27 Apr Goldman Does Good
27.04.07
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Speaking of doing global good, what do we think of this effort by Goldman Sachs to securitize foreign aid to increase immunization rates? The International Finance Facility for Immunization (IFFIm) has raised a billion dollars through a debt issue that has the effect of frontloading aid, delivering it more quickly than it would be in the ordinary course. The client here is the GAVI Alliance, which partners such non-state entities as the Gates Foundation with donor countries, industry and NGO representatives (check out the composition of the governing board – really quite interesting). No capital markets guy me, but this looks like a pretty worthy and creative application of investment smarts.
Part of the recent publicity surrounding microfinance is the recognition among bankers and finance lawyers that they can potentially structure financing more effectively not just for their clients but for the public, which can only be a helpful thing.
Putting on my IBT and international development finance hat, yes, this is a very worthwhile project. But it always has to be clear that the function of the capital markets in this case is to get money that would eventually come from donor countries in any case to work faster, and at a cheaper cost of capital, than would otherwise be the case. That is, if the countries were willing to put up all the money needed immediately, today, then the capital market mechanism – while convenient for liquidity and cash flow and all those reasons – would not be needed. It is also a question of borrowing rates – pay capital market rates for the use of funds today? Or use what, from the government’s point of view, “internally generated” funds, ie, tax dollars today. The capital markets create new value in the sense that if you have the social capacity to do social good today – you have the capacity to vaccinate more kids, eg – but don’t have the money, you can borrow it today and repay tomorrow. The new value created is partly the fact that kids don’t die today – and also, importantly, the fact… Read more »