We propose to initiate an open-ended mutual fund to invest and manage the funds received from the governments, private charity and sovereign funds, business houses and multilateral financial institutions, and return the profits to these investors. This is the proposed anti-thesis to the traditional measures of support funds and bailouts
The biggest threat that arises within economic risks is that of a recession – a slowdown in productive activities due to poor demands for goods and services. The resulting unemployment and loss of income are traditionally addressed by wage support, food rationing and creating employment opportunities by reopening closed-down factories and businesses and by increasing the government expenditure. To manage a recession, support is often channelled by governments to the businesses and employers in the form of various stimulus packages, including fiscal rebates, emergency relief funds and so forth.
No one can alone face the upcoming huge challenge of the post-coronavirus world. There is a need for cooperation among the diverse interests and priorities of businesses, governments and people. This is an attempt to introduce a new mechanism of turning charity into an investment opportunity, to serve the purpose of mobilising funds, managing it professionally and reusing a portion of the returns for similar causes promoting inclusivity, opportunity, equity and humanity.
The traditional modes of support are some sort of charity or bailout, and such measures are not without their fair share of criticism for good reasons. Besides, many governments and multilateral funding agencies may not have adequate funds to meet the requirements of the post-coronavirus world.
In a post-Covid-19 world, the novel way would be to introduce a systemic mechanism to transform these charities into investments. We propose to initiate an open-ended mutual fund to invest and manage the funds received from the governments, private charity and sovereign funds, business houses and multilateral financial institutions, and return the profits to these investors. This is the proposed anti-thesis to the traditional measures of support funds and bailouts.
The concept is explained as follows:
Investors: National governments; country groups, e.g., OECD, G-8, G-20, SAARC, etc.; multilateral financial institutions like the World Bank Group, International Monetary Fund, Asian Development Bank, Islamic Development Bank, etc.; large multinational and global business houses such as Microsoft, H&M, Marks & Spencer, etc.; several sovereign funds - Qatar Fund, Kuwait Fund, etc.; and private charities like Bill & Melinda Gates Foundation, Azim Premji, Tata & Sons, Global Fund, etc.
Investment Mechanism: There will be a 2-lane investment flow coming into the COVID-19 Global Rescue Fund. The first is the direct contribution of the investors. The second one will be a sum contributed by the interested investors, more likely the multilateral financial institutions, to match a pre-agreed portion of the sum already spent by corporate houses and national governments from their emergency relief funds. For example, the commitment of Bangladesh government to provide Taka 5,000 crore for payroll support of the export oriented industries may be matched by a 10-percent contribution, that is Taka 500 crore equivalent to about $59 million to be contributed as investment in the COVID-19 Global Rescue Fund, for which Bangladesh government will be entitled to receive a return as an investor.
Governance: Investments from both lanes will be verified and endorsed by appropriate government bodies and central banks, as the case may be. This will ensure transparency of investments and their use. Such intermediary nodal points will regulate the terms and conditions of the investments, and the end use of returns from the investment, e.g., a certain percentage may be required to be re-invested or spent for prescribed development and research purposes in designated areas or humanitarian needs.
Use of Funds: As with any other mutual funds, this COVID-19 Global Rescue Fund will be invested globally in various portfolios, with spread-out risks - T-bills, secured government bonds, and other financial products from the global money and capital markets. Similarly, the returns from the investment will be distributed to the investors as profit or dividend commensurate with their investment amount.
Fund Management: The COVID-19 Global Rescue Fund will be managed by qualified professionals under the supervision of a high-powered steering committee, formed by the representatives of the governments, UN agencies and global entities. Initially, global multilateral institutions, such as the International Finance Corporation (IFC), or Asian Development Bank can be entrusted with the responsibility for their expertise in fund management and experience in dealing with the governments and the private sector.
Financial Product: As with other mutual funds, the COVID-19 Global Rescue Fund will be listed and traded in the bourses worldwide. The financial markets worldwide that suffered huge losses in recent months in all likelihood are to embrace this idea of fresh injection of funds.
The author is Enterpriser at Business Intelligence Limited