New financial instruments designed to boost lending capacity and enable the World Bank Group to take on more risk for shared global challenges have received a significant endorsement. Eleven countries have committed to the Portfolio Guarantee Platform, hybrid capital mechanism, and new Livable Planet Fund. The commitments total $11bn.
The World Bank Group’s unique leveraging capability enables the resources pledged to hybrid capital and the Portfolio Guarantee Platform to be multiplied six to eight times over 10 years. Under certain conditions, the leverage amount could reach tenfold.
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The resources pledged could provide up to $70bn in urgently needed funds. These can be deployed to address cross-border challenges and advance development goals.
“We worked hard to develop these new financial instruments that boost our lending capacity, multiply donor funds, and ultimately allow us to improve the lives of more people,” said Ajay Banga, World Bank Group President.
“The generosity of these countries is an endorsement of the progress we have made to reform the Bank. And a sign of their shared commitment to development globally.”
Belgium, France, Japan, and the US pledged to the Portfolio Guarantee Platform. Denmark, Germany, Italy, Latvia, the Netherlands, Norway, and the UK made commitments to hybrid capital.
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By GlobalDataJapan is committed to providing the first contribution to the new Livable Planet Fund.
The World Bank Group has implemented a series of reforms and developed innovative financial instruments. This is part of the Capital Adequacy Framework review which was recommended by the G20 Expert Group.
World Bank Group reforms
- Adjusting the loan-to-equity ratio to secure $40bn over 10 years from the IBRD’s balance sheet.
- Increasing the bilateral guarantee limit by $10bn.
- Working to maximise callable capital benefits by publishing a detailed report for rating agencies to better assess its potential value and the Bank’s financial capacity
- Introducing hybrid capital, giving shareholders and partners an opportunity to invest in bonds with special leveraging potential.
- Developing the Portfolio Guarantee Platform that provides a shared approach to risk that will make World Bank financing more widely available.
- Launching a Livable Planet Fund that enables governments’, philanthropies’ and other partners’ contributions to incentivise cooperation across borders and tackle shared challenges.
The World Bank Group has taken the additional steps to develop IBRD 50-year loans at no additional cost for borrowers. These loans will be utilised for projects that provide cross-border benefits. Additionally, it has created a system to reduce interest rates for projects that address global challenges. This will be partially funded through the Livable Planet Fund.
Shifting the dial on poverty and climate change
“If the world is serious about shifting the dial on poverty and climate change, we need to put our money where our mouth is. The World Bank’s efforts to mobilise extra funds do just that. Our own pledge of £100m for hybrid capital will unlock £1bn of additional financing capacity over the next decade. It will turbocharge our ability to tackle urgent global problems and deliver real impact,” said Andrew Mitchell, Deputy Foreign Secretary and Minister for Development and Africa, UK.
