Investors Save Lives and Make Money with Vaccine Bonds

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Like her siblings, 10-month-old Naila Nur Fatimah, clad in a blue hijab, radiates good health. She has had the vaccinations recommended by local doctors, and her mother, Nur Isnaini, is grateful.

“I know vaccines boost their immune system and help them stay healthy,” says the mother of three as she cuddles the angelic-faced infant at a health center in Bandung, Java. “Health is... like capital for the children. With health they don’t just stay alive; they can do well at school and achieve their aspirations.”

This happy scenario is being repeated in many places across Asia and the developing world,but for millions of parents it is sadly not common enough. Every year, an estimated 24 million kids in developing nations miss out on vaccinations against common diseases, making them vulnerable to sickness, disability, and death, according to the Global Alliance for Vaccines and Immunisation (GAVI).

The net result is that some 2.3 million die annually from easily preventable infections like diphtheria, pneumonia, diarrhea,and yellow fever, according to GAVI. Many more fall sick, miss school, and become part of the vicious cycle that links poor health and lack of education to a life of poverty.

A prime reason for this tragic loss of human potential is a lack of steady long-term funding to allow developing countries to run programs to protect and improve kids’ health. But now vaccine bonds, a groundbreaking investment concept gaining momentum, are offering investors the chance to make a difference.

How do they work? At their simplest, bonds are long-term debt securities issued by governments and organizations offering fixed interest payments periodically for a period of more than a year.

Vaccine bonds are slightly different; they have a more specific purpose and don’t require the involvement of investment banks. They’re issued by The International Finance Facility for Immunisation (IFFIm), which raises funds specifically to support the work of GAVI. This alliance, in turn, is a public–private partnership that aims to immunize children in poor countries.

Proceeds from the sale of the bonds go to GAVI’s efforts to speed up health and immunization programs in the 72 poorest developing countries, based on a per capita income of less than $1,000, says GAVI spokesman Dan Thomas. The bonds are backed by the governments of France, Italy, Norway, South Africa, Spain, Sweden, and United Kingdom, which have pledged to contribute money for them over 20 years. With such support and virtually no risk, there is no downside, their creators insist.

Their aims are remarkable in scale and scope. IFFIm plans to raise $4 billion over the next decade to immunize 500 million people who would not otherwise be protected from diseases that no longer represent public health threats in richer nations.

Asian nations benefiting from the program include Afghanistan, Armenia, Azerbaijan, Bangladesh, Cambodia, India, Indonesia, Democratic People’s Republic of Korea, Lao People’s Democratic Republic, Mongolia, Nepal, Pakistan, Sri Lanka, Sudan, Tajikistan, Ukraine, Uzbekistan, and Viet Nam.

The AAA-rated vaccine bonds offer investors the “deep inward satisfaction of knowing their money is being used for something extraordinarily worth while,” says IFFIm Chairman Alan Gillespie. “Often when you see a picture of a child in a poor country you’re being asked to give a charity gift,” he says. “Ours is very much an investment proposition.”

Gillespie believes there’s almost limitless demand for highly rated bonds like these, and results bear him out. With the World Bank acting as its Treasury Manager and managing its finances, IFFIm has raised more than $1.6 billion to support GAVI immunization programs since 2006.

The scheme’s first foray into the capital markets in London in November that year raised $1 billion. They included not only institutional investors but celebrities like musicians-turned-activists Bono and Bob Geldof as well as Pope Benedict.

“The bonds are easy to understand, which may explain why demand in Europe has been strong,” Yoshiyuki Arima, the Tokyo-based senior financial officer of the World Bank said in a telephone interview. “The first global bond in Europe was placed in a wide area.”

In no other location has demand for vaccine bonds been as strong as in Japan. IFFIm’s retail offering there last year raised the equivalent of $222.8 million and a second offering in February 2009 raised $429.0 million equivalent—more than organizers expected. Both 2-year issues were arranged by Daiwa Securities. The bonds denominated in South African rand were bought mainly by investors aged 50 years and over, including men and women in equal numbers.

Why have Japanese investors been so supportive? Like GAVI and the World Bank, they are motivated by philanthropy, according to World Bank’s Yoshiyuki Arima. Despite the global financial crisis, the size of household assets in Japan is huge, he says. “[These investors] want a psychological as well as a steady financial return on regular commercial terms.” The bonds are generally pitched at the market rate at the time.

In Britain, too, interest is strong. In March and April 2009, the IFFIm bonds were made available to investors through a new Vaccine Investment individual savings account aiming to raise 50 million in sterling ($70 million) for the GAVI effort.

This arrangement has the added advantage of being tax-efficient, according to Britain’s Financial Secretary to the Treasury Stephen Timms. The minimum investment is 1,000 pounds ($1,400) and aims to provide a fixed return of 16.2%, together with the original capital repaid in full at the end of the fixed 5-year, 1-month term. This works out at 3% annual equivalent rate per year.

Funds raised by IFFIm not only help GAVI buy vaccines. They also go to buying bicycles to transport them, rehabilitating health clinics, training health workers, improving cold chains needed to store vaccines, and paying workers to immunize in remote areas. In this way the GAVI Alliance people hope the scheme will actually strengthen basic health services in poor countries in addition to supporting immunization efforts.

What of the future? The success and flexibility of vaccine bonds will herald other projects, predicts Alan Gillespie. For instance, the model could work for a clean-water bond whose proceeds give upfront cash to build wells, pipes, and other infrastructure.

Ultimately while these bonds represent a sound investment, the payback in lives saved is immediate, and that—as everyone involved in their creation agrees—is what matters most.

At the Kotte Clinic Centre at Pittakotte in the Colombo District of Sri Lanka, Nalini Geethika smiles as she nurses her first child, 2-month-old Tarini Anupaja. “We’ll make sure he gets all the vaccines because they prevent sickness and we want our son to have a healthy, long life. Don’t all parents?” •