DAKAR, 6 March 2009 (IRIN) - UK banks are proposing to investors donor-backed bonds to raise money for vaccines in developing countries, according to the UK non-profit International Finance Facility for Immunisation (IFFim).

Set up in 2006, IFFim raises cash from the private sector for the Global Alliance for Vaccines and Immunization (GAVI), a public- private coalition that makes available no-cost vaccines to 72 low-income countries.

Every year, more than 20 million babies- mostly in poor countries - do not receive life-saving immunisations, according to UN's World Health Organization (WHO). GAVI estimates that it can take some 15 years before new vaccines are approved and become affordable to developing countries.

Not a handout

"Normally, when people see a brochure with a poverty-stricken baby on the front, they are being asked for charitable contributions," said Alan Gillespie, IFFim's chair, "But with these bonds, we are saying 'Here are the needs, we are asking you to make an investment.' Your capital will be paid back with interest from rich donor countries."

Similar to bonds that governments issue to cover debt, the vaccine bonds raise cash to buy and distribute vaccines by promising a return on investment, said George Richardson, the head of capital markets at the World Bank, which manages the bonds. "We are not asking for handouts. These are investments that support a good cause and have fixed market returns," he said.

But a good cause is not enough to convince UK secondary school teacher Rosanna Magdalen to make the minimum investment of US$1400, even when she is told that amount can immunise 130 children against five life-threatening diseases, or that her earnings will not be taxed.

"Great idea, the principle is fantastic. I would do it if I had the extra money, but I think anyone would be loath to take any risk in the current financial climate," said Magdalen. "I think HSBC [bank] will be hard pressed to find anyone who would invest. Banks are no longer seen as infallible."

Risky unregulated lending has been blamed for the global recession, which has forced governments in the US and Europe to pledge some two trillion dollars to rescue their economies.

The World Bank's Richardson said while he cannot change consumer distrust of banks, vaccine bonds give people a socially-responsible way to save. "Even in a recession, there are people who will diligently put away money," said Richardson.

He added that investors have supported other World Bank socially-responsible bonds, such as a 2007 bond to finance green development projects that raised almost 10 times more than the original goal of $30 million.

On 2 March HSBC started offering the IFFim vaccine bonds as a five-year tax-free savings account with a 16-percent return. The governments of the UK, France, Italy, Spain, Sweden, Norway and South Africa have collectively pledged US$5.3 billion over the next 20 years to repay investors.

But graduate student Alex Scales in northeast England told IRIN even the most philanthropic are reconsidering their priorities. "People are starting to think 'Why should I help other countries when this country is in trouble?' Charity begins at home."

Risk

IFFim's Gillespie told IRIN ethical investments will survive, even in a slump that is the worst the UK has had in more than one decade. "Investors are demanding more than ever that their money makes a difference. [pull-out quote maybe] They are disillusioned with the [investment] system. They thought their investments were rock solid, but they turned out to be clay."

He added that for people who have lost up to half their investments in a volatile market, the bonds "offer a safe harbour".

London-based global credit trader, Simon Hammersley, with Deutsche Bank told IRIN British investors will be open to vaccine bonds - but slowly. "People's concept of safe is stuff they understand. Given this is new, people will naturally be cautious…At best, the credit crunch will not matter [stop them], but it is likely to limit the uptake."

IFFim first offered the vaccine bonds to retail investors in Japan in February 2009 and raised almost $430 million in one month.

Gillespie told IRIN the Japanese community has typically searched to invest in currencies that appreciate more than the yen and gravitate toward socially-responsible investments.

Annual returns on savings accounts in Japan average 0.3 percent, according to Japanese banking reports, while in England the rate was cut to a record-low 0.5 percent on 5 March.

IFFim's Gillespie told IRIN the bonds are as much about getting out the story about vaccine needs as they are about making money. "When we were in Japan, there was as much talk about health care with investors as there was about the bonds. People wanted to talk about the bonds, but also about how the money will be used."

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