Support for innovative financial tools could generate up to $70 billion over 10 years

A substantial endorsement has been granted to innovative financial mechanisms aimed at enhancing lending capabilities and empowering the World Bank Group to tackle global challenges.

This development follows a coalition of 11 nations pledging $11 billion towards the Portfolio Guarantee Platform, hybrid capital mechanism, and the newly established Livable Planet Fund.

Through the World Bank Group’s distinctive leveraging prowess, the committed resources for hybrid capital and the Portfolio Guarantee Platform could be multiplied six to eight times over the course of a decade, potentially reaching a tenfold increase under specific conditions.

This infusion of resources has the potential to unlock up to $70 billion in critically needed funds, poised to address transnational challenges and propel development objectives forward.

World Bank Group President, Ajay Banga, remarked, “The development of these pioneering financial instruments underscores our commitment to expanding lending capacity, amplifying donor contributions, and ultimately, improving the livelihoods of millions. The generous support from these nations signifies both an endorsement of our reform efforts and a reaffirmation of their dedication to global development.”

Belgium, France, Japan, and the United States have pledged support for the Portfolio Guarantee Platform, while Denmark, Germany, Italy, Latvia, the Netherlands, Norway, and the United Kingdom have committed to the hybrid capital initiative.

Japan has taken the lead in contributing to the inaugural Livable Planet Fund.

As part of the Capital Adequacy Framework review, as recommended by the G20 Expert Group, the World Bank Group has instituted a series of reforms and introduced innovative financial instruments. These reforms include:

– Adjusting the loan-to-equity ratio to secure $40 billion over 10 years from the IBRD’s balance sheet.
– Increasing the bilateral guarantee limit by $10 billion.
– Enhancing callable capital benefits by providing detailed reports for rating agencies to assess its potential value and the Bank’s financial resilience.
– Introducing hybrid capital, offering shareholders and partners an opportunity to invest in bonds with significant leveraging potential.
– Launching the Portfolio Guarantee Platform, which adopts a collaborative approach to risk, thereby broadening the accessibility of World Bank financing.
– Establishing the Livable Planet Fund to encourage cross-border cooperation and address shared challenges through contributions from governments, philanthropies, and other partners.

Additionally, the World Bank Group has introduced IBRD 50-year loans at no additional cost to borrowers for projects yielding cross-border benefits. Furthermore, a system has been devised to reduce interest rates for initiatives addressing global challenges, with partial funding provided through the Livable Planet Fund.