FINANCIAL INTERMEDIARY FUNDS. Meeting Global Development Challenges Through International Partnerships

Transcription

1 FINANCIAL INTERMEDIARY FUNDS Meeting Global Development Challenges Through International Partnerships

2 FINANCIAL INTERMEDIARY FUNDS Meeting Global Development Challenges Through International Partnerships Table of Contents I. What are Financial Intermediary Funds? 1 II. The World Bank s Role in the Management of FIFs 3 III. FIFs Portfolio Trends and Developments 7 IV. FIFs Portfolio 11

3 I. What are Financial Intermediary Funds? Financial Intermediary Funds (FIFs) are financial arrangements that typically leverage a variety of public and private resources in support of international initiatives, enabling the international community to provide a direct and coordinated response to global priorities. Most FIFs have supported global programs often focused on the provision of global public goods, including communicable diseases, responses to climate change, and food security. FIFs often involve innovative financing and governance arrangements as well as flexible designs which enable funds to be raised from multiple sources, both sovereign and private. Funds can be channeled in a coordinated manner to a range of recipients in the public and private sectors through a variety of arrangements. FIF structures are customized, depending on the needs of the partnership and agreements with the Bank. The World Bank s distinctive role across FIFs is the provision of financial intermediary services, as Trustee of the funds. For all FIFs, the World Bank provides a set of agreed financial services that involve receiving, holding and investing contributed funds, and transferring them when instructed by the FIF governing body. Under some FIFs, the Bank also provides customized treasury management or other agreed financial services; some examples include bond issuance, hedging intermediation and monetization of carbon credits. 1

4 FIF Trusteeship does not involve overseeing or supervising the use of funds. This is the role of other implementing agencies that receive funding and are responsible for project or program implementation. Transfers are generally made by the Trustee to external agencies (e.g. United Nations agencies or Multilateral Development Banks) for the implementation of activities. In the case of FIFs whose governing bodies have the legal and other required capacities to take on responsibility for the use of funds (e.g. Global Fund to Fight AIDS, Tuberculosis and Malaria), the Bank transfers funds received from donors directly to multiple third party entities, usually in recipient countries, based on instructions from and on behalf of the governing body. Box 1: The Bank s FIF Trusteeship Models The set of FIFs in the Bank s trusteeship portfolio may be characterized by two basic models, although FIFs are heterogeneous and feature more variability than consistency: In some FIFs (e.g. the GEF), the Bank as trustee enters into transfer agreements with implementing or supervising agencies, and transfers funds to these agencies upon instructions from the governing body. In turn, the implementing or supervising agencies enter into grant agreements to disburse funds to beneficiary recipients. The implementing or supervising agencies appraise and supervise the implementation of projects by such recipients and are responsible for monitoring the use of funds. In other FIFs (e.g. the Global Fund), the Bank as trustee makes direct transfers to recipient entities upon instructions from a governing body which has legal, oversight, and other essential capacities and assumes overall responsibility for the use of funds. The Bank s technical, financial, and legal expertise is employed in designing and establishing FIFs. This includes legal and Treasury services, donor contribution management, accounting, reporting capabilities, prudent financial management policies, procedures and internal controls. The investment of liquid assets of FIFs is managed by the Bank s Treasury, with the primary objective of capital preservation. An emphasis has also been placed on IT systems infrastructure to support FIFs. The Bank uses integrated information systems that provide end-to-end financial transaction processing and support FIF governing bodies, implementing agencies and secretariats with required data and customized financial reporting. 2

5 II. The World Bank s Role in the Management of FIFs In addition to its trustee role, the Bank may be involved in a second capacity as an implementing agency responsible for appraisal and/or supervision of projects or programs financed by the FIF; in a third capacity by providing secretariat services to the FIF; and even in a fourth capacity as a FIF donor. Moreover, for some FIFs, the Bank has provided upstream advisory support during the design phase (e.g., for the AMC and IFFIm) and for others (e.g., the Global Fund), Bank operational teams provide downstream technical assistance (TA) to build local capacity for implementation. In cases where the Bank has been selected as an implementing agency by the FIF governing body, resources may be received by Bank operational units for the implementation of activities through IBRD/IDA trust funds. These roles are managed by different Bank Vice-Presidencies. In general, because different entities play different roles within the FIF structure, a key aspect of governance is the clear separation of roles and responsibilities within the Bank. The Bank is currently Trustee for 18 FIFs. Since 2006, the number of FIFs has almost doubled. Most FIFs support global programs often focused on the provision of global public goods; in particular, communicable diseases and responses 3

6 Table 1. World Bank FIF Trusteeship (as of June 30, 2011) * The CGIAR multi-donor trust fund was established in 2005 and restructured and reestablished as a FIF in The number presented in this table represents cumulative funding to the CGIAR multi-donor trust fund and CGIAR Fund since **Represents totals for SCF fund including pass-through funds for the Congo Basin Fund and Forest Carbon Partnership Facility, and excluding passthrough contributions for the Clean Technology Fund. ***GFA is a pass-through account for IFFIm; therefore this FIF is presented together with IFFIm. ****Cumulative Funding represents contributions (cash and promissory notes) and other sources of funds such as Certified Emissions Reductions (CERs) and net funding received from bond issuances, excluding investment income. to climate change. Recently established FIFs have aimed to address food security challenges (e.g. Global Agriculture and Food Security Program, or GAFSP) and natural disasters (e.g. the Haiti Reconstruction Fund, or HRF, established in the aftermath of the 2010 earthquake). 4

7 For 11 of the FIFs for which the Bank is trustee, it also acts as one of the implementing agencies (through a Bank Region or Network) alongside other external agencies. Such agencies are responsible for preparing / appraising and implementing / supervising FIF-financed projects. In doing so, each agency uses its own policies and procedures for procurement, financial management, environmental and social safeguards, etc. For 11 FIFs, the Bank plays an additional role by providing administrative / secretariat support functions to FIF governing bodies. In the case of one FIF (CGIAR), the Bank provides trustee and secretariat services but does not serve as an implementing agency. Figure 1. The World Bank s Role and Services in FIFs 5

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9 III. FIF Portfolio Trends and Developments The World Bank s role in FIFs has significantly expanded in recent years. Funds held in trust by FIFs have more than doubled over the past five years, from US$8.9 billion in FY07 to US$18.3 billion in FY11. The share of FIFs in the total trust fund portfolio managed by the Bank increased from 51 percent in FY07 to 63 percent in FY11 (see Figure 2). Of these FIFs, the four largest FIFs (the Global Fund, GEF, CIFs and IFFIm) account for over 85 percent of total funds held in trust (see Figure 3). Figure 2 - FIFs in the Context of the World Bank s Total Trust Fund and FIFs Portfolio (Funds Held in Trust) 7

10 Figure 3 - FIFs Portfolio : Funds Held in Trust Annual donor contributions (cash and promissory notes) to FIFs more than doubled between FY07 and FY11, and cash transfers from FIFs to partner entities and beneficiaries increased by 50 percent over the same period. While these were driven largely by the Global Fund, a similar trend also observed when excluding it. Annual contributions (cash and net promissory notes) to FIFs in FY11 reached an unprecedented level (over US$6 billion) despite global economic and financial constraints. Annual external transfers in FY11 amounted to US$4.5 billion (see Figure 4). Figure 4 - FIFs Portfolio : Annual Contributions, Cash Transfers and Funds Held in Trust The OECD countries remain the major contributors to FIFs (see Figure 5). At the same time, the universe of donors has become more diverse, with emerging market countries and the private sector playing an increasing role. 8

11 Figure 5 - FY06-FY10 Cumulative Cash Contributions to FIFs: Ten Largest Contributors (in US$ billions) Figure 6 - FIFs: Cumulative Funding by Sectors/Themes The majority of FIFs have been established in the context of international initiatives at the specific request of major donors/ shareholders for the purpose of supporting global programs. The two main themes on which FIFs have focused are health (51 percent of cumulative contributions) and environment / climate change (31 percent). Other areas that FIFs have supported include debt relief (through the HIPC / DRTF), agriculture, including research and food security (through the CGIAR and the recently established GAFSP), and disaster relief (through the HRF) (See Figure 6). FIFs have been able to serve the development needs of different country groups. The environment / climate-focused FIFs have served mainly the Middle- Income Countries (MICs, including IDA Blend and IBRD countries) in terms of the total volume of resources allocated (approximately 80 percent of total program and project funding). In contrast, the three main health-related FIFs the Global Fund, IFFIm, and the pilot AMC have focused on the poorest countries that are most in need of public health assistance (about 64 percent is allocated to programs in IDA countries). 9

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13 IV. FIFs Portfolio Adaptation Fund (AF): The Bank was asked in early 2008 to act as trustee to the Adaptation Fund under the Clean Development Mechanism of the Kyoto Protocol. It is designed to finance climate change adaptation projects and programs based on the priorities of the eligible developing countries. Its primary financing comes not from traditional official development assistance, but from a 2 percent share of proceeds of the Certified Emission Reductions (CERs) issued by the Clean Development Mechanism (CDM) under the Kyoto Protocol. The Bank (CFPMI, LEGCF and Treasury) was closely involved in developing and designing the AF, including the guidelines for the monetization of CERs, acceptance of donations, and the development of the AF s processes to ensure fiduciary oversight, while still pioneering direct access to resources by recipient countries. The Bank as trustee of the AF conducts sales of the AF CERs on global market, handles donations, and manages the Fund s proceeds and disbursements as instructed by the AF Board. 11

14 African Program for Onchocerciasis Control (APOC): The Onchocerciasis trust fund was established in 1976 and currently supports the African Program for Onchocerciasis Control Phase II (APOC II), a Regional Partnership Program. Succeeding the Onchocerciasis Control Program (OCP), APOC was launched in 1995 and includes 19 endemic African countries outside the OCP area. The objective of APOC is to establish, within 12 to 15 years, effective, self-sustainable, community-directed treatment of onchocerciasis with the drug ivermectin (community-directed treatment with Ivermectin, or CDTI) throughout endemic areas in the geographic scope of the program. Due to challenges, the duration of APOC has been extended to 2015, both to ensure sustained onchocerciasis control, especially in post-conflict countries, and to fully integrate onchocerciasis control activities into national health systems. For the period FY02-FY10, disbursements totaled US$ 150 million. The Bank acts as Trustee to administer funds and sits on both of APOC s governing bodies the Joint Action Forum and the Committee of Sponsoring Agents. Climate Investment Funds (CIF) comprises two funds, the Clean Technology Fund (CTF), and the Strategic Climate Fund (SCF), was established in 2008 under the UNFCCC as an interim measure to scale-up assistance to developing countries until the framework on climate change is agreed. CTF provides new large-scale financial resources to invest in clean technology projects in developing countries which contribute to the demonstration, deployment, and transfer of lowcarbon technologies with a significant potential for long-term greenhouse gas (GHG) emissions savings. SCF provides financing to pilot innovative approaches or to scale-up activities aimed at specific climate change challenges or sectoral responses. Contributors can provide funding to the trust funds in the form of grant or capital contributions, and additionally, in the case of CTF, concessional loan contributions. Both funds are able to provide concessional loans, grants and guarantees to recipients, through one of six partner MDBs which are required to return reflows (principal repayment, interest, fees or any other reflow of funds) received from recipients to the trust funds. The Bank serves the CIF in four capacities: (i) acts as Trustee to administer the CTF and SCF Funds, (ii) is a non-voting member on each governing body the CTF and SCF Trust Fund Committees, (iii) is one of six Implementing Agencies to implement programs and projects financed by the CIF, and (iv) provides secretariat services. 12

15 Consultative Group on International Agricultural Research (CGIAR) was established in 1971 and began receiving donor trust fund support in 1975 as part of its funding. It has since become a formal association comprising public and private sector members from developed and developing countries. CGIAR promotes sustainable development of agriculture by providing international agricultural research centers whose research areas include improving major food crops for added resilience and nutritional value, and enhancing the management of crops, livestock, trees, water, soil and fisheries with financial assistance and strategic guidance. The CGIAR multi-donor trust fund was established in In December 2009, the CGIAR adopted a new business model based on clear lines of accountability and a partnership between those who conduct research and those who fund it. The two core pillars of the new partnership are the Consortium of CGIAR Centers which unites the international agricultural research Centers supported by the CGIAR and the CGIAR Fund. The Bank serves CGIAR in three capacities: (i) acts as Trustee to administer funds including the disbursement of resources to CGIAR centers, (ii) chairs CGIAR s governing body the CGIAR Fund Council, and (iii) provides secretariat services through the CGIAR Fund Office. Debt Relief Trust Fund (DRTF) formerly known as the Heavily Indebted Poor Countries (HIPC) Initiative: This fund was launched in 1996 by the World Bank and the International Monetary Fund (IMF) to reduce the external debt of the most heavily indebted countries from unsustainable to sustainable levels. The initiative has been designed to provide substantial debt relief to countries that implement critical social and economic reforms as part of an integrated approach to sustainable development, and is used specifically in cases where traditional debt relief mechanisms are not enough to help countries exit from the rescheduling process. In 2005, to help accelerate progress toward the United Nations Millennium Development Goals (MDGs), the DRTF Initiative was supplemented by the Multilateral Debt Relief Initiative (MDRI). 40 countries are registered as eligible, 32 of which are receiving full debt relief from the IMF and other creditors after reaching their completion points. The resources of DRTF are managed by IDA, on the basis of decisions made by donors and by multilateral creditors. The World Bank acts as Trustee to administer DRTF funds. 13

16 GAVI Fund Trust Fund: The GAVI Fund was created as the financing arm to help support the GAVI Alliance immunization goals by managing and disbursing funds for immunization programs. Launched in 2007, the GAVI Fund Trust Fund was created to manage the resources which several sovereign governments and other public sector contributors agreed to make available to finance the projects and programs supported by the GAVI Fund. The World Bank serves the GAVI Fund as Trustee to administer the funds in the GAVI Fund Trust Fund. Global Agriculture and Food Security Program (GAFSP): approved by the World Bank s Board of Executive Directors in January It is a multilateral financing mechanism which will allow the immediate targeting and delivery of additional funding and private entities to support national and regional strategic plans for agriculture and food security in poor countries. Financial contributions have been provided or pledged by four G20 member countries and the Bill & Melinda Gates Foundation. The World Bank serves GAFSP in four capacities: (i) acts as Trustee to administer funds, (ii) is a non-voting member and observer on the GAFSP Steering Committee, (iii) is Implementing Agency for GAFSP-financed projects, and (iv) provides secretariat services. Global Environment Facility (GEF): established in 1991 as an independent financial mechanism for providing grants and concessional funding to cover the incremental or additional costs of measures to assist in the protection of the global environment and to promote environmental sustainable development. Today, the GEF is the largest funder of projects focused on global environmental challenges and a global partnership among 180 countries, international institutions, non-governmental organizations, and the private sector. It provides grants for projects related to six focal areas: (i) biodiversity, (ii) climate change, (iii) international waters, (iv) land degradation, (v) the ozone layer, and (vi) persistent organic pollutants (POPs). The GEF also serves as a financial mechanism for the following four conventions: (i) Convention on Biological Diversity (CBD), (ii) United Nations Framework Convention on Climate Change (UNFCCC), (iii) Stockholm Convention on Persistent Organic Pollutants, and (iv) UN Convention to Combat Desertification. The World Bank serves the GEF in three capacities: (i) since 1994, the Bank as one of the founding partners of the GEF has served as the Trustee and administrator of funds, (ii) is one of ten Implementing Agencies for GEFfinanced projects, and (iii) as a special case, the World Bank provides administrative support to the GEF secretariat and while the secretariat is physically located in the Bank s building, it has its own independent governance structure with the CEO reporting to the GEF Council and Assembly. The GEF also operates three other funds the LDCF, the NPIF, and the SCCF (see the description of the 14

17 funds below), which were established by the Conference of the Parties (COP) to the UNFCCC as well as provides secretariat services for the Adaptation Fund. Least Developed Countries Fund for Climate Change (LDCF): established in November 2001 under the UNFCCC at its seventh session in Marrakesh to address the needs of least developed countries (LDCs) whose economic and geophysical characteristics make them especially vulnerable to the impact of global warming and climate change. The trust fund was setup in 2002 and in its initial phase supports a work program to assist Least Developed Country Parties carry out preparation and implementation of National Adaptation Programs of Action (NAPAs) which identify priority activities that address the urgent and immediate climate change adaptation needs. The Bank serves the LDCF in two capacities: (i) acts as Trustee to administer funds, and (ii) is an Implementing Agency for LDCF-financed projects. Nagoya Protocol Implementation Fund (NPIF): approved in February 2011 and the trust fund established in March 2011 to support the early entry into force and effective implementation of the Nagoya Protocol on Access to Genetic Resources and the Fair and Equitable Sharing of Benefits Arising from their Utilization (Nagoya Protocol. The Bank serves the NPIF in two capacities: (i) acts as Trustee to administer funds, and (ii) is an Implementing Agency for NPIFfinanced projects. Special Climate Change Fund (SCCF): established in November 2001 under the UNFCCC at its seventh session in Marrakesh. The trust fund was setup in 2004 to finance activities, programs, and measures relating to climate change that are complementary to those funded by the resources allocated to the climate change focal area of the GEF trust fund and by bilateral and multilateral funding in the areas of: (i) adaptation; (ii) transfer of technologies; (iii) energy, transport, industry, agriculture, forestry, and waste management; and (iv) activities to assist developing countries whose economies are highly dependent on income generated from the production, processing, and export or consumption of fossil fuels and associated energy-intensive products in diversifying their 15

18 economies. The Bank serves the SCCF in two capacities: (i) acts as Trustee to administer funds, and (ii) is an Implementing Agency for SCCFfinanced projects. Global Fund to Fight AIDS, Tuberculosis and Malaria (Global Fund): established as an independent legal entity in 2002 to attract, manage and disburse resources rapidly, and to leverage additional resources to stem and provide treatment for three specific diseases. Structured as a partnership between developed countries, developing countries, the private sector, civil society and affected communities, the fund finances disease-specific programs developed by recipient countries, and in recent years, program components focused more broadly on health systems strengthening. The Bank serves as trustee of the Global Fund making disbursements directly to recipient countries on instruction from the fund and is a non-voting ex-officio member of the board. The most recent voluntary replenishment, concluded in 2010, will cover the three-year period New pledges and resources totaled US$ 11.7 billion, representing a 20 percent increase over the previous replenishment. Guyana REDD-Plus Investment Fund (GRIF): The GRIF is a fund for the financing of activities identified under the Government of Guyana s Low Carbon Development Strategy (LCDS). Norway has committed to provide up to US$250 million to the fund up to 2015, based on independent verifications of Guyana s deforestation and forest degradation rates and progress on REDD+ enabling activities. The World Bank acts as Trustee: it receives payments from donors, holds them in a trust fund, and then transfers them to Partner Entities responsible for carrying out the projects. The Bank does not make decisions involving project funding all decisions are made by a Steering Committee comprised of representatives of the Governments of Norway and Guyana. The Bank may also act as a Partner Entity to carry out projects if so requested by Guyana and approved by the GRIF Steering Committee. The other Partner Entities are the Inter-American Development Bank and United Nations Development Program. 16

19 Haiti Reconstruction Fund (HRF): Effective as of May The HRF mobilizes, coordinates, and allocates contributions from bilateral and other donors to finance high-priority projects, programs, and budget support for post-earthquake reconstruction. The HRF does not manage all of the resources pledged for rebuilding, but is the largest source of un-earmarked financing which it disburses to implementing agencies acceptable by any one of its three partners (the Inter-American Development Bank, the United Nations and the World Bank). The Bank serves HRF in four capacities: (i) acts as Trustee to administer funds, (ii) occupies two seats on the HRF Steering Committee one as the Trustee and one as a partner entity, (iii) is an Implementing Agency for HRF-financed projects, and (iv) provides secretariat services. worth over USD$ 6.2 billion for the next 20 years from the governments of nine countries Australia, France, Italy, The Netherlands, Norway, South Africa, Spain, Sweden, and the United Kingdom. With the backing of these government commitments, IFFIm borrows money by issuing bonds in the capital markets to fund vaccination programs in developing countries, thus using financial markets to frontload commitments. IFFIm disburses funds through GFA to the GAVI Alliance. The Bank serves as the treasury manager for IFFIm and manages donor grant commitments and payments. The Bank arranges issuance of IFFIm bonds and provides risk management, investment management, accounting, legal, and other administrative services. The Bank also serves as the account administrator for the GFA account. The Bank sits on the GAVI Alliance Board and Committees. It attends meetings of the IFFIm and GFA boards, whose members are independent individuals. International Finance Facility for Immunisation (IFFIm) and the GAVI Fund Affiliate (GFA): IFFIm is a supranational institution that uses bond issuance to accelerate the availability of financing for immunization programs through the GAVI Alliance, to 70 of the world s poorest countries. Launched in 2006, IFFIm has received pledges Pilot AMC: An Advance Market Commitment (AMC) for vaccines is an innovative way to incentivize companies to create, develop and manufacture vaccines needed in lowincome countries. AMC tackles a longstanding development problem - persistent market failures to develop and produce vaccines 17

20 18 needed in poor countries due to perceptions of insufficient demand and market uncertainty. Under the pilot AMC, donor countries commit money to subsidize the price of vaccines required by developing countries. In exchange for entering into long-term supply contracts, suppliers receive a subsidy to reflect the cost of scaling up manufacturing capacity to meet developing country need.. The pilot AMC for pneumococcal vaccines was launched on June 12, 2009 to respond to the need for vaccines against the disease that kills more children than any other worldwide, as well as to demonstrate the feasibility of the AMC concept. The current price for the vaccine in industrialized countries is around US$ 70 per dose; under the AMC the long-term price for developing countries will be US$ Initial estimates indicate that the program will prevent seven million childhood deaths due to pneumococcal diseases by The governments of Italy, the United Kingdom, Canada, Russia and Norway and the Bill & Melinda Gates Foundation are providing US$ 1.5 billion in incentive funding for the pilot program to subsidize vaccine purchase in 60 of the poorest countries. The Bank s role in the pilot AMC is to provide legal, accounting, systems, and reporting functions as well as balance sheet support.

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22 This is a product of the Multilateral Trusteeship and Innovative Financing Department of the Concessional Finance and Global Partnerships Vice Presidency 1818 H Street, N.W. Washington D.C. USA