The World Bank Group is the largest source of funding for developing countries, but more is needed to address the most pressing development challenges of our time. As part of its evolution process, the organizations in the World Bank Group are transforming their financial models through innovative, new financing instruments and by being more efficient with and stretching its capital. For IBRD, these measures have already increased its financing capacity by up to $50 billion over the next 10 years and have the potential to generate significant additional capacity. At the 2024 World Bank Spring Meetings, 11 shareholders announced contributions of more than $11 billion for two new financing instruments, shareholder hybrid capital and a Portfolio Guarantee Platform. Together these tools can be leveraged to expand financial capacity by up to $70 billion over the next 10 years.
The World Bank is doing this by making the most of its own balance sheet while also seeking additional resources from donors, the private sector and other development partners. This multi-pronged approach has the ultimate goal of building a brighter future for millions of people, creating better and more jobs, improving schools and access to health care and other services that will expand opportunities to the most vulnerable populations.
The World Bank Group has implemented a series of reforms and developed innovative financial instruments as part of the Capital Adequacy Framework review, which was recommended by the G20 Expert Group.
Recent financial advances and examples of new financial instruments include:
- Balance Sheet Optimization: IBRD has lowered its equity-to-loans ratio (from 20% to 19%), and increased limits for shareholder bilateral guarantees by $10 billion, and launched a $1 billion facility of guarantee from the Asian Infrastructure Investment Bank (AIIB), thus allowing countries to tap more financing to address key development challenges. This exercise has increased potential lending commitments by approximately $50 billion over the 10 years ($40 billion from lowering the equity-to loans ratio; up to $10 billion from the bilateral guarantees, and $1 billion from the AIIB guarantee)
- Hybrid capital for shareholders and development partners: This new product pioneered by IBRD is a bond that pays a coupon but includes features that allow it to be considered as equity. Hybrid capital can be used to incentivize projects focused on global challenges such as climate and biodiversity by allowing investors to direct proceeds to priority areas. For every one-dollar investment in hybrid capital, we can increase lending by up to $8 over a decade, getting funds faster to where they are needed most.
- Portfolio Guarantee Platform (PGP): This new platform allows IBRD shareholders with strong credit ratings to step in to compensate IBRD if borrowers do not repay their loans, up to a guaranteed amount. For every $1 billion of portfolio guarantee, IBRD can increase lending commitments by $6 billion over 10 years.
- Livable Planet Fund: This umbrella trust fund will soon offer funds that can be used as concessional financing for projects that promote global public goods. Originally resourced by a surplus from IBRD’s net income, this fund is now open to contributions from governments and other development partners, with a focus on Middle Income Countries.
- Climate Resilient Debt Clauses (CRDCs): IBRD has expanded this debt clause to allow small state borrowers the option to defer interest as well as principal loan payments for up to two years in the event of an extreme natural disaster.
- New Contingent Financing Options: The Bank introduced a new contingent financing product (Investment Project Financing with Deferred Drawdown Option - IPF-DDO) to provide immediate access to funds in times of crisis. It can shock-proof specific projects or specific public institutions’ funds to make sure resources are available in times of crisis.
- Outcome Bonds: These bonds allow investors to channel financing to specific initiatives and projects that often do not have access to financing. Examples include a recent Wildlife Conservation Bond which supported Black Rhinos and local communities in South Africa, and a plastic waste reduction-linked bond that channeled private capital to two projects.
- Catastrophe Bonds and Insurance: The Bank has made it more accessible for countries to transfer disaster risk to international insurance and capital markets by allowing countries to finance the costs of such risk transfer using Bank financing or by adding the costs to the interest rate of Bank loans.
- Sustainable Finance and ESG (Environmental, Social and Governance) Advisory Services: This program has provided technical assistance to help clients mobilize more than $18 billion of private capital for sustainable development projects since 2017. In fiscal year 2024, the program facilitated the issuance of India's (US$2 billion equivalent) and Romania’s (EUR2 billion) sovereign green bonds as well as the government of Brazil’s first $2 billion sovereign sustainability bond.
- Sustainability-Linked Loans: This new World Bank loan financially incentivizes countries to meet their climate targets, by lowering the loan interest if they meet pre-defined targets. Soon to be piloted, the loan rewards countries making progress towards the Sustainable Development Goals (SDGs) and allows donors to align contributions with climate performance.
The World Bank is also using an innovative approach to maximize financing to the poorest countries through the International Development Assistance (IDA). In IDA20, each $1 billion of donor contributions is expected to generate approximately $3.5 billion of financing to IDA countries in the form of expanded large-scale grants and lending at highly concessional rates. IDA, which is being replenished at the end of this year, does this while protecting its triple-A credit rating.
Developing more and better partnerships is a key aspect of mobilizing more finance. Recent alliances with the Inter-American Development Bank and the Islamic Development Bank are transforming how projects are financed, maximizing impact on the ground.
The World Bank is also making it easier to share information among multilateral development banks (MDBs) and to identify projects that can be co-financed. A new Collaborative Co-financing Platform was launched at the World Bank’s 2024 Spring Meetings to improve coordination between MDBs and to identify co-financing opportunities.