Developing countries are hit hard by natural disasters that cost governments billions of dollars in relief and rebuilding efforts. ADB Institute recommends catastrophe bonds for governments to prepare for and deal with the risks and recovery when disasters strike.
Name’s Bond, Cat Bond
Asia suffers billions of dollars in losses due to natural disasters.
Catastrophes impose a severe financial burden on developing countries.
Natural disasters like these force overstretched governments to divert scarce funds to relief and rebuilding efforts to help their citizens recover.
ADB Institute has the perfect solution.
Let me introduce you to catastrophe bonds, or cat bonds.
Cat bonds are a new financial instrument to help governments finance disaster relief and reconstruction.
Cat bonds will allow governments to
- Tap capital markets to raise money from private and institutional investors.
- Secure financing for adequate relief and rehabilitation before a disaster even strikes.
- Disburse money quickly to those who need it most after a catastrophe occurs.
Here’s how the bonds work
- They make payouts on trigger events such as a pre-determined wind speed of a cyclone or a typhoon or an earthquake’s intensity.
- The government issuer of the bonds invests the money from investors and pays them interest.
- They will return the investors’ money at the end of the term if a disaster does not happen.
Cat Bonds, a capital idea indeed.
And I should know.
After all, my word is my bond.