to finance aid in conflict-hit countries.

“At the time, we were considering structuring it as a sukuk but then social investors such as New Re -- a part of Munich Re -- came to fill in the gap,” said Janssen.

For NEF’s developmental impact bond, Kois Invest is looking at commitments of $21 million from outcome funders, with IKEA Foundation confirming its intention to be a "significant outcome funder", said Kois Invest. 

Janssen said IKEA Foundation’s intention is currently planned for the first tranche only.

“They have been supporting us for the last 12 months with the structuring work, and they are now supporting it as outcome funders. They tend to be catalytic funders for new interventions, so it could well be that they are not outcome funders of the following tranches,” he said.

Janssen said the deal is currently closing funding from social investors in phases, starting with outcome funding.

“Once that is closed we will finalise with the numerous social investors that have expressed interest. Right now we are collecting soft commitments first from social investors,” he said.

Janssen said there would “definitely” be at least two tranches, for the medium term.

“We hope that at the latest, within one year of the launch of the first tranche, there will be a second tranche that would cover some of the work that (Dutch NGO) SPARK is doing in the skilling and livelihoods space (with Syrian refugees),” he added.

(Reporting by Stephanie Augustin; Editing by Emmy Abdul Alim

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