The Pledge Guarantee for Health (PGH) is a financing mechanism that can improve the predictability and effectiveness of donor assistance for health commodities. Donors often commit financial support for health commodities long before they actually disburse the funds. The PGH allows aid recipients to access these resources by converting the donors’ promises into short-term, low-cost commercial credit which recipients can then use to purchase health commodities. The PGH provides donor recipients with the freedom to manage procurement based on need rather than on the availability of finances.
The PGH can be used by any governmental or non-governmental entity that receives financial support for health commodities from multilateral and/or bilateral donors.
Under the PGH mechanism, a commercial bank issues the aid recipient a Letter of Credit (LOC) up to the value of funds pledged by a donor for the purchase of health commodities. A commodity supplier chosen by the aid recipient can then draw down on the LOC to fund the commodity order. By paying for the commodities, the bank is effectively lending money to the aid recipient. The aid recipient then uses the donor funds to repay the loan to the bank.
The PGH expects to begin operations in 2010 with transactions ranging from USD $0.5 million - $5 million. Over time, the transactions are expected to increase in size and volume.
The UN Foundation has established a “special purpose vehicle” (SPV) which, in a typical PGH transaction, serves as the guarantor of 50 percent of the principle, fees and interest incurred. Managed by the UN Foundation, the SPV is a legal entity created to isolate the Foundation from financial risk and to ensure that the obligations of the SPV remain secure regardless of the Foundation’s own financial status.
Half the value of the principal of the loan is guaranteed by the SPV. This guarantee is backed-up, in turn, by a separate guarantee from the Bill & Melinda Gates Foundation.
The PGH can be used to procure medicines, supplies, and equipment associated with healthcare (examples include drugs, vaccines, oral contraceptives, condoms, diagnostics, and laboratory and clinical equipment).
Recipients of the PGH can procure health commodities from any supplier who meets the Drug Good Manufacturing Practices (DGMP) and associated practices, and who follows a competitive bidding process in line with applicable procurement guidelines and regulations, including those imposed by relevant donors.
