Finance for Early Action: Tracking commitments, trends, challenges & opportunities – World
This study, commissioned by the Risk-informed Early Action Partnership (REAP), aims to document commitments, trends, opportunities and challenges in relation to finance for early action. It provides detail of recent pledges of finance for early action, aims to improve understanding of where resources are coming from and how they are spent, and documents how the financing architecture is evolving. It includes recommendations for how to scale-up and improve finance for early action.
Understanding Finance for Early Action
This study focuses on ‘Anticipatory Finance’ as well as finance for ‘Early Response’. There is no internationally agreed definition of ‘finance for early action’, so the study adopts a working definition encompassing ‘Anticipatory Finance’ (funds are released before the peak impacts of a hazard that is known to be imminent, in order to reduce those impacts) but also includes finance for ‘early response’ (finance is released after the shock but arrives quickly). This working definition includes all ‘pre-arranged’ finance where funds are released based on pre-agreed triggers and thresholds, for example, contingent loans and insurance. The study also reflects on non-triggered crisis financing instruments and funds, for example crisis response funds, as these are widely used and some are able to provide support quickly after a shock.
There are multiple instruments and approaches to finance crisis risk and response, each varying in speed and complexity. These can loosely be categorised into five groups, depicted in the pyramid figure below. The pyramid is an over-simplification, but it shows that crisis financing can vary in its level of sophistication, the extent to which it is arranged in advance and how early it comes in a crisis. The reality is much more complicated and blurred, and some specific instruments or funds straddle the categories. Within each layer there are also examples of faster and slower instruments or funds.