Introduction

Anticipatory action (AA) refers to actions taken in advance of predicted hazards to reduce their humanitarian impact. This guide introduces anticipatory finance, which is funding released before a shock occurs, based on forecasts or predictive analysis, to fund pre-defined activities that aim to prevent or reduce acute humanitarian impacts. It aims to help governments and other actors understand AA, its benefits, and the different potential sources of finance available.

What is AA and what benefits does it offer?

AA involves activities implemented before the onset or impact of a forecast hazard. It is planned in advance, triggered by forecasts, and implemented before the hazard’s impact is felt. AA offers several benefits compared to traditional emergency response, including maintaining food intake, reducing negative coping strategies, protecting livelihoods, supporting productive investments, and being more cost-effective. Recent studies suggest that AA can be more cost-effective than traditional response activities.

What is anticipatory finance?

Anticipatory finance is defined as finance released before a specific shock event, based on forecasts or predictive analysis, to fund pre-defined activities that aim to prevent or reduce acute humanitarian impacts. It is a central component of AA, as AA cannot be implemented without a reliable source of pre-arranged finance. Both hard objective triggers (e.g., specific wind speed or rainfall level) and softer triggers (e.g., expert committee decision) can be used. In addition to triggerable anticipatory finance, continuous funding is needed to build underlying AA systems and processes.

Potential instruments for anticipatory finance

Not all financial instruments are suitable for providing anticipatory finance. To be suitable, the finance must be planned in advance, released before a disaster, triggered based on forecasts or risk information, quickly directable to where it is needed, affordable, and offer value for money. Three main types of financial instruments offer potential for anticipatory finance: donor-financed contingency funds, government contingency budgets and reserve funds, and parametric insurance. Currently, most AA funding has derived from international donors via the humanitarian sector, meaning that access is easier for certain types of organisations than others.

What does the future hold for anticipatory finance?

The global context for AA is rapidly evolving, with potential for increased government access to anticipatory finance, more innovation and new instruments, and increased attention on government-led distribution mechanisms. There is potential for development partners and climate funds to provide anticipatory finance, and new financing instruments could emerge. Additionally, there is growing interest in using government social protection programmes and systems to distribute anticipatory finance.

Recommendations

The report provides several recommendations to enhance the use of anticipatory finance:

• Governments should systematically identify opportunities for AA and anticipatory finance in their countries.
• Anticipatory activities should be linked to other stages of the disaster risk management cycle.
• AA design processes should include cost-benefit analyses and comparisons with alternative approaches.
• Actors and government ministries should expand their collaboration.
• Monitoring and evaluation of AA and anticipatory finance instruments should be shared to guide learning.