Gates Foundation Explores Securitizing Aid

October 07, 2009
Yes that’s right. Securitizing is a bad word nowadays, but in fact it’s a great idea that I’ve written about -- as a wishful dream not a possible Gates-sponsored reality. Yet here it is in a recent Economist article: “Or the foundation might provide insurance against the non-payment of aid promised by a donor, so that a government will know that, one way or another, the money will come.” Of course there’s no need for foundation-financed insurance in principle. A recipient of aid could buy the insurance (and the premium it paid would reflect the market’s assessment of the donor’s reliability) or, even better, the donor could buy insurance against its own bad behavior (how much would USAID pay compared to British DfID?!). If there were enough donors and recipients entering the market we would have a real-time market measure of both different donors’ reliability, and different recipients’ reliability (in the latter case, whenever future donor flows depend on the recipient maintaining “performance” -- e.g. on the MCC’s governance requirement) or on results on promised outcomes. Bravo to the foundation – if it finds a way to stick its neck out and go ahead.


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