The humanitarian system and its financing are under immense pressure from ongoing crises affecting over 200 million people in Syria, Yemen, South Sudan and beyond. While traditional donors – governments, foundations and private funders – are increasing their grant funding to traditional emergency responders such as the UN, Red Cross Movement and NGOs, the gap between needs and funding continues to grow – in 2018 only 58.5% of requested funding needs were covered.

Beyond current reform efforts to make crisis funding faster, more consistent and more cost-effective, there is a sense that we need to move from grant-making to using a wider range of financial tools – and private finance has a part to play in new partnerships where grant funding can leverage investment finance.

There is growing interest from the capital markets in investing in so-called ‘frontier markets’, where risks have traditionally been perceived as too high, as well as increased awareness of the need to incorporate a social return alongside a potentially reduced market return. 

There’s also an appetite among traditional donors and foundations to explore different uses of grant funding to attract greater capital input from investors. New partnerships and financial instruments from across the philanthropic–commercial spectrum could be used to address the challenges facing humanitarian financing. This has become known as innovative financing, or humanitarian investing.

This report, written in partnership with Numbers for Good and supported by the IKEA Foundation, explores the opportunities for and limitations of innovative financing, and makes linked sets of recommendations regarding how to increase investment, and where to invest.