Financial engineering for global development

New IFFIm Board Chair Cyrus Ardalan reflects on IFFIm’s pioneering role in the growth of socially responsible investing

IFFIm Chair - Cyrus Ardalan

New IFFIm Board Chair Cyrus Ardalan. Credit: Gavi/2018.

Q. Congratulations on your selection as IFFIm’s new Board Chair. You’ve had a long career in international investment banking. How did you find your way to IFFIm and, more generally, into the arena of socially responsible investing?  

CA: I spent the first part of my career at the World Bank in Washington, where I worked on social and economic issues in some of the poorest countries in the world. After that, I moved to investment banking, which is where I’ve been for most of my career. Much of my time and energy in investment banking has focused on helping government and public sector entities borrow on the international markets. Many of those borrowers were developing and emerging market countries. So in many ways I never really left behind the mission I had served at the World Bank.  

For me, then, IFFIm is another opportunity to help mobilise the international financial community to address big social challenges in countries that too often don’t have the resources to solve them.


Q. Based on your experience, how have perceptions of and attitudes about socially responsible financing changed over the last decade or so?  

CA: The socially responsible investing (SRI) sector has been growing for at least the last decade, but even more dramatically over the last five years. That’s especially true when it comes to green bonds – innovative financing for initiatives that protect and sustain the environment. In 2017, green bonds, one component of SRI, raised in excess of US$ 100 billion.


Q. What do you think has driven this change?  

CA: There are several factors.

Socially responsible finance instruments like IFFIm are showing they can simultaneously meet an important social purpose and provide an attractive rate of return. That’s given a lot of investors the confidence to get into the game. 

IFFIm Board Chair Cyrus Ardalan

First, my impression is that in recent years there’s been far more information, research and advocacy about critical social issues than ever before. Because of that, many more people in the investment community have been persuaded and moved to action. They want to be part of the solution and want to use the extraordinary tools at their disposal to be helpful.

Also, we’ve seen the creation of clear guidelines about what constitutes socially responsible financing. For example, the International Capital Market Association, which facilitated the drafting of the Green Bond Principles and serves as the Secretariat of the GBPs – and in which my predecessor as IFFIm Board Chair, René Karsenti, and I have played leading roles – last year produced the Social Bond Principles. The SBPs are now the global standards for transparency and accountability for these kinds of financial instruments. That’s a sign of how the sector has evolved and matured.

And finally, more than ever, socially responsible finance instruments like IFFIm are showing they can simultaneously meet an important social purpose and provide an attractive rate of return. That’s given a lot of investors the confidence to get into the game.


Q. IFFIm has been frequently singled out as an example of a successful socially responsible investment. Indeed, the landmark Third International Conference on Financing for Development, in 2015 in Addis Ababa, Ethiopia, stated that IFFIm should “be replicated to address broader development needs.” What can others in the global development sector learn from IFFIm’s example that they might adopt for their own financing needs?  

CA: First, IFFIm Vaccine Bonds are as pure an example of socially responsible financing as you can get.

They have a clear social benefit, the results are measurable, and we can readily see the impact these funds are having. That’s a model that many others can emulate readily, though it may need to be adapted to different development needs.  

Second, others might want to look at the institutional structure underpinning IFFIm, not just the bonds it issues. It’s a unique and, we think, replicable form of financial engineering. It enables us to accelerate for the short-term value that donor governments provide over the long run. It also gives Gavi much more flexibility to provide solutions when the need is greatest. That’s why IFFIm-generated funding initially made up more than 50% percent of Gavi’s expenditures.

On a less formal basis, we’re also offering advice and information to leaders in other development sectors who are exploring ways to improve the volume and flow of financing. We’ve done so, for example, with The International Commission on Financing Global Education Opportunity, which is contemplating an International Financing Facility for Education, or IFFEd. Their goal is to mobilise by 2020 an additional $10 billion annually for investment into education in developing countries.


Q. Can you describe potential new strategic initiatives IFFIm is currently exploring? 

CA: Over the past couple of years we’ve looked at ways IFFIm can expand its role to help Gavi where there are emerging needs. That would include, first of all, doing more with what IFFIm has traditionally done through Vaccine Bond issuances.

For me IFFIm is another opportunity to help mobilise the international financial community to address big social challenges in countries that too often don’t have the resources to solve them. 

IFFIm Board Chair Cyrus Ardalan

Second, IFFIm could also be called on to more directly support Gavi’s impact on reducing the cost and increasing the availability of vaccines through its market shaping role. Market shaping is really one of Gavi’s core functions and achievements, and it has dramatically increased the supply of vaccines that low income countries can afford.

IFFIm has contributed to market shaping activities in the past by frontloading more than 90% of initial vaccines for Gavi’s pentavalent programme.  Pentavalent vaccine is effective in eradicating five diseases: diphtheria,tetantus, pertussis, hepatitis B and Haemophilus influenzae type b.  This investment encouraged manufacturers to increase vaccine production and decrease the price.  Gavi is now able to procure pentavalent vaccine for as low as $1.68 a dose – a price reduction of more than 50% since 2006.

Additionally, Gavi supported the introduction of pentavalent vaccine in 73 countries., By leveraging IFFIm’s unused capacity, it could play a greater role in supporting Gavi’s market shaping activities.

Third, IFFIm might provide additional financing to help countries install modern cold chain equipment that enables vaccines to be delivered unspoiled to the children whose lives depend on them – especially in remote areas. The goal is to increase access to more children and allow for the wider use of energy efficient, solar-powered equipment, especially in places that don’t have access to electricity.

Finally, we’re also looking into ways in which IFFIm can help with a new mechanism that will allow for the rapid deployment of financing in the event of infectious disease outbreaks, should Gavi decide to play an active role in this area.

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