Finding ways to catalyze private finance at scale has become a recurring topic in addressing the humanitarian funding gap. Stakeholders are exploring how private investors can play a role in financing the Sustainable Development Goals (SDGs) within contexts that involve unique challenges, such as heightened risk and uncertainty. Initiatives such as the Humanitarian and Resilience Investing Initiative at the World Economic Forum (WEF) and the Humanitarian Innovative Finance stream under the Grand Bargain are important steps in this direction. Encouragingly, more bilateral donors and private philanthropies are collaborating with humanitarian actors on innovative financing approaches. However, some sources of capital remain relatively untapped.  

In recent years, there has been positive momentum in leveraging humanitarian funds and capabilities to increase contributions from development finance institutions (DFIs). For example, for the Goma West Resilient Water Project, $10 million in grants from the International Committee of the Red Cross (ICRC), the Swiss Agency for Development and Cooperation (SDC), and others helped catalyze $30 million in concessional finance from the World Bank. However, obstacles remain in fully engaging the private sector. If private finance can be effectively aligned with humanitarian needs, it holds the potential to bring additional capital flows to high-need areas, scale impactful interventions, and ultimately contribute to closing the humanitarian funding gap. Challenges in attracting private investors to humanitarian financing often stem from key misunderstandings related to:  

• The diversity among private investors and their fit in the humanitarian investment pipeline: The private investor landscape is far from monolithic. Clarifying which types of investors align with specific humanitarian investments is crucial, given the composition of the current pipeline. Early discussion in humanitarian finance focused on attracting large institutional pools of capital—often from higher-income countries—to humanitarian contexts. Yet, these investors generally have lower risk tolerance, require highly structured products, and conduct rigorous investment reviews. Private foundations, high-net-worth individuals, and financial services companies experienced in risk-related innovations have often served as more accessible starting points in humanitarian investing.    

• A “language barrier” between humanitarian actors and private investors: Even with the right investors present, the various stakeholders often speak different “languages” in terms of (i) specific definitions, (ii) framing of investment opportunities, and (iii) focus on investibility versus impact. Although complete alignment is unrealistic—since different actors weigh impact versus financial returns differently—more translation and translators could facilitate collaboration. 

• Misalignment between humanitarian actors and private investors on the “burden of proof”: Humanitarian actors are innovating to address some of the world’s most urgent and devastating challenges, often in communities they know well through long-standing operations. Consequently, their threshold for determining when a project is ready to scale is usually lower than that of private investors, except for the most risk-tolerant ones. Bridging this gap requires patience and continued education. In the interim, grant funding and development finance play a critical role in laying the groundwork for private sector involvement as track records develop and risk profiles converge. While DFIs have come a long way in this area, there’s still progress to be made with private investors. 

So, What’s Needed?  

There are three key considerations for humanitarian actors, funders, and private investors seeking to boost private finance flows in humanitarian contexts:  

1. De-risking as a priority: Private investors need reassurance that both downside (loss) and upside (gain) risks are managed. DFIs can play an instrumental role here by using blended finance models to de-risk investments. Humanitarian funding, along with humanitarian technical expertise, also plays a crucial role. For example, the technical advisory provided by the International Rescue Committee (IRC) helped shape a €50 million-plus investment for wastewater infrastructure in West Irbid, Jordan involving the European Bank for Reconstruction and Development (EBRD), the Global Concessional Finance Facility (GCFF), the EU’s Madad Fund, and European Civil Protection and Humanitarian Aid Operations (DG ECHO).
2. Addressing the “language barrier”: Addressing the lack of shared language is essential for meaningful collaboration between humanitarian actors and private While a common vocabulary is useful, having “translators” who understand both perspectives is often more effective. These champions can present opportunities in a way that each group understands its role, potential returns, and how to advocate for an investment internally. Ideally, as more investments are made, frameworks and tools that facilitate this translation will evolve.
3. Engaging private investors in developing solutions: The presence of “translators” ideally fosters co-designed solutions that meet the needs of both humanitarian actors and private investors. While humanitarian actors are building capabilities to work with private investors, their core role remains in developing projects and identifying how best to use capital to address humanitarian needs. Private investors, meanwhile, are well-positioned to shape financing approaches that align with their operational constraints and should be engaged to inform these approaches. 

The author will be speaking about these and other themes at the Humanitech Summit 2024 in Melbourne on November 19-20. The summit is Australian Red Cross Humanitech’s flagship event at the intersection of technology and humanitarian action. Join us to explore how we can bridge the language gap and make private finance work for humanitarian impact.