World Bank Group

Approaches to
Mobilize Private
Capital for
Development
An Independent Evaluation
© 2020 International Bank for Reconstruction and Development / The World Bank
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Please cite the report as: World Bank. 2020. World Bank Group Approaches to Mobilize Private
Capital for Development. An Independent Evaluation. Independent Evaluation Group. Washington,
DC: World Bank.

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World Bank Group
Approaches to
Mobilize Private
Capital for
Development
An Independent Evaluation
July 20, 2020
 Contents
Abbreviations vii

Acknowledgments ix

Key Concepts x

Overview xiii

Management Response xxiii

Management Action Record xli

Report to the Board from the Committee on Development Effectiveness xlvii

1. Background and Context������������������������������������������������������������������������������������������1

Why Does Private Capital
Mobilization Matter? 1
The Bank Group’s PCM Approaches 4
What Is Catalyzation of Private Capital? 11
Evaluation Scope and Methodology 12

2. Did PCM Approaches Deliver?�������������������������������������������������������������������������������16

PCM Targets 16
How Much and Where Has the Bank Group Mobilized Private Capital? 21
PCM Project Performance 25
Relevance and Effectiveness of PCM Instruments 32
PCM-Led Country Reforms 41

3. Constraints on PCM and Opportunities to Scale Up���������������������������������������������47

External Constraints 47
Internal Constraints 53
Opportunities to Scale Up PCM 59
Instruments That Can Help the Bank Group Scale Up PCM 63
Avenues for Future Research and Analysis 65

4. Conclusions and Recommendations��������������������������������������������������������������������70

References�������������������������������������������������������������������������������������������������������������������76
ii
Boxes
Box 1.1. Multilateral Development Bank Strategy for Billions
to Trillions—Multilateral Development Bank Contributions 2
Box 2.1. Relevance and Effectiveness of Policy-Based
Guarantees in Ghana 33
Box 2.2. Achievements of the International Finance
Corporation MCPP-SAFE Platform 35
Box 3.1. InfraCredit Nigeria: Mobilizing Domestic Institutional Investors 49
Box 3.2. African Development Bank Portfolio Risk
Transfer: An Example of Exposure Exchange 52
Box 3.3. Bayfront Capital Infrastructure Securitization 56
Box 3.4. Blue Bonds: A Treasury-Supported Instrument for
Sustainable Investors 64

Figures
Figure 1.1. Stylized Hypothetical Private Capital Mobilization Project 10
Figure 2.1. Private Capital Mobilization Volume and Ratio for
the International Bank for Reconstruction and Development 18
Figure 2.2. Core Mobilization Volume (Private and Public Capital Mobilized)
and Ratio for the International Finance Corporation 19
Figure 2.3. Private Capital Mobilization Volumes by Institution, FY07–18 21
Figure 2.4. Mobilization Volumes in IDA and Non-IDA Countries, FY07–18 23
Figure 2.5. Private Capital Mobilization by Region, FY07–18 24
Figure 2.6. Private Capital Mobilization Projects by Sector
and Sustainable Development Goal 25
Figure 2.7. Private Capital Mobilization Project Success Rate, FY07–18 27
Figure 2.8. Relevance and Effectiveness of a Sample of 345
Private Capital Mobilization Projects 28
Figure 2.9. Private Capital Mobilization Project Performance,
by Sector and Sustainable Development Goal 29
Figure 2.10. Private Capital Mobilization Success Rates,
by Investor and Partner Types 30
iii
 Figure 2.11. International Finance Corporation Repeat Engagements,
by Regions and Clients, 2007–18 32
Figure 2.12. Link between World Bank Country Reforms and
Private Capital Mobilization in the Egyptian Electricity Sector 43
Figure 2.13. Link between World Bank Country Reforms and
Private Capital Mobilization in Cameroon Electricity Sector 45
Figure 3.1. Key Issues for Infrastructure Investors 50
Figure 3.2. Estimated Efficient Frontier 60
Figure 3.3. Mapping Private Capital Mobilization to Efficiency at Attracting Private
Capital to Identify Countries and Economies with Scale-Up Potential 62
Figure 3.4. Bank Group Private Capital Mobilization Expected Growth
versus Country Reform Progress 63

Tables
Table O.1.1. Private Capital Mobilization Levels and
Targets by Bank Group Institution xv
Table 1.1. Examples of Private Capital Mobilization Instruments and Platforms 7
Table 1.2. Portfolio Review and Analysis Details, Evaluated and Validated
by the Independent Evaluation Group (number of projects) 13
Table 1.3. World Bank Private Capital Mobilization Projects,
Distribution by Type, FY07–18 14
Table 2.1. Private Capital Mobilization Levels and Targets
by Bank Group Institution 17
Table 2.2. World Bank Group Commitments, Mobilization and Overall, FY07–18 22
iv
Appendixes
Appendix A. Evaluation Methodology  80
Appendix B. Mobilization Approaches  131
Appendix C. Effectiveness of B Loan Syndications  144
Appendix D. Relevance and Effectiveness of the MCPP-SAFE Program  160
Appendix E. Opportunities to Scale up Private Capital Mobilization through Treasury
Advisory and Disaster Risk Management Support  170
Appendix F. Emerging Lessons from IFC’s Green Bonds
and Bond Mobilization Approach  238
Appendix G. Effectiveness of World Bank Group I
nterventions in Public-Private Partnerships  255
Appendix H. IFC Support via the Distressed Assets Recovery Program  268
Appendix I. F
 rontier Analysis of World Bank Group
Approaches to Private Capital Mobilization  275
Appendix J. Synthesis of World Bank Group Country Cases  359
Appendix K. C
 ountry-Led Reforms and Approaches
to Private Capital Mobilization  382
Appendix L. Lessons of Experience from IEG Micro Evaluations  401
Appendix M. Analysis of Country Risk Factors and Mobilization Approaches 406

v
Abbreviations
4G Colombia Fourth Generation Roads Concession Program

AMC Asset Management Company

COVID-19 coronavirus pandemic

DFI development finance institution

DPO development policy operation

EMDE emerging market and developing economy

FCS fragile and conflict-affected situation

FDI foreign direct investment

FY fiscal year

G-20 Group of Twenty

G2G government-to-government

GCBF Green Cornerstone Bond Fund

GDP gross domestic product

Independent Evaluation Group World Bank Group

GP Global Practice

IBRD International Bank for Reconstruction and Development

IDA International Development Association

IEG Independent Evaluation Group

IFC International Finance Corporation

LIC low-income country

LMIC lower-middle-income country

MCPP Managed Co-lending Portfolio Program

vii
 MDB multilateral development bank

MFD Maximizing Finance for Development

MIGA Multilateral Investment Guarantee Agency

ODA official development assistance

OECD Organisation for Economic Co-operation and Development

PBG policy-based guarantee

PCM private capital mobilization

PPP public-private partnership

SAFE State Administration for Foreign Exchange

SDG Sustainable Development Goal

World Bank Group Approaches to Mobilize Private Capital for Development  Abbreviations

All dollar amounts are US dollars unless otherwise indicated.

viii
Acknowledgments
This report of the Independent Evaluation Group (IEG) was prepared by
a team led by Raghavan Narayanan (senior evaluation officer, IEG). Team
members include Georg Inderst, Christopher Humphrey, Dominik Naeher,
Rodney Lester, Sandeep Dahiya, Mario di Filippo, Tony Mak, Surajit Goswa-
mi, Wasiq Ismail, Franz Loyola, Nadia Asgaraly, Aline Weng, Nana Sika
Ahiabor, Polina Lenkova, Riad Al Khouri, and Amshika Amar. Emelda Cudilla
was responsible for all administrative aspects of the evaluation. Clive Harris
(lead infrastructure specialist, Infrastructure, Public-Private Partnerships,
and Guarantees) was the technical adviser to the evaluation. Andrew Stone
(lead evaluation officer) provided comments to the evaluation report. Aarre
Laakso edited the report.

The team thanks the World Bank Country Management Units of Argentina,
Bangladesh, China, India, Jordan, Mongolia, and Zambia for the field mis-
sion support. The team thanks all the World Bank, International Finance
Corporation, and Multilateral Investment Guarantee Agency staff for the
high levels of engagement and participation in staff consultations and
semistructured interviews.

Peer reviewers were Janamitra Devan (adviser, B20, and former vice presi-
dent, World Bank Group), Anne Simpson (chief investment officer, CalPERS),

Independent Evaluation Group World Bank Group

and Bart Oosterveld (global fellow, Atlantic Council, and former director,
Moody’s Inc.).

The evaluation was conducted under the guidance of José Carbajo (director,
Financial, Private Sector, and Sustainable Development), Stoyan Tenev (for-
mer manager, IEG), Marialisa Motta (manager, Financial, Private Sector, and
Sustainable Development), and Alison Evans (Director-General, Evaluation).
ix
 Key Concepts
Cascade  The Cascade is how the World Bank Group operationalizes its
Maximizing Finance for Development approach. To maximize the impact
of scarce public resources, the Cascade first seeks to mobilize commercial
finance, enabled by upstream reforms where necessary. Where risks remain
high, the priority is to apply guarantees and risk-sharing instruments. Of-
ficial and public resources are applied only where market solutions are not
possible through sector reform and risk mitigation. (Described in Forward
Look: A Vision for the World Bank Group in 2030—Progress and Challenges,
World Bank Group 2017.)

catalyzation, or catalyzing private capital  World Bank Group activities

World Bank Group Approaches to Mobilize Private Capital for Development  Key Concepts

that, in the absence of any active or direct role or cofinancing by the Bank
Group, have a role in Maximizing Finance for Development. Examples
include International Development Association–issued bonds, the Global In-
frastructure Facility, and loans, credits, and technical assistance to improve
the policy and enabling environment as well as public investments that com-
plement private investments.

core mobilization  Third-party finance deployed as a result of an active

and direct effort on the part of the International Finance Corporation. Such
activity would usually be evidenced through the payment of a fee. Core mo-
bilization includes third-party funding from both private and public sources
(including other multilateral development banks, development finance in-
stitutions, and sovereign wealth funds) on commercial terms that are raised
due to active and direct efforts by the International Finance Corporation.

Maximizing Finance for Development  The World Bank Group’s coordinat-

ed approach to private capital mobilization. The World Bank Group aspires
to responsibly crowd in private capital without pushing the public sector
into unsustainable debt and contingent liabilities. This entails pursuing
private sector solutions where they can help achieve development goals and
reserving scarce public finance for where it is most needed.
x
off–balance sheet  Typically, World Bank Group lending and adviso-
ry activities use the assets of the respective institution’s balance sheet to
support client countries or corporates. Any proceeds from AAA-rated bonds
issued by the World Bank Group, including the International Development
Association, and used for its own funding go onto the balance sheet and are
then channeled toward lending activities. International Finance Corpora-
tion advisory services and World Bank advisory services and analytics are
similarly funded using the respective balance sheets or supported by public
sector–linked trust funds. Capital raised through private capital mobilization
activities is considered an off–balance sheet item and is channeled directly
to support the client.

private capital mobilization  Includes both private direct mobilization and

private indirect mobilization (see entries for further explanation). Multilat-
eral development banks have defined this as investment by a private entity,
which is defined as a legal entity that is (i) carrying out or established for
business purposes and (ii) financially and managerially autonomous from
national or local government. Private capital mobilization is the measure of
reporting by all World Bank Group institutions as part of the joint reporting
to the Group of Twenty on a calendar-year basis.

private capital mobilization ratio  The volume of private capital mobilized

by a World Bank Group institution relative to its own lending commit-
ments in a year. The International Bank for Reconstruction and Develop-

Independent Evaluation Group World Bank Group

ment, in its capital increase commitments on mobilization, uses private
capital mobilization as its numerator. Because this is counted at the time
of Board of Executive Directors commitment, it is likely an overestimate of
actual mobilization.

private direct mobilization  Financing from a private entity on commercial

terms because of the direct and active involvement of a multilateral devel-
opment bank. Evidence of direct involvement includes mandate letters, fees
linked to financial commitment, or other validated or auditable evidence of
a multilateral development bank’s direct role leading to the commitment of
other private financiers. Private direct mobilization does not include sponsor
financing. (Multilateral Development Bank Task Force Reference Guide 2018.)
xi
 private indirect mobilization  Financing from private entities provided in
connection with a specific activity for which a multilateral development bank
is providing financing, but where no multilateral development bank is playing
an active or direct role that leads to the commitment of the private entity’s
finance. Includes sponsor financing if the sponsor qualifies as a private entity.
(Multilateral Development Bank Task Force Reference Guide 2018.)
World Bank Group Approaches to Mobilize Private Capital for Development  Key Concepts
xii
Overview
Mobilizing private capital is critical to achieving several Sustainable De-
velopment Goals (SDGs). According to the United Nations Conference on
Trade and Development’s World Investment Report 2016, achieving the SDGs
will require $2–3 trillion a year through 2030. Mobilizing that much capital
necessitates broadening the sources of financing and increasing private cap-
ital mobilization (PCM) in addition to domestic revenues. PCM is critical for
SDGs such as affordable and clean energy, financial inclusion, zero hunger,
decent work and economic growth, industry, innovation and infrastructure,
and climate action. Action on climate change requires private investment to
heighten efficiency, reduce externalities, and expand domestic and foreign
partners (SDG 17: Strengthen the means of implementation and revitalize
the global partnership for sustainable development).

The World Bank Group and its development partners have adopted an offi-
cial definition of PCM and jointly report on PCM progress every year to their
shareholders and the Group of Twenty (G-20). Multilateral development
banks (MDBs) and European development finance institutions (DFIs) have
agreed to a common definition for PCM, which consists of private direct
mobilization and private indirect mobilization. Since 2016, the MDBs and
European DFIs have jointly reported on PCM progress to the G-20 and its
shareholders. In 2018, the MDBs and European DFIs reported more than
$69 billion in private capital mobilized in low- and middle-income countries.
In addition to private direct and private indirect mobilization, the Interna-
tional Finance Corporation (IFC) reports its PCM achievements through the
core mobilization indicator, which counts capital mobilized on commercial
terms from private and public sources (for example, other MDBs, DFIs, and
sovereign wealth funds).

The Bank Group mobilizes private capital by combining two complementary

approaches. One involves deploying a mix of financing and guarantee instru-
ments, setting up investment platforms, using short-term financing initia-
tives, and providing public-private partnership (PPP) transaction advisory.
The other involves working with clients (governments and private corpora-
xiii
 tions), investors (for example, project sponsors and institutional investors),
financing partners (such as commercial banks), and development partners.
The World Bank mobilizes private capital primarily, though not exclusively,
through guarantee instruments. Although the World Bank does leverage its
balance sheet to mobilize private capital, its principal contribution to in-
creasing private capital flows toward Maximizing Finance for Development
is via the catalyzation of private capital (see Key Concepts). IFC has a suite of
instruments to mobilize private capital, including debt and equity financing
platforms that pool capital from institutional investors, insurance firms, and
sovereign agencies. All activities of the Multilateral Investment Guarantee
Agency (MIGA)—including its political risk insurance and nonhonoring guar-
antee instruments—facilitate PCM.

This evaluation assesses how relevant and effective the Bank Group has been
at channeling private capital for development, the factors that have driven
results, and opportunities for the future. It starts by reviewing Bank Group
World Bank Group Approaches to Mobilize Private Capital for Development  Overview

progress in meeting its PCM targets. It then reviews the relevance and effec-
tiveness of PCM projects and instruments and assesses their links to country
outcomes. Next, it identifies drivers of results and constraints on PCM. Fi-
nally, it gauges the potential for PCM growth and provides recommendations
for the future. The evaluation is based on the Bank Group’s PCM activities
between 2007 and 2018.

Key Findings on PCM Targets

The Bank Group has committed to mobilizing private capital to help meet
the 2030 SDGs. In responding to global challenges, the Bank Group has
adopted both G-20 commitments and corporate targets for PCM. The two
institutions maintain different sets of definitions internally per their busi-
ness model and operational needs. The World Bank counts PCM activities at
Board of Executive Directors approval rather than financing commitments
from third-party capital providers. This tends to overcount World Bank PCM
volumes in the case of project cancellations after approval. IFC counts public
sources of capital in its core mobilization ratio but at the project commit-
ment stage. The G-20 target for the International Bank for Reconstruction
and Development (IBRD) is to increase PCM volume to $6.3 billion by 2020.
xiv
The G-20 target for IFC is to increase PCM volume to $10.1 billion by 2020
(table O.1). The corporate target for IBRD is a PCM mobilization ratio of
25 percent by 2020, sustained until 2030. The corporate target for IFC is a
core mobilization ratio of 80 percent by 2020, sustained until 2030.

Table O.1.1. P
 rivate Capital Mobilization Levels and Targets by Bank
Group Institution

Volume Mobilization Ratio

($, billions) (%)a
2017 2020 G-20 2017 2020–30 corporate
Institution level target ratio target ratio
IFC 7.5 10.1 63 80
World Bank 5.9 6.3 15 25 (for IBRD)

Source: Multilateral development bank report to the G-20, Bank Group Capital Increase Package Proposal.

Note: G-20 = Group of Twenty; IBRD = International Bank for Reconstruction and Development; IFC =

International Finance Corporation. G-20 private capital mobilization targets are at the Bank Group level.

a. Measured as private capital mobilization for IBRD and core mobilization (private and public capital

mobilization) for IFC. (See Key Concepts, page x).

IBRD progress on PCM targets has slowed since 2017, but scaling up is feasi-
ble. IBRD met its $5.9 billion G-20 target in 2017 through partial risk guar-
antee issuances to critical energy and infrastructure projects. Since 2017,
IBRD’s PCM volumes have dropped to $3.7 billion in 2018 and to $2.6 billion
in 2019. Although it may be difficult for IBRD to meet its G-20 2020 target

Independent Evaluation Group World Bank Group

of $6.3 billion, it can realistically meet its corporate target of a 25 percent
mobilization ratio on average over the next 10 years.

IFC has increased its mobilization ratio since 2017 and exceeded its core mobi-
lization targets in 2018 and 2019. This is partly because of increases in mobi-
lization from public sources (for example, MBDs, DFIs, and sovereign wealth
funds). IFC’s core mobilization volume grew from $7.5 billion (63 percent
mobilization ratio) in 2017 to $11.6 billion (100 percent mobilization ratio) in
2018. In 2019, IFC mobilized $10.2 billion (114 percent mobilization ratio).

MIGA has no explicit PCM targets because all of its interventions count as
PCM. MIGA’s interventions through political risk insurance, nonhonoring
guarantees, and credit enhancement products count toward PCM commit-
xv
 ments. MIGA’s reinsurance activities, through treaty and facultative reinsur-
ance, further increase its capacity for PCM. Thus, MIGA has been growing its
PCM portfolio in line with its overall business targets and priorities.

Climate-linked mobilization commitments are growing in the Bank Group

portfolio. The Bank Group climate-linked mobilization volume was 45 per-
cent of total PCM in 2018 compared with 28 percent in 2016. This ratio is
similar to the overall ratio achieved by MDBs, which is an average of 46 per-
cent of their project portfolios.

Key Findings on Relevance

Bank Group PCM approaches are relevant to both country and corporate
clients. Over the evaluation period (2007–18), the Bank Group has pioneered
and deployed PCM instruments that are relevant for country and corporate
clients. (The PCM harmonized definition and reporting on which the evalu-
World Bank Group Approaches to Mobilize Private Capital for Development  Overview

ation is based came into effect in 2016–17. This report refers to the harmo-
nized definition of PCM, but it evaluates the performance of each instrument
and platform based on its specific objectives at the time when it was ap-
proved.) PCM instruments have crowded in commercial banks, institutional
investors, sovereign wealth funds, asset managers, and pension funds; sup-
ported client countries’ policy reforms (for example, through World Bank pol-
icy-based guarantees); and helped projects fill the financing gap (for example,
World Bank guarantee projects in Albania and Montenegro). In addition to
PCM instruments, corporate clients in Sub-Saharan Africa and Latin America
and the Caribbean, for example, have used IFC’s mobilization platforms—the
IFC Asset Management Company (AMC) and the Managed Co-lending Port-
folio Program (MCPP)—to diversify funding sources and get longer-term
financing than is available locally (for example, energy and transport infra-
structure projects in Ghana, Honduras, Nigeria, and Paraguay).

PCM approaches partially meet investors’ priorities and expectations. Bank

Group engagement with institutional investors, commercial banks, and
project sponsors used a wide range of PCM modalities. Institutional inves-
tors’ expectations have been partially met in equity mobilization platforms
because of lower-than-expected financial returns and lack of investable proj-
xvi

ects in the pipeline. Commercial banks and investors found debt platforms
relevant because they helped diversify their portfolio exposure in private
firms based in emerging markets and developing economies.

Key Findings on Effectiveness

Bank Group approaches are mostly effective in mobilizing private capital.
World Bank guarantees had positive outcomes by de-risking and improv-
ing projects’ bankability at the commitment stage and increasing access to
infrastructure services for beneficiaries at the project maturity stage. How-
ever, guarantee projects did not lead to subsequent PCM engagements in
other sectors within the country. IFC syndicated loans increased client firms’
access to finance. IFC debt and bond mobilization platforms—the Green
Cornerstone Bond Program and the MCPP—were effective in meeting cli-
ent and investor expectations. Equity platforms such as AMC showed mixed
results in meeting IFC’s development objectives: at maturity, funds managed
by AMC partially met IFC’s development objectives, according to a 2018
Independent Evaluation Group meso evaluation. PPP advisory projects have
created a large role for domestic and South-South investors from emerging
markets. MIGA has positioned itself well among MDBs in addressing PCM
thanks to its new products and the share of its exposure that gets reinsured
(for example, power generation projects in Sub-Saharan Africa and capital
optimization projects in Latin America and the Caribbean).

Projects with domestic investor participation, MDB involvement, and World

Independent Evaluation Group World Bank Group

Bank–IFC–MIGA collaboration have better PCM project outcomes. Projects
with domestic investor participation had greater success (80 percent) than
those with overseas investors only (60 percent), and they had success rates
similar to projects with both domestic and overseas investors. Domestic in-
vestor participation improved project outcomes because domestic investors
engaged actively in project design and implementation, bringing knowledge
of the local market and regulations. The presence of a bilateral DFI was not
associated with significantly improved project performance. However, the
presence and involvement of other MDBs was associated with high success
rates (90 percent versus an average of 70 percent for PCM projects without
MDB participation). The difference was partly due to greater resource avail-
ability from MDBs; similarities in due diligence; environmental, social, and
xvii
 governance compliance requirements; and monitoring from multiple parties
after financial close to ensure greater quality of outputs and outcomes. Ev-
idence from energy sector projects indicates that concomitant World Bank,
IFC, and MIGA interventions have a positive effect on PCM outcomes. These
joint interventions involve either working sequentially as a project’s de-risk-
ing needs evolve to financing needs or working concurrently as One Bank
Group on upstream issues.

IFC’s PCM approaches have led to demonstration effects with corporate cli-
ents. IFC PCM projects attracted repeat client business, particularly in East
Asia and Pacific and in Latin America and the Caribbean. Europe and Central
Asia attracted the most repeat client business for MIGA. (Repeat engage-
ments could mean that IFC or MIGA support the expansion of an ongoing
project or an existing client in a new project. Investors’ engagement in re-
peated business indicates that they trust the Bank Group’s PCM approaches
and believe that projects developed through the Bank Group will be sustain-
World Bank Group Approaches to Mobilize Private Capital for Development  Overview

able.) Nonfinancial additionality, however, was limited. Only 21 percent of

IFC projects had evidence of nonfinancial additionality (18.8 percent with
both types of additionality), manifested in addressing environmental, social,
and governance issues throughout the life cycle of the project.

PCM project performance is not systematically related to the amount of

private capital that countries subsequently attract. Countries with success-
ful PCM projects do not necessarily receive increased private capital flows
or have spillover effects. It takes time and sustained investment in a sector
for the Bank Group to mobilize an amount of private capital sufficient to
trigger a demonstrable increase in countries’ overall private capital flows.
It is also essential for governments and the Bank Group to continue to sup-
port business environment reforms post-PCM and to address constraints
that may persist and need to be addressed to facilitate private investments
in the long term.

Enabling environment reforms are often necessary for PCM and should be
sustained, but an opportunistic approach to reforms may also lead to PCM.
In the context of the World Bank’s enabling environment work, projects
achieved financial close and mobilized private capital in two scenarios:
(i) when the Bank Group–supported reforms addressed sector and macro-
xviii
economic constraints in a comprehensive way (for example, energy sector
regulations and business regulation reforms), and (ii) when the Bank Group
responded flexibly to opportunistic situations in a particular subsector (for
example, PPP advisory in the transport sector) or in lightly regulated envi-
ronments in the absence of upstream reform.

Constraints on PCM
The World Bank and IFC country strategy cycles are not fully aligned with
PCM ambitions. During the evaluation period, countries’ track records and
potential did not drive the targeting of the World Bank and IFC’s PCM ap-
proaches in attracting private capital. Country Partnership Frameworks and
Country Private Sector Diagnostics are essential for formulating PCM strat-
egies. However, interventions based on a single three-year country strategy
cycle may not be sufficient, especially for attracting institutional investors
with much longer investment horizons. Insurance investors, for example,
pursue bankable assets (such as infrastructure) that can generate steady
returns over a 20- or 30-year period.

IBRD PCM targets have not cascaded to Regional units and Global Practices
(GPs), while IFC has mobilization targets in its scorecard. World Bank memo-
randums of understanding between Regional vice presidencies and GPs—and
related scorecards—do not include PCM targets, yet there is a need to better
align staff incentives to reward achievement of PCM targets. World Bank

Independent Evaluation Group World Bank Group

GP staff are not benefiting from the comparative advantage available with-
in the Infrastructure, Public-Private Partnerships, and Guarantees unit of
the World Bank or within the World Bank Treasury, the staff of which often
have greater expertise with financial instruments and a longer track record
in financial structuring of complex projects than the task team leaders and
sector specialists do. IFC does have mobilization targets in its Corporate
Scorecard, including targets on IFC’s own account long-term finance and
total long-term finance targets.

IFC PCM approaches are not consistently aligned with investors’ risk appe-
tites. Institutional investors have limited risk appetite to cofinance the un-
listed infrastructure and financial sector projects that IFC typically supports.
xix

Domestic investors in emerging markets and developing economies are un-

 derserved by the Bank Group’s umbrella support (for example, IFC syndica-
tions) and lack local currency funding instruments. In some cases, adequate
risk return analysis for IFC exposure and industry regulatory requirements
are not fully aligned with the approaches (for example, MCPP). Furthermore,
tapping a new investor base, such as the insurance industry, requires addi-
tional resources, new skills, and better risk monitoring and auditing.

Governments need to address constraints on PCM, including the enabling

environment, client capacity, working with other MDBs, and competition
from government lenders. Several business environment constraints limit
PCM, including poor governance and regulatory barriers to private capital
flows. Client countries have limited understanding of PCM instruments and
platforms and limited capacity to identify a pipeline of bankable projects
and value them correctly. The Bank Group’s addressable market has been
shrinking in recent years. The reduction is due to bilateral initiatives (for
example, export credit agencies) and sovereign initiatives (for example,
World Bank Group Approaches to Mobilize Private Capital for Development  Overview

government-to-government initiatives, sovereign wealth funds, and state-

owned banks) that can channel public capital without the participation of
MDBs, including the Bank Group. This is particularly evident in middle-in-
come countries. Governments are primarily responsible for addressing those
constraints, in some cases with Bank Group support through policy lending
or technical assistance.

Opportunities to Scale Up PCM and

Recommendations
All Bank Group client countries—including low-income countries (LICs)
and lower-middle-income countries (LMICs)—have PCM potential. Private
capital flows to Bank Group client countries are below potential, suggesting
an opportunity to mobilize more, especially among LICs and LMICs. Inde-
pendent Evaluation Group models suggest that, given investment climate
and income levels, the capacity of client countries to absorb private capital
flows—including foreign direct investment, portfolio, and private sector
borrowing—is at 50–80 percent of its potential. The Bank Group can develop
a PCM project pipeline in the LICs and LMICs. When a country’s governance,
xx

capital markets, and business environment meet a certain threshold (which

is more likely in upper-middle-income countries), private sector flows are
likely to happen without MDB or Bank Group involvement. At that point, the
additionality of the Bank Group’s PCM activities and the mobilization poten-
tial of the Bank Group are likely to decline.

The coronavirus pandemic (COVID-19) response requires mobilizing both

public sources and institutional investor capital sources in the short to me-
dium term. The pandemic will likely limit the expansion of traditional PCM
instruments such as B loans. Platform approaches such as AMC or MCPP, by
contrast, tend to have longer investment horizons (for example, 5–12 years).
Furthermore, according to a BlackRock Investor Pulse Survey in March 2020,
investors’ interest in private equity has remained steady or increased as the
valuations of underlying project assets have declined because of COVID-19.
Both traditional Bank Group PCM solutions (for example, World Bank and
MIGA guarantees, trade finance, and short-term liquidity facilities) and
countercyclical approaches (for example, the Distressed Assets Recovery
Program) can continue to play important roles in mobilizing private capital
in light of the ongoing pandemic.

Three near-term actions can enhance the ability of the Bank Group to mo-
bilize private capital and thus improve the probability of meeting corporate
targets and improving PCM outcomes:

» Prioritize client countries for PCM approaches, with corresponding tar-

gets cascading to the Regional units and GPs (IBRD), to meet the 2030

Independent Evaluation Group World Bank Group

PCM targets. Country strategies can be used to discuss PCM opportunities
and priorities, including in LMICs and LICs, at the same time as engaging
in longer-term strategic discussions about attracting institutional investors
who have much longer investment horizons. IBRD needs to cascade PCM
objectives to the Regional units and GPs, with clear incentives for operational
units to meet them.

» Expand PCM platforms, guarantees, and disaster risk management prod-

ucts commensurate with project pipeline development (Bank Group).
There is room for guarantees—particularly policy-based guarantees—to grow
to support new project financing or refinancing efforts. World Bank disaster
risk management products and programmatic PPP solutions are experienc-
xxi

ing a renewed demand. They could be scaled up with support from the World
 Bank Treasury and Infrastructure, Public-Private Partnerships, and Guaran-
tees units, especially in view of client governments’ responses to pandemics.

» Develop new PCM products and improve product alignment with the
needs of new investor groups and partners (IFC and MIGA). Simpler prod-
ucts comparable to investors’ existing portfolios and with exposure to emerg-
ing markets and developing economies are relevant to most investors. Global
and regional clients also seek innovative instruments. Pooled currency facil-
ities and short-term liquidity facilities will be even more relevant in view of
the pandemic. There is market demand for political risk guarantee solutions
that offer comprehensive coverage or support collective investment vehi-
cles targeting LMICs and LICs. Pilot approaches on innovative instruments
and better investor alignment can scale up PCM and improve development
outcomes.
World Bank Group Approaches to Mobilize Private Capital for Development  Overview
xxii
Management Response
Management of the World Bank Group institutions would like to thank the
Independent Evaluation Group (IEG) for its report, World Bank Group Ap-
proaches to Mobilize Private Capital for Development. This evaluation faced
the challenging task of examining one of two main aspects of the Bank
Group’s efforts to support and facilitate the mobilization of private capi-
tal—a core principle of the Bank Group’s Maximizing Finance for Develop-
ment (MFD) strategy. Management is keen to receive IEG’s complementary
FY23 evaluation on the Bank Group’s activities supporting the catalyzation
of private capital. That evaluation is anticipated to provide insight on the
World Bank activities that support private capital mobilization but are not
covered in the current evaluation.

World Bank Management Response

Management appreciates that the report affirms the relevance of the Bank
Group’s private capital mobilization approach. The report concludes that the
private capital mobilization (PCM) approach is (i) relevant to both country
and corporate clients; (ii) mostly effective in mobilizing private capital, with
potential existing even in low-income and lower-middle income countries;
and (iii) partially meets investors priorities and expectations. The report also

Independent Evaluation Group World Bank Group

notes that the PCM approach is appropriate as part of the response to the
coronavirus (COVID-19) crisis, which requires mobilizing both public and in-
stitutional investor capital in the short and medium term. All this is possible
because the Bank Group institutions have been working in close alliance, es-
pecially after the comprehensive preparation under the Country Partnership
Framework reform. The World Bank’s official corporate target for PCM is the
commitment to its Board of Executive Directors to a target of 25 percent for
the International Bank for Reconstruction and Development (IBRD), on aver-
age, over the period FY19–30, as part of the IBRD capital package. The target
of 25 percent on average recognizes the significant year-to-year fluctuation
in private capital mobilized.
xxiii
 The Bank Group has been effective in coordinating with other develop-
ment partners in advancing the PCM agenda toward the achievement of the
Sustainable Development Goals (SDGs). IEG notes that “to achieve the SDGs
by 2030, development institutions will need to leverage an unprecedented
amount of private sector capital.” In 2016 the Bank Group, along with the
other multilateral development banks (MDBs), issued a joint statement to
mobilize increased investment from the private sector and institutional
investors; in 2017, the finance ministers of the Group of 20 approved a set of
principles that give the Bank Group and other MDBs a framework for in-
creasing private investment to support countries’ development objectives;
and in 2017, the Bank Group introduced the MFD approach to systematically
leverage all sources of finance, expertise, and solutions to support develop-
World Bank Group Approaches to Mobilize Private Capital for Development  Management Response

ing countries’ sustainable growth (World Bank Group 2017). The PCM proj-
ects have already contributed to several SDGs, including “greater financial
inclusion and greater access to infrastructure—affordable and clean energy
for firms and households,” with management recognizing that more can be
done to benefit the social sectors.

Definitional issues in the report may inadvertently confuse the interpre-

tation of the types of activities undertaken by Bank Group institutions to
support PCM. In adopting the Hamburg Principles in 2016, the Group of
20 nations welcomed the role of the MDBs in mobilizing and catalyzing
private capital. MDBs have harmonized on the definition of PCM, which
includes both direct and indirect capital mobilization. However, the full
range of World Bank lending and analytical engagement that help create and
strengthen the enabling environment to support PCM efforts are not cap-
tured under the framework applied in this report. In this context, it would
be more accurate to describe the report’s conceptual framework as being
focused on “private direct and indirect mobilization” rather than character-
izing it as a comprehensive framework for “mobilization of private capital.”
The report’s goal of assessing the relevance and effectiveness of the Bank
Group’s efforts, to mobilize private capital for development and to identify
factors driving results, was therefore not entirely achieved given the limited
sample (in both scale and scope) of World Bank projects considered in the
report. Management notes IEG’s plan to complement the findings of this re-
port with an evaluation on the World Bank’s role in “catalyzation,” which will
xxiv
include extensive World Bank activities not considered in the current report.
However, the follow up evaluation will not be delivered until FY23, which cre-
ates an unfortunate time lag between these two complementary reports and
may lead to spurious conclusions and limited understanding of Bank Group’s
comprehensive role in supporting the mobilization of private capital.

An analysis or interpretation based on limited data should include proper

caveat that it is not representative, thereby limiting the possibility of spuri-
ous conclusions. As noted, the report’s scope is limited to the Bank Group’s
direct and indirect PCM approaches. With respect to the World Bank, it
therefore focuses only on activities directly supporting private capital mobi-
lization—which is less than 1 percent of the total Bank Group portfolio over
the 12-year review period. Defining the World Bank’s portfolio for private
indirect mobilization (PIM) is particularly challenging because World Bank
Operational Systems did not capture this information prior to 2016. More-
over, the reliance on interviews and dated evaluations for the World Bank’s
PIM projects may not provide conclusive evidence (thereby further compro-
mising an already small sample). Management believes that this limitation
and narrow scope is not sufficiently flagged up front and elaborated within
the report. Similarly, the report states that World Bank projects with PCM
achieved higher outcome success rates than those without PCM (83 percent
compared with 76 percent). Given the small and nonrepresentative sample
of World Bank PCM projects (12 with IEG-validated outcome ratings), the
average outcome rating could change significantly through the rating of a

Independent Evaluation Group World Bank Group

few additional projects. Therefore, extrapolating results and success rates to
the entire PCM portfolio could be misleading.

Recommendations
Recommendation 1: To meet the 2030 PCM targets, prioritize client
countries for PCM approaches, with corresponding targets cascading to
the Regional units and Global Practices (GPs; for IBRD).

Both the PCM target stated in the IBRD capital increase and the World
Bank’s commitment to the MFD approach have been inculcated in the Re-
gions and Practice Groups, and Country Partnership Frameworks are being
used to discuss opportunities for private sector involvement and MFD. To
xxv
 strengthen staff incentives, we recognize the need to continue improving
the tracking system for PIM and to recognize private capital and other funds
mobilized along with IBRD and International Development Association
(IDA) resources. For example, the Infrastructure Finance, Public-Private
Partnerships (PPP), and Guarantees GP has started to track and report on
“MFD-enabling” projects from fiscal year (FY)18 onward. That said, it is nei-
ther practical nor advisable to cascade down the corporate target for PCM to
the Regions and the GPs, due to the nature of PCM described above.

Recommendation 2: Expand PCM platforms, guarantees, and disaster

risk management products commensurate with project pipeline devel-
opment (Bank Group).
World Bank Group Approaches to Mobilize Private Capital for Development  Management Response

Management agrees that it may be beneficial to consider possible enhance-

ments to the PCM platforms.1 Several efforts have already been made in re-
sponse to COVID-19, but more medium-term and sustainable options should
be considered. One such example comes from the disaster risk management
product. The Bank Group has learned that, after a disaster, quick access
to predictable financing is critical for emergency response, as even small
delays cost lives and livelihoods. This is how the World Bank’s development
policy financing with catastrophic deferred drawdown option (Cat DDO)
instrument came into being. In FY20, the Cat DDO was triggered in eight
countries, providing over $1.2 billion in immediate financing for countries
responding to COVID-19. The other example comes from PPP arrangements.
To provide governments with strategic short-term advice on the impacts of
the pandemic, the Public-Private Infrastructure Advisory Facility collaborat-
ed with the World Bank’s Infrastructure Finance, PPP, and Guarantees Group
to establish a rapid response program. Phase 1 has already been deployed.
Through this program, national PPP units, ministries of finance, sector
ministries, and utilities can request short interventions of remote, targeted
technical advice to undertake a fast assessment of the impact of COVID-19
on their PPP programs.
xxvi
International Finance Corporation
Management Response
Since the launch of what is now known as the B Loan program in 1959,
fostering and enabling third-party investment, alongside funding from the
International Finance Corporation (IFC), has been a key part of IFC’s invest-
ment approach. IFC’s Articles of Agreement call for the institution to “seek
to stimulate, and to help create conditions conducive to, the flow of private
capital, domestic and foreign, into productive investment in member coun-
tries.” Along with creating markets, mobilizing finance is a critical element
of IFC 3.0, including in its explicit undertakings to the Board as part of the
capital increase. IFC welcomes this thematic evaluation and appreciates
IEG’s findings that IFC has delivered results in line with expectations and
that its products have found relevance with investors and delivered benefits
to clients.

Mobilization is at the core of IFC’s mission and all its activities focus on
fostering private sector investment. However, mobilization can be broad-
ly construed, with activities ranging from policy reform, which facilitates
investment flows, to actively securing finance to support an individual
project. The report takes a very high-level view of mobilization, reflecting a
country outcomes lens. However, IFC targets countries based on its compre-
hensive country strategies, which shape how IFC originates projects for its

Independent Evaluation Group World Bank Group

own account through upstream and business development efforts. IFC’s deal
origination efforts in turn lead to and attract mobilization, and IFC’s mobi-
lization is delivered through a project-based approach informed by coun-
try strategies but responsive to specific project, investor and mobilization
product requirements. Although a country lens approach to mobilization
might focus on interventions to facilitate portfolio flows in publicly traded,
standardized instruments that fit best with mainstream institutional inves-
tor needs, IFC’s “core mobilization” approach, which is the focus of IEG’s
evaluation of IFC activity, is entirely a project lens construct requiring IFC to
find ways in which investors can be brought into customized, private credit
and equity transactions designed to achieve specific development outcomes.
The two approaches, though not mutually exclusive, are very different and
xxvii
 this distinction matters in terms of product design, investor selection, and
overall mobilization strategy.

Definitional precision is therefore crucial in allowing for a meaningful

comparison of different activities across different Bank Group entities. IFC
management therefore wishes to clarify the exact nature of IFC’s core mo-
bilization. The harmonized MDB Guidelines on mobilization, established
in 2016, clearly distinguishes between indirect mobilization (where there is
coparticipation of private investors in Bank Group–financed transactions)
from direct mobilization, where third-party investment is deployed into Bank
Group–financed projects as a consequence of an active and direct effort by
an MDB. The sum of indirect and direct mobilization is recognized as total
PCM. Because indirect mobilization may be said to occur in every IFC project
World Bank Group Approaches to Mobilize Private Capital for Development  Management Response

(for example, equity provided by a sponsor), IFC has developed strict proce-
dures and policies for recognizing only third-party finance (from both public
and private sources) that was specifically sourced and structured on com-
mercial terms through an active and direct effort on the part of IFC as core
mobilization. To that end, core mobilization is not, as suggested by IEG, IFC’s
measure of private capital mobilized; instead, core mobilization is a specific
and clearly bounded measure of direct mobilization—a subset of all private
capital mobilized. In conflating core mobilization and private capital mo-
bilized, IEG is underrepresenting IFC’s total mobilization activity. In 2019,
IFC reported $19.5 billion in total private capital mobilized, comprising $9.1
billion in private direct mobilization and $10.4 billion in PIM. In FY20, IFC
reported $10.8 billion in core mobilization. IFC management believes that
definitional precision is important not only to ensure appropriate represen-
tation of the quantum and nature of IFC’s activities but also to allow for an
evaluation of IFC’s activities within their specific context: in the case of IFC,
as an evaluation of core mobilization, a focus specifically on IFC’s ability to
generate coinvestments from specific types of investors in specific types of
financing directly to individual IFC-originated projects.

To that end, IFC management acknowledges IEG’s conclusion that mobiliza-

tion platforms are in place to channel third-party mobilization and that the
successful deployment of that mobilization capacity is only ever a function
of the pipeline that IFC generates. IFC management also acknowledges IEG’s
xxviii

conclusion that appropriate staff resourcing is an essential condition for

mobilization. IFC would highlight that financial structuring skills predom-
inate at IFC and would further note that it has created focused resources to
specifically support its major mobilization activities—syndications, Asset
Management Company (AMC), PPP, trade finance—reflecting the recogni-
tion of the need to resource “active and direct” mobilization. It also reflects
a commitment to continue to innovate and develop products to support
additional investor participation and, as noted in the report, to maintain its
market leadership.

However, IFC management believes that recommendations regarding prod-

uct development and investor engagement would have been more instruc-
tive if set in a demand-driven context, including specific consideration of the
nature of the investor and the context of the asset class. The report notes
that there is a disconnect between some IFC mobilization products and
the investment strategies of certain large investors and thus recommends
the development of products that cater to an investors existing investment
strategies and asset allocation preferences. Given that a link with an IFC
project is a necessary condition of core mobilization, taking IEG’s recom-
mendation to the extreme would thus suggest a significant change in IFC’s
investment strategy. IFC would instead suggest that the real challenge is
therefore to develop mobilization products and platforms that conform to
the regulatory and institutional requirements of different types of investors
(not just institutional capital) but that are designed to specifically enable
investors to channel financing to the types of projects financed by IFC in the

Independent Evaluation Group World Bank Group

markets in which IFC is strategically focused. Such a process would not lend
itself automatically to simplified products. In fact, IFC’s experience suggests
the opposite: that crowding new investors into new asset classes in mar-
kets that are aligned with IFC’s strategy is a complex undertaking, requiring
proactive engagement with a wide range of partners, as well as long-term
research and development. Further, IFC would note that even when the asset
class or mobilization product is already familiar, IFC plays a crucial role in
proactively channeling capital to more challenging and complex markets and
sectors. Proactive engagement is required to help investors, who have differ-
ent risk appetites, gain comfort in these markets. Whether recently through
the AMC, Green Cornerstone Bond Fund (GCBF), or Managed Co-lending
Portfolio Program (MCPP) or six decades ago starting with the B Loan, IFC
xxix
 has demonstrated its ability to customize products and pioneer platforms
that meet the needs of different types of investors and to create the con-
ditions necessary for actually delivering capital from new investors to its
clients at scale in the markets that align with IFC’s strategic priorities.

IFC management notes that IFC’s mobilization products exist within mate-
rial and sophisticated financial ecosystems with different operating regu-
lations, investment expectations, and surrounding financial infrastructure.
However, a granular review of specific asset classes and products is absent
from IEG’s analysis, which mainly provides generalized findings and ag-
gregated representations. Further, the basis of some of these findings is
not always clear and the report appears to be open to significant subjective
judgment with primary sources limited only to an internal data set that is
World Bank Group Approaches to Mobilize Private Capital for Development  Management Response

relatively narrowly drawn and a series of interviews with a small number of

market counterparts. The report takes a supply-driven approach to product
development, project origination, and country strategy fulfillment efforts
without considering market demand, exploring the external landscape of
products and investors, or providing context to specific capital flows by
mobilization product. Disaggregating by product, asset class, and type of
investor would allow for a more meaningful evaluation of IFC’s performance,
given the specific product operating environments and the relative overall
level of flows in that product to the markets in which IFC is active.

IFC management would therefore like to highlight several observations re-

lated to its debt mobilization activities.

» Institutional investors: Notwithstanding the fact that IFC works with com-
mercial banks, insurance companies, and institutional investors to mobilize
debt funding for IFC loan projects, the report’s recommendations appear to
focus significantly on potential opportunities with institutional investors.
The rationale for focusing exclusively on this specific and limited subset of
investors is not clearly articulated or explained. While scaling engagement
with institutional investors may hold some promise for expanding debt mo-
bilization by IFC and its development finance institution peers, the banking
markets continue to provide a significant source of mobilization for develop-
ment finance institution–originated loan projects. Further, data on invest-
ment flows would suggest that capital flows from institutional investors into
xxx
 emerging market loans is currently negligible in the context of their overall
holdings. In assessing the performance of and potential for IFC to mobilize
from institutional investors for emerging market loans, the report could
therefore have framed IFC’s activities against the context of overall capital
flows from that type of investor into that type of asset. Given the nascent state
of institutional investor participation in emerging market loans, IFC is there-
fore disappointed that IEG did not acknowledge the pioneering nature of this
mobilization product, which has to date raised $10 billion.

» Insurance companies: In assessing alternative sources of mobilization be-

yond the bank markets, IFC is disappointed that the evaluation did not review
IFC’s engagement with the nonpayment insurance market, a fast-growing
source of mobilization capacity. Since 2013, IFC has been actively working
with private sector insurers to mobilize unfunded risk participations, sup-
porting IFC’s ability to increase long-term lending; this is an area IFC has
scaled materially in the last few years. It is with this background that IEG’s
conclusion that “several detailed requirements that need to be filled before
such complex investment opportunities, such as unfunded risk participation
with MCPP, can be considered” seems to run contrary to demonstrable mobi-
lization activity. IFC now works with 13 different private sector insurers using
a range of different products. IFC is already operating two unfunded MCPP
facilities with $1.5 billion of capacity from three insurers and, in June 2020,
launched a third facility with 6 insurers for an additional $2 billion.

Independent Evaluation Group World Bank Group

» B Loans: IFC acknowledges IEG’s findings that the B Loan has been relevant
and that IFC debt mobilization activities have met client needs. However, the
report also incorrectly conveys some fundamental misunderstandings about
the B Loan program and IFC syndications activities. First, by its nature, the B
Loan operates to facilitate cross-border and foreign direct investment (FDI).
Although IFC undertakes other mobilization activities that clearly leverage
domestic capital and financial markets (for example, through local currency
mobilization), the B Loan is not structured as a primary platform for local
investment. IFC mobilizes local investors frequently and with great success,
but B Loans are not intended to serve this purpose. Secondly, IFC would note
that by design its syndication strategies at the individual project level focus
on most efficiently delivering to clients their required level of debt financing,
xxxi
 which may include cross-border syndicated lending, domestic bank finance or
capital market activities. IFC does not specifically consider its role in deepen-
ing the syndicated loan market per se and it is not altogether clear why any
demonstration effects should be bounded by a specific investment approach.
IFC’s mobilization activities create demonstration by supporting first-time
investors in new markets or by widening the lender groups for emerging mar-
ket borrowers. This is particularly true in the context of introducing banks,
which may be already familiar with our syndication products, to projects in
new markets particularly increasing mobilization in IDA countries or frag-
ile and conflict-affected situations (FCS). IFC would however be receptive
to engaging to better understand IEG’s analysis, evaluate the options, and
consider how further targeting the development of syndicated loan markets
World Bank Group Approaches to Mobilize Private Capital for Development  Management Response

might support country-level outcomes in the context of broader efforts to

mobilize private sector capital. However, at this stage, having been unable
to review the complete data set, IFC has some reservations about the quality
and availability of data, as well as the methodological approach and underly-
ing assumptions.

» MCPP: IFC welcomes IEG’s findings on the relevance and effectiveness of the
MCPP-SAFE (State Administration for Foreign Exchange) program with re-
spect to both investor satisfaction and client outcomes. However, the report
appears to fundamentally confuse certain aspects of IFC’s MCPP debt mo-
bilization platform. The MCPP’s portfolio syndication process, as described
and evaluated for MCPP-SAFE in the report, is consistent across all MCPP
facilities. Under this process, MCPP participants agree in advance on bor-
rower eligibility criteria and commit an envelope of capital to IFC. IFC then
deploys this capital automatically over time alongside its own commitments
to borrowers that meet the criteria—without further review or approval by
the participants. Although every MCPP facility follows the same standardized
process, each facility uses one of three unique legal and operating structures
to deliver participants’ capital to borrowers, based on the specific require-
ments of three different investor types: one each for sovereign wealth funds,
institutional investors, and insurance companies. In only one of the three
MCPP structures (MCPP Infrastructure) does IFC also make an investment
directly into the structure. In questioning the adequacy of the overall return
xxxii

profile of the MCPP, the report therefore appears to incorrectly conflate the
 entire MCPP platform with this single structure that also includes an IFC
investment. Furthermore, the conclusion itself appears to infer a threshold
condition that was never envisaged in the design of these particular projects.
IFC investment was explicitly designed and structured with a return expecta-
tion below hurdle (but with some blended finance support from the Swedish
government) to enable the participating private institutional investors to
meet their regulatory constraints, as well as to incentivize these investors to
commit capital at scale to this developmentally crucial asset class. These re-
turn expectations were disclosed to the Board upfront, and the projects were
approved on this basis. Such an approach does not seem inconsistent with
the recommendations suggested elsewhere in the report to customize mobi-
lization products to meet investor requirements or with other examples cited
by IEG. However, IFC management acknowledges that designing any addi-
tional first-loss structures will require a rebalancing of the risk-return profile
between IFC and institutional investors, and it will review lessons learned
from this initial program before contemplating further efforts in this vein.

» GCBF: The report appears to also question the scalability of the GCBF structure
that IFC established together with Amundi. Market evidence suggests that the
structure is replicable and a number of private sector partners have already
launched similar products. Further, the structure was specifically designed to
reflect the regulatory requirements of institutional capital and the underlying
assets are tradeable securities, which is entirely consistent with the primary
debt asset allocation of institutional investors. To that end, IFC management

Independent Evaluation Group World Bank Group

would be interested to understand what further requirements IEG believe
should be considered to support additional scaling of this asset class.

With respect to the sections of the IEG report referring to AMC, IFC Manage-
ment wishes to note that AMC’s business model has been validated in the
context of market demand, mobilizing $8 billion of capital from 55 high-
caliber institutional investors. Further, IFC Management has reservations
about the IEG approach and as such, the conclusions presented in the report.

» IEG approach (recycling without updates): AMC-related references in this

report are derived from a previous evaluation that took place in 2018. IFC
Management has already commented on the 2018 IEG evaluation and has
xxxiii

extensive reservations about the findings, and the comments provided at that
 time are still relevant in the context of this report. To that end, it would have
been more productive if the references from the old report were not merely
repeated in the new report. Further, IFC’s Management is disappointed that
given the significant developments since 2018, the report fails to provide an
updated context to AMC’s activities.

» IEG approach (unreasonable generalization): IFC would also note that the
2018 evaluation was a meso evaluation, a lighter, shorter evaluation ap-
proach that was conducted as part of a pilot process. This evaluation did not
cover AMC as a whole, but rather only reviewed a subset of AMC’s activities
through a study of 5 selected AMC Funds. The findings were therefore spe-
cific to the context of those funds and IFC has concerns that this evaluation
misrepresents these specific fund level findings as general conclusions on AMC
World Bank Group Approaches to Mobilize Private Capital for Development  Management Response

and IFC’s equity mobilization platform. IFC Management would highlight that
IEG’s assessment of the development impact of AMC’s funds is limited and
incomplete in this regard being drawn solely from a review of 5 out of 13
funds that AMC manages. The report does not assess, nor does it even men-
tion the remaining 8 funds in AMC’s portfolio whose development impact has
not been evaluated by IEG to date. To the best of IFC Management’s knowl-
edge, the majority of the remaining funds have met or are currently meeting
their objectives. IFC Management believes that an assessment of AMC’s full
development impact can only be drawn from a comprehensive analysis of all
AMC funds, and short of such an analysis, any conclusions are premature.

Multilateral Investment Guarantee Agency

Management Response
Multilateral Investment Guarantee Agency (MIGA) contributions to PCM.
MIGA welcomes the IEG evaluation on the Bank Group approaches to mo-
bilize private capital for development (FY07–18) and finds it useful and
important. MIGA notes the report as timely, since the “Billions to Trillions”
challenge—using the (few) billions of ODA (official development assistance)
dollars to raise trillions of private capital—is fundamental to achieving the
2030 global development agenda on SDGs. MIGA agrees broadly with the
report’s findings that all MIGA activities through its political risk insur-
xxxiv

ance (PRI) and nonhonoring of financial obligations guarantee instruments

directly mobilize private capital. Further, MIGA’s reinsurance activities
through treaty and facultative reinsurance, enhance the MIGA’s capacity
for PCM. MIGA notes that reinsurance is not, strictly speaking, PCM, as per
the agreed MDB methodology, which does not include reinsurance as either
private direct mobilization or PIM. Even so, MIGA agrees with the report’s
view that reinsurance does bring private sector participation into emerging
markets and developing economies and that MIGA’s reinsurance program is
instrumental in doing so.

Country conditions and PCM. The report finds that equity guarantees are
used most in MIGA projects, with more guarantees provided in countries
with weak scores for ease of doing business, protecting minority investor
rights, and regulatory quality. MIGA agrees with these findings and notes
that this as a broad validation of the Agency’s strategic priorities, particular-
ly because it is IDA and FCS countries that have the weakest scores for ease
of doing business, protecting minority investor rights, and regulatory quality.
These findings are also consistent with the MIGA mandate for facilitating
foreign investments into developing countries by providing PRI and non-
honoring guarantees to private sector investors and lenders against non-
commercial risks. In particular, the PRI product caters to equity investors as
they bring FDI into developing countries that has the potential to contribute
to economic growth and poverty reduction. The report’s findings related to
equity as the most-guaranteed investment type also illustrate well the con-
tinuing importance of the PRI product. MIGA also notes that based on recent

Independent Evaluation Group World Bank Group

IEG data, MIGA’s development outcome success rates (FY13–18) in IDA and
FCS countries, at 77 percent and 78 percent, respectively, are higher than the
MIGA-wide development outcome success rate of 69 percent.

MIGA also notes that the report’s findings regarding the importance of
MIGA guarantee support for PCM in weak regulatory quality environments
is consistent with the findings of the FY14 IEG evaluation of the Bank Group
support for PPPs. The PPP evaluation found that MIGA guarantees increased
investors’ confidence and effectively supported the implementation of PPPs
in those countries that were developing their PPP frameworks. MIGA guar-
antees helped increase investors’ confidence and improve their capacity to
raise capital, lower their financing costs, and mediate disputes with gov-
xxxv
 ernments. The PPP evaluation concluded that strengthening MIGA’s role
in Bank Group–wide efforts to foster PPP frameworks would enhance the
potential for bringing PPPs to more nascent and emerging countries.

MIGA’s influence on public sector clients. The report states that MIGA’s
influence on public sector clients is limited to environmental and social
compliance and practices. The report refers to the IEG evaluation on MIGA’s
nonhonoring guarantees in noting that, other than the support for better
environmental and social sustainability practices, there was no evidence that
MIGA’s nonhonoring insurance has encouraged public sector clients to adopt
increased transparency and disclosure, good corporate governance practic-
es, antimoney laundering, anticorruption, or antifraud practices. However,
MIGA notes from project evaluations validated by IEG that there is evidence
World Bank Group Approaches to Mobilize Private Capital for Development  Management Response

that MIGA has contributed to improved corporate governance, more inno-

vation, and increased knowledge transfer. MIGA also notes that the Agency
promotes transparency and disclosure through the “Summary of Proposed
Guarantee” published on MIGA’s external website (www.miga.org) prior to
projects being considered by the Board. This sends a strong signal to the
market and stakeholders with respect to transparency, which would not oth-
erwise be available without MIGA’s involvement. In addition, MIGA achieves
oversight relating to anti-money laundering, anticorruption, and fraudulent
practices through the Agency’s integrity due diligence work on guarantee
holders and project enterprises, including integrity action plans and compli-
ance reports in appropriate cases.

Challenges to MIGA guarantees. The report states that the common chal-
lenges to MIGA guarantees revolve around MIGA’s comparative position and
considerations about external debt and fiscal sustainability. With regard to
the latter concern, MIGA notes the following: (i) the extensive debt sustain-
ability work undertaken in nonhonoring guarantee projects for assessing the
ability of the beneficiary of the MIGA-guaranteed loan to service its existing
debt and the additional debt envisaged in the project; (ii) MIGA only pro-
vides nonhonoring cover to countries with strong credit ratings, thereby
mitigating ex ante providing the product to countries that are not in a strong
position to service additional external debt; (iii) ex post information on debt
servicing requirements is typically incorporated in countries’ projected debt
xxxvi
service forecasts and as such is an indicator that MIGA monitors carefully in
its quarterly review of a country’s nonhonoring credit rating; (iv) MIGA has
internal limits on the dollar value of nonhonoring exposure it can provide to
a single country, and these amounts are typically very small compared with
a country’s gross domestic product, thereby significantly limiting MIGA’s
potential contribution to a country’s debt servicing obligations and hence
potential to risk jeopardizing a country’s external debt or fiscal sustain-
ability. Moreover, under the Bank Group Cascade approach, task teams are
consistently testing—and advising countries on—whether a project is best
delivered through sustainable private sector solutions (private finance or
private delivery), and if not, whether Bank Group support for an improved
investment environment or risk mitigation measure, such as a MIGA guaran-
tee, could help achieve such solutions.

Cascade approach and PCM. The report finds that concomitant World
Bank, IFC, and MIGA interventions—including by applying the Cascade
framework—have a positive effect on PCM outcomes, based on evidence
from energy sector projects. The Bank Group joint interventions ranged from
working sequentially as a project’s derisking needs evolve to financing needs
or working concurrently as One Bank Group on upstream issues. As noted in
the report, the Bank Group will adopt a systematic organization-wide ap-
proach to creating markets by linking policy reform, advisory, investment,
and mobilization to deliver solutions packages using the Cascade approach
as the operating system for MFD. The report also finds that a “bigger and

Independent Evaluation Group World Bank Group

better” Bank Group will also support growth of MIGA mobilization products,
since the Agency supports and relies on IBRD and IFC for their work on up-
stream reforms that support private sector investments.

MIGA notes that these findings also provide a useful illustration of the Bank
Group’s vision as an integrated solutions provider for client countries, en-
visaged under the 2013 Bank Group strategy, which is important from a PCM
standpoint as well. The energy sector projects highlighted in the report illus-
trate well the unique roles of the three Bank Group (IBRD/IDA, IFC, MIGA)
institutions in the energy sector. The Bank Group has the capacity to provide
development solutions along the entire delivery chain to client countries,
xxxvii
 from upstream support for the enabling environment to downstream trans-
actions and execution, including PCM.

MIGA notes that these findings are also consistent with those of the IEG’s
FY15 electricity access evaluation, which identified MIGA’s value added in
joint Bank Group projects in the electricity sector as (i) providing long-term
PRI for high-risk countries not available from international commercial
insurers, (ii) enhancing credit worthiness of projects, and (iii) mobilizing ad-
ditional capital. Overall, MIGA provides long-term PRI for high-risk projects
and countries, which is not available from international commercial insurers.

Recommendation
xxxviii World Bank Group Approaches to Mobilize Private Capital for Development  Management Response

Recommendation 3: Develop new products and improve product align-

ment with the needs of new investor groups and partners (IFC and MIGA).

The report states the following: “Continue to innovate instruments. Global

and regional clients also seek innovative instruments to, for example, better
support local currency financing through pooled currency facilities. Certain
innovative approaches require projects to engage with credit rating agencies.
Green financing and new instruments addressing climate change require
working with international consortia, research and rating agencies, and data
providers. There is market demand for political risk guarantee solutions that
offer comprehensive coverage or support collective investment vehicles
targeting lower-middle-income and low-income countries. Such opportuni-
ties can be translated into innovative new MIGA products. Pilot approaches
using innovative instruments and better investor alignment can help scale
up PCM and improve outcomes.”

MIGA agrees broadly with the recommendation. MIGA recognizes that to de-
liver on PCM, and more broadly its FY21–23 Strategy focused on IDA or FCS
and climate finance, the Agency will need to increase its innovation and new
product applications. The market for supporting FDI is limited; FDI itself is
flat or shrinking; and MIGA already has a significant share of its addressable
market, especially in its core priority areas. The Agency is already exploring
opportunities for six product application innovations, although these will
progress at different speeds, especially in a post–COVID-19 context, and
not all may be ultimately scalable for impact. MIGA is already developing
product application innovations in the areas of capital markets, local curren-
cy, trade finance, and support for local investors. To help foster innovative
approaches, as well as to continue to grow its existing PRI and nonhonoring
product opportunities, MIGA will closely and systematically collaborate
with the World Bank and IFC, including to leverage their expanded upstream
work, which is expected to generate more investable transactions. In ad-
dition, MIGA will strengthen its partnerships and collaboration with other
MDBs, as well as export credit agencies, to offer more complementary and
comprehensive products and solutions.

Independent Evaluation Group World Bank Group

xxxix
 Referred to in this report. “Bank Group PCM instruments and platforms fall into five broad
1 

categories. They are (i) debt mobilization, (ii) equity mobilization, (iii) bond mobilization, (iv)
guarantee-linked mobilization, and (v) advisory mobilization (primarily via public-private
partnership [PPP]). . . . Both instrument approaches and platform approaches require a pipeline
of development projects.”
World Bank Group Approaches to Mobilize Private Capital for Development  Management Response
xl
Management Action Record
IEG Findings and Conclusions Country strategies can be used to discuss
private capital mobilization (PCM) opportunities and priorities, including in lower-
middle-income and low-income countries. Given the variation in the roles that
different types of private capital play in different income groups, it is important to
tailor programs to countries’ individual characteristics and target mobilization efforts
at specific types of private capital flows. In many countries, upstream sector and
policy work to support legal and regulatory reforms for financial sector deepening
remain critical to PCM and investors’ interest. Ensuring that reforms are supported
over time—including after private capital is mobilized—is essential to ensuring
sustainability of the PCM approaches, replication, and demonstration effects.
The World Bank Group needs to respond flexibly and quickly as development
opportunities arise. Furthermore, ensuring that the World Bank includes PCM
targets in its Regional and Global Practice (GP) scorecards is important for the
institution to reach its 2030 targets. The International Bank for Reconstruction and
Development (IBRD) needs to cascade PCM objectives to the Regions and Practice
Groups, with clear incentives for operational units to meet them.

IEG Recommendations Recommendation 1. To meet the 2030 PCM targets,

prioritize client countries for PCM approaches, with corresponding targets
cascading to the Regional units and GPs (for IBRD).

Acceptance by Management Disagree (IBRD). Independent Evaluation Group World Bank Group

Management Response Management does not agree with IEG’s

recommendation that “IBRD needs to cascade PCM objectives to the Regional
units and GPs, with clear incentives for operational units to meet them.” The volume
of private capital mobilized could fluctuate significantly year to year, owing to its
opportunistic nature as well as whether projects supporting country programs
are well suited for PCM efforts. The World Bank’s corporate target for PCM has
been set as an average over fiscal year (FY)19–30. Within this context, both the
target stated in the IBRD capital increase and the World Bank’s commitment to
the MFD approach has been inculcated in the Regions and Practice Groups, and
Country Partnership Frameworks are being used to discuss opportunities for
xli

private sector involvement and MFD. In relation to strengthening staff incentives,

 we acknowledge the need to continue improving the tracking system for private
indirect mobilization and to recognize private capital and other funds mobilized
along with IBRD and International Development Association (IDA) resources. That
said, it is neither practical nor advisable to cascade down the corporate target for
PCM to the Regions and the GPs owing to the nature of PCM described above;
doing so could even be counterproductive to development as it could favor one
approach over another.

IEG Findings and Conclusions a. Expand existing PCM platform approaches (in
IFC). Much of the internal narrative on PCM has been about bankability of projects,
which favors a debt approach.
World Bank Group Approaches to Mobilize Private Capital for Development  Management Action Record

However, the heterogeneity of clients and investor constituencies suggests that

a strong pipeline of investable and insurable projects is required to expand the
scope and scale of current PCM approaches, including IFC platforms such as the
Asset Management Company (AMC), the Managed Co-lending Portfolio Program
(MCPP), and the GCBF. For example, the insurance industry has the capacity to
fund long-term infrastructure projects (given the asset-liability match) and support
green initiatives.

Private capital raised through the AMC or the MCPP platforms meets the
necessary condition to mobilize private capital. However, the necessary condition
is met only when a healthy pipeline of projects is developed in proportion to
the private capital raised in the form of funds and those projects achieve their
development outcomes.

b. Expand PCM approaches to support policy reforms and disaster risk

financing, leveraging Treasury and advisory capabilities (in IBRD). For IBRD,
guarantees have been the primary instrument for PCM. There is room for them
to grow, especially instruments tied to client reforms. World Bank disaster risk
management products and programmatic PPP solutions are experiencing a
renewed demand and could be scaled up with support from the World Bank
Treasury and Infrastructure, Public-Private Partnerships, and Guarantees units.

IEG Recommendations Recommendation 2. Expand PCM platforms,

guarantees, and disaster risk management products commensurate with project
pipeline development (Bank Group).
xlii
Acceptance by Management Agree (IFC); Agree (IBRD).

Management Response IFC response. IFC management acknowledges

IEG’s conclusion that mobilization platforms are in place to channel third-party
mobilization and that the successful deployment of that mobilization capacity
is a function of the pipeline that IFC generates. Whether recently through the
Asset Management Company (AMC), the Green Cornerstone Bond Fund (GCBF),
or the MCPP or six decades ago starting with the B Loan, IFC has demonstrated
its ability to customize products and pioneer platforms that meet the needs of
different types of investors and to create the conditions necessary for actually
delivering capital from new investors to its clients at scale.

IBRD response. World Bank management agrees that it is beneficial to

consider enhancements to the PCM platforms. However, it is not clear how IEG
has identified and defines “room to grow” when referring to the use of these
instruments and platforms as the statement is general and not contextualized.
Nonetheless, the World Bank has consistently demonstrated appropriate and
informed use of the PCM platforms to effectively and efficiently address client
needs. Efforts have already been made in response to the coronavirus pandemic
(COVID-19), and medium term and sustainable options have been considered. One
such example is use of the disaster risk management product. The Bank Group
has learned that after a disaster, quick access to predictable financing is critical for
emergency response, as even small delays may cost lives and livelihoods. This is
how the World Bank’s development policy financing with catastrophic deferred

Independent Evaluation Group World Bank Group

drawdown option (Cat DDO) instrument was developed. In FY20, Cat DDOs were
triggered in eight countries, providing over $1.2 billion in immediate financing for
countries responding to COVID-19. Another example is public-private partnership
(PPP) arrangements. To provide governments with strategic short-term advice on
the impacts of the pandemic, the Public-Private Infrastructure Advisory Facility, in
collaboration with the World Bank’s Infrastructure Finance, PPP, and Guarantees
Group, established a rapid response program. Phase 1 has already been deployed.
Through this program, national PPP units, ministries of finance, sector ministries,
and utilities can request short interventions of remote, targeted technical advice to
undertake a fast assessment of the impact of COVID-19 on their PPP programs. It is
important to note that these efforts and the manner in which they were structured
was in response to demonstrated need and based on in-depth knowledge of
xliii
 the specific markets and institutional contexts for which they were designed.
Expansion of these products in response to critical need was achieved through
innovation, selectivity, and coordination. Management will therefore encourage the
most effective and appropriate use of available PCM products and platforms to
address client needs.

IEG Findings and Conclusions

» Simplify products for most institutional investors. Although IFC has devel-
oped complex instruments and platforms to mobilize private capital, it has not fully
developed its approach to institutional investors. To engage with institutional inves-
tors, IFC needs to accept their investment objectives, project parameters, deci-
World Bank Group Approaches to Mobilize Private Capital for Development  Management Action Record

sion-making processes, and industry best practices. These may stand in contrast
to those on which IFC has achieved the current platform deals with the MCPP and
the GCBF. Most institutional investors lack the capacity to work with complex Bank
Group instruments and platforms and develop custom portfolios. Simpler products
with solutions comparable to their existing portfolios but with exposure to emerging
markets and developing economies are relevant to these investors.

» Maintain leadership in products for sophisticated investors. A small group of

sophisticated investors prefers complex products, such as securitization of emerging
market and developing economies projects. Hence, scaling up Bank Group PCM
operations requires making trade-off decisions within and across the various instru-
ments and platforms. IFC can continue to maintain its leadership in this space if it
staffs and resources these platforms appropriately, for example, by adding IFC advi-
sory services offerings to increase capacity and knowledge in new emerging markets
and developing economies issuers.

» Continue to innovate instruments. Global and regional clients also seek inno-
vative instruments, for example, to better support local currency financing through
pooled currency facilities. Certain innovative approaches require projects to engage
with credit rating agencies. Green financing and new instruments addressing climate
change require working with international consortia, research and rating agencies,
and data providers. There is market demand for political risk guarantee solutions that
offer comprehensive coverage or support collective investment vehicles targeting
lower-middle-income and low-income countries. Such opportunities can be translat-
ed into innovative new MIGA products. Pilot approaches using innovative instruments
xliv

and better investor alignment can help scale up PCM and improve outcomes.
 » Conduct regular reviews. Risk assessments of each instrument and platform,
analyzing implications for the three institutions’ balance sheets and determining the
corresponding financial needs, are required before scaling up. PCM instruments and
platforms’ alignment with investors’ risk appetite, internal capacity, and engagements
over time need to be reviewed, as they are for client countries and client corporates.

IEG Recommendations Recommendation 3. Develop new products and

improve product alignment with the needs of new investor groups and partners
(for IFC and MIGA).

Acceptance by Management Partially Agree (IFC); Agree (MIGA).

Management Response IFC response. Recommendations with regard to

product development and investor engagement would have been more instructive
if set in a demand-driven context, including specific consideration of the nature of
the investor and the context of the asset class. The rationale for recommendations
focusing exclusively on institutional investors is not clearly articulated or explained,
nor is there any definition provided to help segment different forms of institutional
capital (there is no definition of a “sophisticated investor” or what it means to “prefer
complex products”).

IFC suggests that the challenge is not to develop “simpler products with solutions
comparable to their existing portfolios” but to create mobilization products that
are designed to specifically enable investors to channel financing to the types of

Independent Evaluation Group World Bank Group

projects financed by IFC and to provide comfort to enable greater investment in the
markets in which IFC is strategically focused. Such a process would not lend itself
automatically to simplified products. In fact, IFC’s experience suggests the opposite:
that crowding new investors into new asset classes in markets that are aligned with
IFC’s strategy is a complex undertaking, requiring proactive engagement with a wide
range of partners and long-term research and development.

Finally, IFC management acknowledges IEG’s conclusion that appropriate staff

resourcing is an essential condition for mobilization. IFC emphasizes that financial
structuring skills predominate at IFC and would further note that it has created
focused resources to specifically support its major mobilization activities. It also
reflects a commitment to continue to innovate and develop products to support
additional investor participation and maintain its market leadership.
xlv
 MIGA response. MIGA agrees broadly with the recommendation. MIGA recognizes
that to deliver on PCM, and more broadly its FY21–23 strategy focused on IDA
countries or fragile and conflict-affected situations and climate finance, the Agency
will need to increase its innovation and new product applications. The market for
supporting foreign direct investment is limited—foreign direct investment itself
is flat or shrinking—and MIGA already has a significant share of its addressable
market, especially in its core priority areas. The Agency is already exploring
opportunities for six product application innovations, although these will progress
at different speeds, especially in a post–COVID-19 context, and not all may be
ultimately scalable for impact. MIGA is already developing product application
innovations in the areas of capital markets, local currency, trade finance, and
World Bank Group Approaches to Mobilize Private Capital for Development  Management Action Record

support for local investors. To help foster innovative approaches, as well as to

continue to grow its existing PRI and nonhonoring product opportunities, MIGA
will closely and systematically collaborate with the World Bank and IFC, including
to leverage their expanded upstream work, which is expected to generate more
investable transactions. In addition, MIGA will strengthen its partnerships and
collaboration with other MDBs, as well as export credit agencies, to offer more
complementary and comprehensive products and solutions.
xlvi
Report to the Board from the
Committee on Development
Effectiveness
The Committee on Development Effectiveness met to consider the report
entitled World Bank Group Approaches to Mobilize Private Capital for Develop-
ment and the draft management response.

The committee welcomed the evaluation, commending the Independent

Evaluation Group (IEG) for the diagnostic, methodology, comprehensiveness,
and quality of the report. Members noted the relevance and timeliness of the
topic given the context of discussions on the Forward Look and capital pack-
age implementation and the challenges posed by the coronavirus pandemic
on external financial flows toward developing countries. Acknowledging
members’ concern on management’s disagreement and partial agreement
on the recommendations, IEG and management agreed to engage to under-
stand management’s challenges, present the case more clearly, and ensure
ownership of the recommendations. Members asked for regular updates to
the Board of Executive Directors, with the chair suggesting an update to the
Board in 4 to 6 months, subject to the Bank Group’s management readiness.
Members acknowledged that the new Management Action Record process

Independent Evaluation Group World Bank Group

would also serve as a platform for the Board to learn the progress made to-
ward implementing the recommendations.

Although encouraged to learn that the Bank Group’s approaches were rele-
vant and mostly effective in meeting the expectations and priorities of client
countries and investors, members acknowledged room for improvement.
They called for the World Bank to give greater priority to scale up its pri-
vate capital mobilization (PCM) efforts and the Cascade approach, with the
objective of meeting the capital package commitments, and to help client
countries advance toward meeting the Sustainable Development Goals. Man-
agement noted IEG’s findings that the International Bank for Reconstruction
and Development can realistically meet its corporate target of a 25 percent
xlvii
 mobilization ratio on average by 2030 and that management is committed
to meeting that goal. Noting management’s explanations on how decentral-
World Bank Group Approaches to Mobilize Private Capital for Development  Report to the Board from the Committee on Development Effectiveness

ization and training opportunities for Country Management Units could help
advance the PCM agenda, members highlighted the need to differentiate by
sector and by country, with some encouraging a move toward International
Development Association countries and greater attention paid to domestic
PCM and local capacity building.

Members agreed with the recommendation on testing pilot instruments

and encouraged management to come up with innovative approaches and
instruments to extend the reach and impact of development finance. They
underscored the importance of Country Private Sector Diagnostics to cre-
ate a more positive environment for cascading PCM targets and suggested
enhancing cooperation among the Bank Group institutions. Acknowledging
management’s remarks on the relevance of collaborating with other multi-
lateral development banks to create the right markets, members asked for
clarifications on differences in measurement, challenges to improving the
collaboration, and whether the presence of bilateral development finance
institutions improved project performance. Members looked forward to
the future evaluation on the catalyzation approach to capital mobilization,
which will complement this evaluation.

Members were pleased to learn about the International Finance Corporation

exceeding its core mobilization targets and meeting client expectations.
They agreed with IEG’s recommendation that the positive results could be
consolidated by improving product alignment with investors’ needs, while
maintaining goals, procedures, and environmental and social standards.
Members acknowledged management’s explanations that the International
Finance Corporations efforts need to be calibrated and delivered within the
specific regulatory and operating environment of different asset classes and
investor groups and that such efforts and further product development are
not a simple process.
xlviii
1 | Background and Context
Why Does Private Capital
Mobilization Matter?
Private capital is critical for achieving the 2030 Sustainable Development
Goals (SDGs). The Sustainable Development Agenda requires financing on
a massive scale. Private capital mobilization (PCM) is critical for SDGs such
as affordable and clean energy, financial inclusion, zero hunger, decent work
and economic growth, industry, innovation and infrastructure, and climate
action. Action on climate change requires private investment to heighten
efficiency, reduce externalities, and expand domestic and foreign partners
(SDG 17). In 2015, the multilateral development banks (MDBs) committed to
leveraging the current “billions” of development finance to “attract, lever-
age, and mobilize ‘trillions’ in investments of all kinds: public and private,
national and global, in both capital and capacity,” particularly for infrastruc-
ture (World Bank Group 2015). Consequently, the MDBs aspire to tap into
more private sector investment. Although the largest supply of development
resources remains domestic public spending, the greatest potential for ex-
pansion or scaling up lies with private finance and engaging private business
in the development process (box 1.1). 1
 Box 1.1. M
 ultilateral Development Bank Strategy for Billions to Tril-
lions—Multilateral Development Bank Contributions

Figure B1.1. M
 ultilateral Development Bank Strategy for Billions
to Trillions

Paid�in capital subscriptions,

g
gin

ODA contributions, and grants

Capital from shareholders
era
ev
lL
cia

Retained earnings Equity Increase resources

an

increase equity
available for
Fin

development financing
Bonds and Investments

Financing for Development

Grants Loans Guarantees

Concession Equity
Loans Investments
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 1

Development Investments

Roads

Energy
Increase Domestic Increase Private Finance
Resources Education
MDBs increase available
MDBs help countries Agriculture flows by mobilizing private
improve tax systems and sector investment
spending, increasing Health
available resources and etc.
development impact

Development “Returns”

Source: World Bank Group 2015, 3.

“Drawing in private sector business and investment will be key to reaching the trillions
needed to achieve the SDGs [Sustainable Development Goals]. At the interface of the
public and private sectors, we are ready to play a catalytic role to unlock the potential
of private finance.

“By design, MDB [multilateral development bank] private sector operations leverage
other sources of finance, particularly private sector co-investment. MDBs generally
finance only a share of total project cost, mobilizing additional investors through syndi-
cations and other pooled funding structures. This finance, along with the accompanying

(continued)
2
 Box 1.1. M
 ultilateral Development Bank Strategy for Billions to Tril-
lions—Multilateral Development Bank Contributions (continued)

structuring, advice and risk mitigation, helps crowd in additional project finance. When
MDBs invest in new areas or in high-risk environments there is an important demon-
stration effect that can lead to additional projects and new investors.”

Source: World Bank Group 2015, 5.

Note: MDB = multilateral development bank; ODA = official development assistance.

Global investor priorities and official development assistance (ODA) flows

vary significantly within World Bank Group client countries. ODA has re-
mained prominent for low-income countries (LICs) in recent years, whereas
middle-income countries have increased their reliance on foreign direct
investment (FDI) and portfolio flows from global investors. ODA to mid-
dle-income countries and LICs is about $150 billion yearly, or 0.3 percent of
gross national income (OECD data). It has stagnated over the past decade at
about 11 percent of external finance for middle-income countries and LICs.
For LICs, however, ODA is the most significant source of external finance (36
percent). Remittances are becoming an increasingly important component of
external finance for developing economies, even more so for LICs. In con-
trast, debt-related flows and portfolio investments are highly volatile. The
latter play a smaller role in LICs, where capital markets are relatively less de-

Independent Evaluation Group World Bank Group

veloped. FDI and portfolio investments (and loans, to an extent) contribute
to the development of the productive capacity of the economy. On average
for the five years 2013–17, external finance equaled 6 percent of gross do-
mestic product (GDP) in middle-income countries and LICs, of which FDI
was 2.3 percent, portfolio investments were 1.1 percent, loans were 0.5 per-
cent, remittances were 1.4 percent, and ODA was 0.6 percent of GDP. In LICs,
external finance equaled 12.4 percent of GDP, of which FDI was 2.6 percent,
portfolio investments were 0.1 percent, loans were 1.8 percent, remittances
were 3.4 percent, and ODA was 4.5 percent of GDP.

Current PCM levels fall far short of the commitments needed to achieve
the SDGs, and the MDBs collectively need to do better. In 2018, MDBs and
3
 European development finance institutions (DFIs) mobilized $69.4 billion
in private long-term finance for low- and middle-income countries. This is
far short of the $2–3 trillion a year necessary to achieve the SDGs. Moreover,
less than half of the amount mobilized in 2018 ($33.1 billion) was for SDG
infrastructure (including power, water, transportation, telecommunications,
information technology, and social infrastructure such as schools and hos-
pitals), which need PCM the most. The rest was mobilized to support finan-
cial inclusion, agribusiness, and manufacturing services. The Bank Group
remains one of the largest contributors to PCM toward SDGs, with about
$32 billion mobilized in low- and middle-income countries in 2018.

The value proposition of PCM can be viewed from the perspectives of four
types of stakeholders: developing countries, investee companies, investors,
and the Bank Group. By channeling investors’ capital to developing coun-
tries, PCM helps diversify their funding sources, increasing the number and
size of projects that contribute to improving development outcomes and to
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 1

achieving the SDGs (for example, increased access to electricity or finance).

Investee companies get access to finance for larger projects and meet more
stringent governance requirements. PCM instruments and platforms provide
investors with unique pipelines of projects in emerging markets and devel-
oping economies (EMDEs) to which they might not otherwise have access.
Finally, PCM generates income for the Bank Group and saves Bank Group
financial resources to channel to sectors that are less likely to attract private
investment (for example, social sectors).

The Bank Group’s PCM Approaches

The Bank Group and its development partners have adopted a PCM frame-
work and methodology to leverage the private sector more. Maximizing
Finance for Development (MFD), announced in 2017, aims to help countries
attract capital for national financing strategies (World Bank Group 2017). It
builds on Bank Group experiences in working with clients to crowd in the
private sector without pushing the public sector into unsustainable debt and
contingent liabilities.1 This entails pursuing private sector solutions where
they can help achieve development goals and reserving scarce public finance
for where it is most needed. This approach builds on the principles of the
4
2017 Principles of MDBs’ Strategy for Crowding-In Private Sector Finance for
Growth and Sustainable Development (the “Hamburg Principles”) and the Joint
MDB Statement of Ambitions for Crowding in Private Finance. These docu-
ments committed MDBs to collectively increase the private financing mobi-
lized by 25–35 percent by 2020.

The Bank Group adopted specific targets for PCM and a systematic organi-
zation-wide solutions approach for the MFD agenda. The Group of Twenty
(G-20) target is to increase PCM volume to $6.3 billion for the Interna-
tional Bank for Reconstruction and Development (IBRD) and to $10.1 bil-
lion for International Finance Corporation (IFC) by 2020. As part of the
2018 capital increase package, the Bank Group also committed to increas-
ing the mobilization ratios of IBRD and IFC to 25 percent and 80 percent,
respectively, on average over the 2020–30 period (World Bank Group
2018). For IBRD, this reflects PCM, but for IFC, it is based on core mobili-
zation, which also includes a significant component of public sector fund-
ing on commercial terms (including from other MDBs). IBRD measures
PCM at the Board of Executive Directors approval stage, and IFC measures
core mobilization and PCM achievements at the time of commitment from
project sponsors and investors. A “bigger and better” Bank Group will also
support growth of mobilization products from the Multilateral Invest-
ment Guarantee Agency (MIGA) because MIGA relies on IBRD and IFC for
support of upstream reforms that encourage private sector investments.
Furthermore, the Bank Group will adopt a systematic organization-wide

Independent Evaluation Group World Bank Group

approach to creating markets by linking policy reform, advisory, invest-
ment, and mobilization to deliver solutions packages using the Cascade
approach as the operating system for MFD.2 The aim is to maximize the
finance available for development through convening, risk reduction, and
capital market development.

The Bank Group mobilizes short-term and long-term private capital through
two approaches. One is by working with clients, investors, and partners. The
other is by deploying mobilization instruments and platforms. Bank Group
instruments typically enable a monetary contract between two parties (that
is, the lender and the borrower). Bank Group platforms attract advanced
commitments from lenders and investors first and subsequently channel
them to development projects as the projects are prepared.
5
 The Bank Group works with clients, investors, and partners in various ways.
For example, the World Bank advises client countries and crowds in private
capital from commercial banks, strategic investors, and bond investors. IFC
manages syndicates of domestic and foreign commercial banks, nonfinancial
development institutions, DFIs, MDBs, sovereign wealth funds, and institu-
tional investors through each of its syndicated loan products and platforms.
MIGA, in addition to providing guarantees, collaborates with a network
of industry partners who reinsure portions of MIGA’s exposure to projects
meeting established criteria. This helps rebalance its portfolio. The Bank
Group adds value during client and investor engagements through, for exam-
ple, requiring that clients put in place environmental and social frameworks
and corporate governance frameworks that could positively influence project
outcomes. The Bank Group also cofinances projects with other development
partners like the regional development banks and European DFIs. Bank
Group staff skills and incentives are important to working effectively with
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 1

clients, investors, and partners.

Bank Group PCM instruments and platforms fall into five broad categories.
They are (i) debt mobilization, (ii) equity mobilization, (iii) bond mobili-
zation, (iv) guarantee-linked mobilization, and (v) advisory mobilization
(primarily via public-private partnership [PPP]). In addition, IFC directly
mobilizes short-term private capital via several facilities and collective
investment vehicles to provide liquidity support in areas like trade finance,
distressed asset recovery, microfinance institutions, and critical commodity
financing. Both instrument approaches and platform approaches require a
pipeline of development projects. A given project will involve some or all of
these mechanisms (table 1.1).
6
Table 1.1. E
 xamples of Private Capital Mobilization Instruments and Platforms

Debt Bonds

Debt Local currency-linked

syndications MCPP Green Bond Fund bonds Thematic bonds
Madagascar airport: Various co-lending Turkey, India, and China Green Rwanda Umuganda bond: SSA Pandemic Emergency
IFC mobilizes initiatives: IFC (i) mo- Bonds: IFC-Amundi Green Bond IFC Treasury issues Rwanda Facility: World Bank Treasury
private debt capital bilizes private capital Fund mobilizes $2 billion of Umuganda bond in 2014 launches Pandemic Emergency
from commercial from institutional private capital from institutional and it is listed on the Rwan- Facility to mobilize $325 million
banks (through the investors to invest investors to invest in emerging da Stock Exchange, attract- of private capital from bond
B Loan Program) passively through market sovereign or subsovereign ing institutional investors, investors, asset managers, and
and DFIs (through a dedicated trust green bond issuances in Turkey, regional banks, domestic pension funds to channel to
the Parallel Loan fund (MCPP-SAFE), India, and China. commercial banks, and projects in SSA.
Program) in addition (ii) provides credit Rwandan investors.
to its own direct enhancement through
lending for an first-loss coverage
airport project in on a portfolio of
Madagascar. infrastructure sector
projects (MCPP-Infra),
and (iii) uses unfunded
structures to provide
IFC with credit insur-
ance or risk guaran-
tees (MCPP-financial
institutions).

continued

7 Independent Evaluation Group World Bank Group

8 World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 1

Table 1.1. E
 xamples of Private Capital Mobilization Instruments and Platforms (continued)

Guarantees Short-Term
Equity and Insurance Advisory Facilities

DARP, MEF,
Equity Trade and ICF, and
syndications AMC PRI Nonhonoring PPP, upstream structured CCFP
Bangladesh power: Financial Institutions West Africa Panama mass Latin America transport Onlending: Access to
IFC mobilizes Group Fund: IFC AMC energy: MIGA transit: MIGA PPPs: World Bank Group IFC provides finance for dis�
equity capital from mobilizes institutional provides PRI provides credit advises clients in Latin trade finance tressed assets:
investors and MDBs investors to emerging cover, and the enhancement America on reforms and liquidity and IFC provides
to invest in Ban- market investments World Bank cover to con- to identify operators and structures liquidity through
gladesh’s electric through a private provides par- struct a modern investors in PPP initiatives in risk-sharing short-term fa-
power generation equity fund structure tial risk guar- and integrated transport. facilities to cilities targeting
company. to invest in financial antee to help mass transit sys- allow client microfinance,
institutions (Financial clients attract tem in Panama. institutions pre-export
Institutions Growth investors to onlend to Bank facilities in
fund) or in emerg- to the West beneficiaries. Latin America
ing Asian countries Africa energy and Africa.
across various sectors. sector.
(Emerging Asia Fund).

Note: Certain AMC funds can also invest in senior debt and subdebt instruments in addition to equity and quasi-equity instruments. Syndications include parallel
loans. AMC = Asset Management Company; CCFP = Critical Commodities Finance program; DARP = Distressed Assets Recovery Program; DFI = development finance
institution; ICF = Infrastructure Crisis Facility; IFC = International Finance Corporation; MCPP = Managed Co-lending Portfolio Program; MDB = multilateral development
bank; MEF = Microfinance Enhancement Facility; MIGA = Multilateral Investment Guarantee Agency; PPP = public-private partnership; PRI = political risk insurance; SAFE
= State Administration for Foreign Exchange; SSA = Sub-Saharan Africa.
The Bank Group differentiates between private direct mobilization and
private indirect mobilization. Private direct mobilization (solid lines in
figure 1.1) refers to financing from private entities on commercial terms
because of the active and direct involvement of an MDB leading to commit-
ment, not including sponsor financing. For example, the World Bank’s efforts
to directly mobilize private capital through IBRD and International Develop-
ment Association (IDA) guarantees (table 1.1) play important roles in elicit-
ing political will to support development interventions. IFC directly mobiliz-
es short-term private capital via several facilities and collective investment
vehicles to provide liquidity support in areas like trade finance, distressed
asset recovery, microfinance institutions, and commodity financing. All
MIGA activities through its political risk insurance and nonhonoring of
financial obligations guarantee instruments directly mobilize private capital.
Private indirect mobilization (dashed lines in figure 1.1) refers to financing
from private entities made available in connection with a specific activity for
which an MDB is providing financing but where no MDB is playing an active
or direct role that leads to the commitment of the private entity’s finance.
Private indirect mobilization includes IFC project sponsor financing, World
Bank investment lending, and other interventions. A PCM operation may
mix direct and indirect mobilization.

A PCM operation may mix on–balance sheet and off–balance sheet funding.
Traditional World Bank lending projects use financing from selling AAA-rat-
ed bonds to institutional investors (dotted box in figure 1.1). These non-PCM

Independent Evaluation Group World Bank Group

funds flow through the World Bank’s balance sheet. PCM funding (dashed
and solid boxes in figure 1.1), by contrast, does not flow onto the Bank Group
balance sheet and is channeled directly to project financing. Balance sheet–
only mobilization activity through issuances of IBRD or IFC bonds is not
treated as PCM.
9
 Figure 1.1. Stylized Hypothetical Private Capital Mobilization Project

Project
Financing

Financing

Financing
Equity

Equity
Debt

ASA Activities, etc.

IPF Operations

Institutional
Investors

Non�PCM
Managed Fund
B Loan

Investors
Domestic

Sponsors
IFC AMC

Private

Private Indirect Mobilization

AAA�Rated Bond Insurance
Limited

Rated Bond Proceeds

Partner
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 1

Debt Financing

Private Direct Mobilization

Agreement
Indemnity
Syndication
Agreement

Guarantee

Guarantee

Government
Commercial
Banks

Source: Independent Evaluation Group.

Note: The figure shows a stylized depiction of non-PCM flows (dotted lines), private direct mobiliza-

tion flows (solid lines), and private indirect mobilization flows (dashed lines) for a hypothetical project.

Many other structures are possible. AMC = Asset Management Company; ASA = advisory services and

analytics; IFC = International Finance Corporation; IPF = investment project financing; MIGA = Multilateral
10

Investment Guarantee Agency; PCM = private capital mobilization.

What Is Catalyzation of Private Capital?
Catalyzation is different from mobilization. Some initiatives that increase the
availability of private capital for development are not treated as private capital
mobilized because they do not involve a mandate letter from a specific client
or fees paid or involve financing from any part of the Bank Group. (That is, the
client has no active or direct role leveraging its loan or equity investment.) The
Bank Group, for example, may catalyze private investment through advisory
work or development policy loans that support policy reforms—including cap-
ital market and other enabling environment reforms to open up markets (for
example, changes to investment codes or changes to competition policy and
state aid legislation)—to improve countries’ governance frameworks and prac-
tices and public sector investments that are complementary to private capital
flows. The Bank Group also develops custom financial instruments, allowing
investors to invest in EMDEs and integrate environmental, social, and gover-
nance criteria into their investment decisions. These entry points for investors
can include advanced commitments in a platform approach and deal-by-deal
commitments in an instrument approach. Some examples include IDA-issued
bonds and the Global Infrastructure Facility. Such catalytic activities (also
known as private investment catalyzed) make important contributions to the
Financing for Development agenda and are the principal way by which the
World Bank contributes to flows of private capital to client countries.

The Bank Group’s convening role contributes to private investment catalyza-

Independent Evaluation Group World Bank Group

tion. The Bank Group has multifaceted partnerships with MDBs, internation-
al financial institutions, the Global Infrastructure Forum, knowledge plat-
forms (Massive Open Online Courses on Financing for Development), and
interagency task forces. The Bank Group shapes the policy agenda on private
investment catalyzation through its leadership role, active contributions to
these global partnerships, and client engagements. This evaluation acknowl-
edges the contributions of the Bank Group’s policy reform efforts but focus-
es primarily on the World Bank’s PCM efforts. An Independent Evaluation
Group (IEG) review of Bank Group catalyzation efforts is planned in fiscal
year (FY)22.
11
 Evaluation Scope and Methodology
This evaluation assesses how relevant and effective the Bank Group has been
at channeling private capital for development, the factors that have driven
results, and opportunities for scalability. It starts by reviewing Bank Group
progress in meeting its PCM targets. It then reviews the relevance and effec-
tiveness of PCM projects and instruments and assesses their links to country
outcomes. Next, it identifies drivers of results and constraints on PCM. Fi-
nally, it gauges the potential for PCM growth and provides recommendations
for the future. The evaluation is based on the Bank Group’s PCM activities
between 2007 and 2018.

The evaluation applied three methodological techniques to assess how

relevant and effective the Bank Group has been at channeling private capital
for development and how scalable the PCM approaches are. The techniques
were (i) portfolio review and analysis, (ii) econometric analysis, and (iii)
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 1

country cases. This evaluation focuses on mobilization activities that require

the Bank Group to play a direct role, with a contractual mandate from the
client to attract private capital into projects. In certain country cases, this
evaluation analyzed the links between catalytic activities and mobilization.
This evaluation used a multilevel framework and benchmarking techniques
for review and analysis of PCM approaches. The evaluation covered three
main levels of data collection and analysis: (i) the global level (including the
total portfolio of selected mobilization approaches: 129 World Bank projects,
939 IFC projects, and 314 MIGA projects), (ii) the level of selected countries
(12) using country cases and efficient frontier analysis, and (iii) selected mo-
bilization approaches in client countries. The evaluation analyzed the PCM
instrument level or platform level using industry benchmarking methods.

The Bank Group conducted 1,391 PCM operations during the evaluation pe-
riod. Of these, the evaluation reviewed 345 projects in depth (table 1.2). The
sample was selected with the aim of building the evidence base across the five
types of PCM approaches. The World Bank PCM portfolio included investment
project financing, guarantees, Program-for-Results, and Treasury operations
(currently not accounted for by the World Bank in its PCM calculations; ta-
ble 1.3). Appendix A provides detailed methodological information.
12
Table 1.2. P
 ortfolio Review and Analysis Details, Evaluated and Validated
by the Independent Evaluation Group
(number of projects)

Coded and
PCM PCM Non-PCM Validated for
a b
Institution Portfolio Projects Projects PRAc
IBRD/IDA 129 12 1,713 36
IFC AS 134 97 0 12
IFC IS 805 95 509 241
MIGA 314 92 0 54
Total 1,391 296 2,222 345

Source: Independent Evaluation Group Datamart (for IBRD/IDA projects), Project Completion Report

Self and Independent Evaluation Group Rating (for IFC AS projects), and Expanded Project Supervision

Report database (for IFC IS projects).

Note: AS = advisory services; IBRD = International Bank for Reconstruction and Development; IDA =

International Development Association; IFC = International Finance Corporation; IS = investment services;

MIGA = Multilateral Investment Guarantee Agency; PCM = private capital mobilization; PRA = portfolio

review and analysis.

a. All IFC AS public-private partnership projects and MIGA projects are included in the PCM portfolio. No

direct financial commitment is expected from IFC AS.

b. Projects reviewed through the Independent Evaluation Group’s microevaluation program.

Independent Evaluation Group World Bank Group

c. Projects reviewed in depth for the purposes of this evaluation.

This evaluation is part of a thematic IEG evaluation series that examines

MFD, focusing on PCM approaches and Bank Group contributions to the
SDG financing agenda. Accountability for learning from PCM approaches is
critical for the Bank Group in achieving its MFD goals and capital increase
targets. This evaluation complements and builds on previous IEG reviews,
most notably reviews on Bank Group policy-based guarantee (PBG) instru-
ments, the IFC Asset Management Company (AMC), joint Bank Group proj-
ects, capital markets, PPPs, and MIGA nonhonoring guarantees.
13
 Table 1.3. W
 orld Bank Private Capital Mobilization Projects, Distribution
by Type, FY07–18

Projects
Instrument (no.) (%)
Investment project financing 61 47.29
Guarantees 41 31.78
IFFI bond 15 11.63
Natural catastrophe bond 5 3.88
Natural catastrophe risk pool 1 0.78
Pandemic global risk pool 1 0.78
Program-for-Results 3 2.33
Weather derivative product 2 1.55
Total 129 100

Source: Independent Evaluation Group portfolio review and analysis of World Bank approved projects,

2007–18.

Note: FY = fiscal year; IFFI = International Finance Facility for Immunisation Company.
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 1
14
1
The term “clients” in this report refers in most cases to governments or client countries. How-
ever, in some cases, it refers to private entities that are clients of International Finance Cor-
poration (IFC) or the Multilateral Investment Guarantee Agency (MIGA). If a particular section
or paragraph is specific to the World Bank, “clients” refers only to country clients; the capital
providers are referred to as “investors.” For IFC, the clients are private sector borrowers and
sponsors. For MIGA, the clients are the guarantee holders.

2 
Cascade framework: The Cascade recommends that reforms be tried first, followed by subsi-
dies and then public investments in the following sequence: “When a project is presented, ask:
‘Is there a sustainable private sector solution that limits public debt and contingent liabilities?’
If the answer is ‘Yes’—promote such private solutions. If the answer is ‘No’—ask whether it is
because of: (i) policy or regulatory gaps or weakness? If so, provide Bank Group support for
policy and regulatory reforms; (ii) risks? If so, assess the risks and see whether Bank Group
instruments can address them. If you conclude that the project requires public funding, pursue
that option” (World Bank 2017, 2).

Independent Evaluation Group World Bank Group

15
 2 | Did PCM Approaches
Deliver?

This chapter describes the extent to which PCM approaches deliver results
and analyzes factors that drive success. It assesses whether the Bank Group
has met its PCM targets per commitments made to the G-20 and its share-
holders. It then describes the extent to which PCM approaches delivered
results for its clients. The assessment of results has two aspects:

» Relevance to clients, investors, and financing partners. Relevance is assessed

in terms of the extent to which PCM approaches were aligned with client pri-
orities (for example, in the country strategies or corporate clients’ financing
objectives) and the extent to which instruments and platforms were deployed
in accordance with investors and partner considerations.

» Effectiveness of PCM approaches reflected in projects. Effectiveness is as-

sessed in terms of the extent to which PCM approaches led to increased ser-
vice delivery to clients, repeat transactions with clients, expanded projects,
repeat engagements with investors and partners, demonstration effects in
other clients and institutions, and meeting of industry benchmarks in terms
of investment returns.

PCM Targets
To increase PCM, the Bank Group adopted both G-20 commitments and cor-
porate targets. Table 2.1 summarizes the Bank Group targets committed to
the G-20 and to corporate shareholders as part of the 2018 capital increase
package (World Bank Group 2017, 2018).1 The G-20 target for IBRD is to
increase PCM volume to $6.3 billion by 2020. The G-20 target for IFC is to in-
crease PCM volume to $10.1 billion by 2020 (table 2.1). The corporate target
for IBRD is a PCM mobilization ratio of 25 percent by 2020, sustained until
2030. The corporate target for IFC is a core mobilization ratio of 80 percent
16  

by 2020, sustained until 2030.

Table 2.1. P
 rivate Capital Mobilization Levels and Targets
by Bank Group Institution

Volume Mobilization Ratioa

($, billions) (%)

2017 2020 G-20 2017 2020–30 corporate

Institution level target ratio target ratio
IFC 7.5 10.1 63 80
World Bank 5.9 6.3 15 25 (for IBRD)

Source: Multilateral development bank report to the G-20, Bank Group Capital Increase Package Proposal.

Note: G-20 = Group of Twenty; IBRD = International Bank for Reconstruction and Development; IFC =

International Finance Corporation. G-20 private capital mobilization targets are at the Bank Group level.

a. Measured as private capital mobilization for IBRD and core mobilization (private and public capital

mobilization) for IFC. (See Key Concepts, page x).

IBRD progress on PCM targets has slowed since 2017 but scaling up is feasi-
ble. Figure 2.1 shows IBRD’s PCM volume and mobilization ratio over time.
IBRD met its $5.9 billion G-20 target in FY17 through partial risk guarantee
issuances to critical energy and infrastructure projects. Since FY17, IBRD’s
PCM volumes have dropped to $3.7 billion in FY18 and to $2.6 billion in
FY19. As noted previously, IBRD counts PCM at the time of Board approval.
The Bank Group Board approval is not necessarily close to the point at which
the private sources of funding are committed. If a project is canceled later,

Independent Evaluation Group World Bank Group

which has happened with projects mobilizing private capital, this PCM will
not actually be realized, but the reported IBRD figures are not corrected. This
may lead to an overestimation of actual PCM delivered by IBRD. However,
the World Bank Treasury PCM activities are not tracked or recorded in the
system, which understates actual mobilization volumes. IFC records both
its own account and mobilization at the time of financial close and signing
of the agreements with a client, making its actual PCM figures consistent
with amounts mobilized. MIGA records mobilization at the time contracts
are signed, thus not overestimating its PCM activities. Although it may be
difficult for IBRD to meet its G-20 2020 commitment of $6.3 billion, it can
realistically meet its corporate target of a 25 percent mobilization ratio on
average over the next 10 years.
17
 Figure 2.1. P
 rivate Capital Mobilization Volume and Ratio for the Interna-
tional Bank for Reconstruction and Development

a. Private capital mobilization, by volume

6
Mobilization volume ($, billions)

G�20 target — $6.3 billion by 2020

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Fiscal year
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

GCI target Mobilization ratio

b. Private capital mobilization, by ratio

30 Corporate target — 25% by 2020–30

25
Mobilization ratio (percent)

20

15

10

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Fiscal year

GCI target Mobilization ratio

Source: Independent Evaluation Group calculations.

Note: G-20 = Group of Twenty; GCI = general capital increase.

IFC has increased its mobilization ratio since 2017 and exceeded its targets
18

in 2018 and 2019. IFC’s core mobilization volume grew from $7.5 billion
(63 percent mobilization ratio) in FY17 to $11.6 billion (100 percent mo-
bilization ratio) in FY18 (figure 2.2). In FY19, IFC mobilized $10.2 billion
(114 percent mobilization ratio). As noted previously, core mobilization in-
cludes capital mobilized from both private and public sources on commercial
terms (the latter including other MDBs, DFIs, and sovereign wealth funds)
that is raised with the direct and active participation of IFC. In some years,
public sources have been almost half of core mobilization totals. This gives
IFC greater flexibility in tapping financing sources for PCM.

Figure 2.2. C
 ore Mobilization Volume (Private and Public Capital Mobi-
lized) and Ratio for the International Finance Corporation

a. Core mobilization, by volume

G�20 target — $10.1 billion by 2020
Mobilization volume ($, billions)

10.0

7.5

5.0

2.5
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Fiscal year
Corporate (capital increase) target Mobilization ratio

b. Core mobilization, by ratio

Independent Evaluation Group World Bank Group

120
Mobilization ratio (percent)

Corporate target — 80% by 2020–30

100

80

60

40

20
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Fiscal year
Corporate (capital increase) target Mobilization ratio

Source: Independent Evaluation Group calculations.

MIGA has no explicit PCM targets because all of its interventions count as PCM.
MIGA’s interventions through political risk insurance and credit enhancement
19
 products count toward PCM commitments. MIGA’s reinsurance activities,
through treaty and facultative reinsurance, further increase its capacity for PCM.
Thus, MIGA has been growing its PCM portfolio in line with its overall business
targets and priorities. In 2019, MIGA issued $5.5 billion in new guarantees in
support of 37 projects, which count toward PCM, and almost double the guar-
antees issued in FY15 of $2.8 billion. Of the projects supported in FY19, 81 per-
cent addressed at least one of the agency’s strategic priority areas: IDA-eligible
countries, fragile and conflict-affected situations, and climate change.

MIGA has been consistently growing its (mobilization) activities in line with
its strategy. The volume of MIGA’s guarantee business grew by 12 percent
annual average (between FY11 and FY19) compared with a 2 percent annual
average growth rate before the nonhonoring guarantee introduction (between
FY02 and FY10). MIGA also insured some innovative and pioneering proj-
ects. Development outcomes from the evaluated projects were positive and
confirmed MIGA’s positive role and contribution in improving environmental
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

and social effects at the project level. The nonhonoring products crowded in
an estimated $6.4 billion in private sector financing and insurance capacity
to support priority public sector undertakings and optimized the financing
strategy of the public borrowers and the private lenders. Support to equity
investments through political risk insurance remains prominent in the MIGA
portfolio, especially in countries with challenging operating environments and
weak regulatory quality (Appendix M).

Climate-linked mobilization commitments are growing in the Bank Group

portfolio. In the Climate Change Action Plan 2016–2020, the Bank Group
made a commitment to increase the climate-related share of its lending
from 21 percent to 28 percent by 2020 (World Bank, IFC, and MIGA 2016).
The portion of financing that delivers on climate-focused issues is measured
as climate cobenefits.2 Overall, the Bank Group climate cobenefits volume
was 45 percent of the total PCM in 2018 compared with 28 percent in 2016.
This ratio is similar to the overall ratio achieved by MDBs, which average
46 percent of their project portfolios. For the World Bank alone, the share of
climate financing within PCM projects is growing (for example, 28 percent in
climate cobenefits within PCM in 2016 versus 48 percent in climate cobene-
fits within PCM in 2018).
20
How Much and Where Has the Bank Group
Mobilized Private Capital?
During the period FY07–18, the Bank Group approaches led to growth in
both the number of engagements and the total volume of private capital
mobilized. The total volume of private capital mobilized (both direct and
indirect) by the Bank Group in the period FY07–18 stands at $140 billion, ap-
proximately 14 percent of total Bank Group commitments to clients during
the evaluation period. Consistent with its core mandate as the private sec-
tor arm of the Bank Group, IFC mobilized the largest volume at $70 billion
(50 percent of the total) across 805 projects through debt financing, equity
financing, and guarantee support (figure 2.3 and table 2.2). IFC also gen-
erated a mobilization volume of close to $4.7 billion through 134 advisory
projects on PPPs (4 percent of the total). During the same period, 129 World
Bank projects mobilized nearly $32 billion (23 percent of the total). MIGA
mobilized $33 billion (also 23 percent of the total) across 314 projects.

Figure 2.3. Private Capital Mobilization Volumes by Institution, FY07–18

a. Commitment by year, FY07–18

25

Independent Evaluation Group World Bank Group

Mobilization ($, billions)

20

15

10

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Fiscal year

MIGA IFC IS IFC AS IBRD/IDA

21

b. Commitment, cumulative total, FY07–18

80
 Fiscal year

MIGA IFC IS IFC AS IBRD/IDA

b. Commitment, cumulative total, FY07–18

80

70
Mobilization ($, billions)

60

50

40

30

20

10

0
IBRD/IDA IFC AS IFC IS MIGA

Source: Independent Evaluation Group analysis based on data provided by Operations Policy and Country

Services, the International Finance Corporation, and MIGA.

Note: AS = advisory services; FY = fiscal year; IBRD = International Bank for Reconstruction and Develop-
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

ment; IDA = International Development Association; IFC = International Finance Corporation; IS = invest-

ment services; MIGA = Multilateral Investment Guarantee Agency.

Table 2.2. W
 orld Bank Group Commitments, Mobilization and Overall,
FY07–18

Overall Bank Group

PCM Commitment and
Portfolio a
PCM Gross Issuance
Institution (no.) ($, millions) ($, millions)
IBRD/IDA 129 32,218 646,000
IFC AS 134 4,729 n.a.
IFC IS 805 69,910 336,000
MIGA 314 32,666 34,178b
Total 1,391 139,523 1,016,178

Source: Independent Evaluation Group Datamart (for IBRD/IDA projects), Project Completion Report

Self and Independent Evaluation Group Rating (for IFC AS projects), and Expanded Project Supervision

Report database (for IFC IS projects).

Note: AS = advisory services; FY = fiscal year; IBRD = International Bank for Reconstruction and Develop-

ment; IDA = International Development Association; IFC = International Finance Corporation; IS = invest-

ment services; MIGA = Multilateral Investment Guarantee Agency; n.a. = not applicable; PCM = private
22

capital mobilization.
a. All IFC AS public-private partnership projects and MIGA projects are included in the PCM portfolio. No

direct financial commitment is expected from IFC AS, which is therefore denoted as not applicable. IFC

data refer to core mobilization.

b. Refers to MIGA gross issuance aggregate for 2007–18; data as of October 2019.

Mobilization volumes in IDA countries grew in recent years, reaching 7 per-

cent of the total Bank Group portfolio. Most mobilization occurs in non-IDA
countries.3 Between FY07 and FY18, the Bank Group mobilized nearly $88 bil-
lion in non-IDA countries and nearly $37 billion in IDA countries. However,
in recent years, mobilization projects in IDA have been growing as the Bank
Group prioritized IDA clients for project pipeline generation, per corporate
strategy and commitments to the IDA governors. Mobilization volumes in
IDA countries reached 7 percent of the total portfolio ($8 billion) in 2018
(figure 2.4). The 2018 uptick in IDA commitments was backed by a mix of IDA
guarantees and IFC debt mobilization instruments for renewable energy gen-
eration in Côte d’Ivoire, Kenya, and Zambia. PCM in the IDA fragile and con-
flict-affected situation (FCS) portfolio has grown from $410 million in FY07
to $4.6 billion in FY18. Over the same period, PCM in non-FCS IDA countries
grew from $926 million to $3.8 billion. Projects in FCS countries tend to be
larger. Thus, for example, in FY18, IDA FCS projects were only 34.2 percent of
the IDA portfolio of 38 projects but accounted for 54.7 percent of IDA PCM.

Figure 2.4. Mobilization Volumes in IDA and Non-IDA Countries, FY07–18

20

Independent Evaluation Group World Bank Group

PCM commitment ($, billions)

15

10

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Fiscal year

Non-IDA IDA

Source: Independent Evaluation Group portfolio review and analysis.

23

Note: IDA = International Development Association; PCM = private capital mobilization.

 The Europe and Central Asia and Sub-Saharan Africa Regions garnered much
of the Bank Group’s PCM activities and volume mobilized. The Europe and
Central Asia Region attracted nearly $33 billion in private capital mobilized
by the Bank Group. The Sub-Saharan Africa Region was second, attracting
nearly $32 billion between 2007 and 2018, whereas the Middle East and
North Africa and South Asia Regions lagged in volumes. Of these five Re-
gions, all except Middle East and North Africa increased the ratio of mobili-
zation-linked projects compared with the rest of the portfolio (figure 2.5). In
the most recent six-year period, Europe and Central Asia mobilized nearly
11 percent of the overall Bank Group commitment in projects that mobilized.
Within the Europe and Central Asia Region, Turkey received the bulk of the
Bank Group support at 5 percent of all mobilization activities, by volume and
number of projects.

Figure 2.5. Private Capital Mobilization by Region, FY07–18

World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

18

16

14
PCM commitment ($, billions)

12

10

0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Fiscal year

SAR MNA ECA EAP SSA

Source: Independent Evaluation Group analysis based on data provided by Operations Policy and Coun-

try Services, the International Finance Corporation, and Multilateral Investment Guarantee Agency.

Note: EAP = East Asia and Pacific; ECA = Europe and Central Asia; FY = fiscal year; MNA = Middle East and

North Africa; PCM = private capital mobilization; SAR = South Asia; SSA = Sub-Saharan Africa.
24
PCM Project Performance
More than half of the Bank Group PCM portfolio is in the financial and infra-
structure sectors. The financial sector accounted for 29 percent of the PCM
portfolio, at $39 billion, and the infrastructure sector accounted for 26 percent,
at $36 billion, during the evaluation period. Within infrastructure, the energy
sector garnered the most interventions at $30 billion, or 83 percent of PCM.

Figure 2.6. P
 rivate Capital Mobilization Projects by Sector and Sustainable
Development Goal

1,600
1,417
1,400
1,200
Projects (no.)

1,000
800
600 479
384 391
400
200 98 65
0
Financial Infrastructure Agriculture Health and Cross-sector Total
inclusion education

SDG 2 SDG 3 SDG 4 SDG 6 SDG 7 SDG 9 SDG 5 SDG 1

SDG 8 SDG 10
SDG 12
SDG 13
SDG 17

Independent Evaluation Group World Bank Group

Source: Independent Evaluation Group analysis.

Note: The figure is not an exhaustive mapping but represents an overview of the Bank Group’s approach

to support the achievement of the Sustainable Development Goals (SDGs). Given that cross-sec-

toral impact is delivered through investments and advisory operations in the strategic sectors, some

overlaps exist in this mapping. Infrastructure includes energy and transport. SDG 1: No Poverty; SDG 2:

zero hunger; SDG 3: good health and well-being; SDG 4: quality education; SDG 5: gender equality; SDG

6: clean water and sanitation; SDG 7: affordable and clean energy; SDG 8: decent work and economic

Growth; SDG 9: industry, innovation and infrastructure; SDG 10: reduced Inequalities; SDG 11: sustainable

cities and communities; SDG 12: Responsible consumption and Production; SDG 13: climate action; SDG

14: life below water; SDG 15: life on land; SDG 16: peace, justice,and strong institutions; SDG 17: Partner-

ships for the Goals.

25
 PCM projects played a critical role in several SDGs. PCM projects played a
role in contributions to several SDGs, such as greater financial inclusion,
greater access to infrastructure, and affordable and clean energy for firms
and households (figure 2.6). PCM contributions to the SDGs benefited
from the right financial incentives, regulatory structures, and standard-
ization of contracts. PCM projects played a lesser role in social sectors
(for example, health and education). Action on cross-sectoral SDGs, such
as climate change (SDG 13), required PCM to heighten efficiency and re-
duce externalities.

Bank Group projects with PCM achieved their development outcomes more
often than projects without PCM. For the World Bank, projects with PCM
achieved an 83 percent development outcome success rate compared with
a 76 percent overall success rate for projects without PCM, according to
an analysis of 1,725 validated projects (12 PCM, 1,713 non-PCM) during
the same evaluation period (figure 2.7). For IFC, PCM projects delivered
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

a 59 percent development outcome success rate compared with projects

without PCM, which had a 48 percent development outcome success rate,
according to an analysis of 597 validated projects (88 PCM, 509 non-PCM).
The results can be partly explained by the higher intensity and quality of
the Bank Group engagements with clients, partners, and investors for PCM
projects. They also reflect greater Bank Group efforts, including involve-
ment of staff with finance backgrounds in addition to sector specialists and
economists, greater scrutiny at the project preparation stage, and longer
preparation times. Despite the smaller volume commitments, Bank Group
projects in the East Asia and Pacific Region had the highest success rate at
87.5 percent compared with the regional average of 70 percent. Debt and
guarantee-linked projects did well compared with projects relying on other
types of instrument.
26
Figure 2.7. Private Capital Mobilization Project Success Rate, FY07–18

World Bank

IFC

0 20 40 60 80 100
Success rate (percent)

World Bank

IFC

0 500 1,000 1,500 2,000

Projects (no.)

Mobilization portfolio Other

Source: Independent Evaluation Group portfolio review and analysis.

Note: FY = fiscal year; IFC = International Finance Corporation. Success rate is based on the ratio of the

number of projects with positive development outcome rating to the number of projects evaluated in

the portfolio.

Most Bank Group PCM projects are relevant and effective. A further in-
depth review of a purposefully sampled portfolio of Bank Group PCM proj-
ects suggests that 88 percent of the projects were either relevant or mostly
relevant to the clients. Moreover, 90 percent of the Bank Group projects were
effective or mostly effective in meeting project-level development outcome

Independent Evaluation Group World Bank Group

objectives (figure 2.8). For example:

» A World Bank guarantee operation to support the development of the South-

ern Africa Regional Gas Pipeline contributed to gas-fired power generation,
which has helped broaden access to electricity, increase government reve-
nues, create a body of expertise in the gas sector, and improve the business
environment for large-scale foreign investment. Substantial further invest-
ment has flowed into Mozambique since the discovery of additional coal and
offshore gas reserves. In South Africa, investment in the sector was limited
by lack of competition. Although initially limited, local content purchases by
the project sponsor (Sasol) gradually increased to more than 50 percent of its
annual expenditure. Sasol’s local community development projects evolved
27

over time toward more participatory and sustainable initiatives.

 » An IFC PPP transaction advisory supporting the government of Punjab (In-
dia) grain silos led to financial savings of 2.7 percent of the Agency’s annual
budget compared with public procurement methods used before the PPP. In
Morocco, an IFC equity mobilization approach supported a financial institu-
tion that onlends to frontier regions of the country with a focus on small and
medium enterprises. Between 2008 and 2011, the client disbursed more than
10.6 billion dirhams (approximately $1.2 billion) in microloans. The project
reached about 300,000 low-income borrowers by 2017. In addition to facili-
tating the client’s outreach, the project also strengthened the client’s finan-
cial sustainability (for example, improved income) and corporate governance.

» In Pakistan and Armenia, the Systematic Country Diagnostics and Country

Partnership Frameworks have provided important entry points to discuss the
World Bank’s catalytic activities that may contribute to the strategic rele-
vance of PCM activities, notwithstanding the rotation of focus sectors in the
Country Partnership Framework cycle.
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

Figure 2.8. R
 elevance and Effectiveness of a Sample of 345 Private Capital
Mobilization Projects

100
9 8 16 12
90 1
1
80 2
PCM projects (percent)

70
60
70 66 54 59
50
40
30
20
26 28 27
10 20
0
Evaluated only Evaluated only Nonevaluated only Evaluated and
(n=146) (n=199) nonevaluated
(n=345)
Project type

Yes Somewhat No n.a.

Source: Independent Evaluation Group analysis.

Note: Success rate assessment based on portfolio review and analysis coding method only. n.a. = not

applicable; PCM = private capital mobilization.

28
PCM infrastructure and financial sector projects performed better than
agriculture and social sector projects. The difference (figure 2.9) suggests
that infrastructure as an asset class is a particularly attractive business line
for PCM projects. As an example, in 2010, IFC provided $50 million in long-
term financing to Cálidda, the Peruvian company responsible for natural
gas distribution in Lima and Callao. In addition to the direct financing,
IFC mobilized an additional $35 million in private capital. Moreover, IFC’s
financing was part of a $135 million package that also involved the Andean
Development Corporation, a regional development bank. The private capital
mobilized through IFC helped Cálidda provide gas connections to more than
45,000 Peruvian households between 2010 and 2012, expanding the capacity
of its distribution network from 255 million cubic feet to 420 million cubic
feet a day (SDG 7). The expansion generated more than $900 million in sav-
ings in fossil fuel use every year.

Figure 2.9. P
 rivate Capital Mobilization Project Performance, by Sector
and Sustainable Development Goal

160
136
140 Positive Negative
120
Projects (no.)

100
80 63 65
60 48
40 24
22 20

Independent Evaluation Group World Bank Group

20 7 9
4 1 3
0
Infrastructure Financial Agriculture Health and Cross-sector Total
inclusion education
SDG 2 SDG 3 SDG 4 SDG 6 SDG 7 SDG 9 SDG 5 SDG 8 SDG 1
SDG 12 SDG 13 SDG 10
Sector and SDG
SDG 17

Source: Independent Evaluation Group analysis.

Note: Positive refers to projects with development outcomes rated mostly satisfactory or better.

SDG  1: no poverty; SDG 2: zero hunger; SDG 3: good health and well-being; SDG 4: quality educa-

tion; SDG 5: gender equality; SDG 6: clean water and sanitation; SDG 7: affordable and clean energy;

SDG  8: decent work and economic growth; SDG 9: industry, innovation and infrastructure; SDG 10: re-

duced inequalities; SDG 11: sustainable cities and communities; SDG 12: responsible consumption and

production; SDG 13: climate action; SDG 14: life below water; SDG 15: life on land; SDG 16: peace, justice,
29

and strong institutions; SDG 17: partnerships for the goals. SDG = Sustainable Development Goal.
 Projects with domestic investors and MDB finance achieved higher devel-
opment outcome ratings than projects with foreign or South-South inves-
tors. Overseas investors were more involved in PCM projects than domestic
investors were, investing $17 billion compared with domestic investors at
$4 billion, according to the evaluated PCM portfolio. Yet from an outcome
perspective, PCM projects with domestic investors (16) were relatively more
successful at an 80 percent success rate, compared with a 64 percent success
rate in PCM projects with only foreign investors (78). This can be explained
by the greater amount of time and effort spent on project preparation and
inputs from investors with greater knowledge of the host country. PCM
projects with involvement from other MDBs had a higher success rate (60
projects, 85 percent success rate) than projects without the involvement of
other MDBs (214 projects, 67 percent success rate; figure 2.10) as a result of
heightened due diligence at commitment; better environmental, social, and
governance alignment; and greater compliance during implementation.
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

Figure 2.10. P
 rivate Capital Mobilization Success Rates,
by Investor and Partner Types
a. Domestic versus overseas investors

Overseas investor(s) 78 projects

$ 11.19 billion

16 projects
Domestic investor(s) $ 1.73 billion

33 projects
Both $ 4.64 billion

0 25 50 75 100
Average success rate (percent)

b. Multilateral development bank involvement

60 projects
Yes US$ 10.22 billion

214 projects
No US$ 28.45 billion

0 25 50 75 100
Average success rate (percent)

Source: Independent Evaluation Group portfolio review and analysis.

30
IFC PCM projects were mostly effective in terms of additionality and demon-
stration effects. The effectiveness of PCM projects can be measured by
additionality and demonstration effects (new or increased commitments or
replications of aspects of the project in terms of demonstrated success).4 IFC
financial additionality was observed in 32 percent of IFC PCM projects,5 but
only 18.8 percent of IFC PCM projects had both financial and nonfinancial
additionality. Demonstration effects were observed through IFC project-level
evaluations in 25 percent of IFC PCM projects. More than 30 percent of IFC
investment projects in the Europe and Central Asia Region led to demon-
stration effects or repeat clients or investors (figure 2.11). IFC client engage-
ments with 78 client groups led to repeat transactions, in some cases more
than three transactions. World Bank guarantees led to demonstration effects
mostly in the energy sector (for example, guarantees support to the Scaling
Solar Program). Demonstration effects from World Bank PCM projects over-
all were not significant for the small sample of projects analyzed. Examples
of demonstration effects include the following:

» For phase 1 of the Colombia Fourth Generation Roads Concession Program

(4G) program, which was part of a broad Bank Group engagement on infra-
structure and capital market development in Colombia, IFC helped launch
one of the first infrastructure debt funds in the country. The fund opened a
path for institutional investors to invest in road projects that were crucial for
the country. The success of phase 1 demonstrated that Colombia roads proj-
ects could be profitable investments for institutional investors, and the fund

Independent Evaluation Group World Bank Group

subsequently raised $400 million from pension funds.

» IFC marketed the Albania Hydros PPP engagement to a broad community of

investors outside the traditional circle of Western European energy utilities.
Because of this marketing campaign, the project attracted foreign investors,
first from Turkey, then from Bosnia and Herzegovina and from Georgia. The
success of the Albania Hydros PPP project demonstrated that energy projects
in Albania could be attractive to foreign investors.
31
 Figure 2.11. International Finance Corporation Repeat Engagements,
by Regions and Clients, 2007–18

ECA

MNA

LAC
Region

EAP

SSA

SAR

0 6 12 18 24 30 36 42
Average repeat client (percent)

Source: Independent Evaluation Group portfolio review and analysis.

Note: Percentages represent the ratio of repeat clients to private capital mobilization engagements.
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

EAP = East Asia and Pacific; ECA = Europe and Central Asia; LAC = Latin America and the Caribbean;

MNA = Middle East and North Africa; SAR = South Asia; SSA = Sub-Saharan Africa.

Relevance and Effectiveness

of PCM Instruments
This section describes the relevance and effectiveness of Bank Group PCM
instruments. It focuses on both the project design stage (when PCM instru-
ments are introduced and investors are engaged) and the project imple-
mentation and completion stages. It covers (i) World Bank guarantees, (ii)
IFC PCM debt instruments and platforms, (iii) IFC equity mobilization, (iv)
IFC PPP advisory activities, and (v) MIGA guarantees. (Table 1.1 provides an
overview and some examples of these instruments.)

World Bank Guarantees

World Bank guarantees were mostly relevant and effective. During the
evaluation period, the World Bank used partial risk guarantees and partial
credit guarantees to help clients overcome financial challenges and PBGs
to help clients overcome reform challenges. The impact of the partial risk
32
guarantees and partial credit guarantees differed depending on the issuer
and the rating provided by external rating agencies (namely Standard &
Poor’s, Moody’s, and Fitch Ratings). B-rated countries benefited from pricing
impact, improved maturity, and facilitated market access. With lower un-
covered yields, BB-rated countries benefited from marketing the guarantee’s
issuance with messages about World Bank support and gained credit en-
hancements, potentially reaching investment grade. The PBGs were aligned
with clients’ needs for improved market access, potential diversification of
the creditor base, longer maturity, and lower interest rates. For example, the
four PBGs issued in the Balkans allowed governments to raise new private
finance of $1 billion at terms that were acceptable to the ministries of fi-
nance. The guarantees secured total commercial bank credit of €780 million,
with maturities of five to seven years at the commitment stage. Similarly, in
Benin, a PBG providing 40 percent coverage allowed the government to ac-
cess commercial loans for $450 million at favorable terms. Through the PBG,
the government of Benin made key changes in the power utility to ensure
more reliable electricity, a significant investment barrier for the agricultur-
al processing sector. Commercial and institutional investors perceived the
guarantee as a signal of the World Bank’s faith in the credit and economic
fundamentals of the country, for example, in Ghana (box 2.1).

Box 2.1. R
 elevance and Effectiveness of Policy-Based Guarantees
in Ghana

The World Bank and the government of Ghana initiated a macroeconomic reform Independent Evaluation Group World Bank Group

policy-based guarantee (PBG) operation, First Macroeconomic Stability for Com-

petitiveness and Growth (2015), which included a $400 million guarantee to enable
raising up to $1 billion in the international bond market. The transaction achievements
included (i) the first PBG-supported bond issuance in the market in 14 years; (ii) the
longest Eurobond tenor of 15 years first achieved by a Sub-Saharan Africa sovereign,
except for South Africa; (iii) reduction of yields by 150–200 basis points compared with
a theoretical uncovered 15-year Eurobond (theoretical because Ghana did not have
stand-alone access); and (iv) a 100 percent oversubscribed order book with a diversi-
fied investor base compared with stand-alone bonds. Furthermore, about 15 percent
of the final order book went to new investors, which helped expand the investor base.
33

(continued)
 Box 2.1. R
 elevance and Effectiveness of Policy-Based Guarantees
in Ghana (continued)

Ghana used the proceeds of the issue to refinance short-term domestic debt (90 days
to 2 years), coming up for refinancing at a nominal interest rate of 25 percent at a time
when there was no market access. Ghana’s currency, the cedi, has also been relatively
stable since the Ghana 2020 issuance.

Investors choosing to invest in the Eurobond emphasized the importance of World

Bank support as a necessary credit enhancement to make them comfortable with
the offering. Investors first assessed Ghana’s stand-alone creditworthiness, which
they considered the key investment driver. Being convinced by the creditworthiness
assessment was a necessary but not sufficient condition for investment, and the PBG
was instrumental in the institutional investors’ decision to invest. Investors benefited
from the World Bank’s independent opinion on the country and were able to rely on a
set of prior actions as part of the World Bank and International Monetary Fund reform
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

program, helping lay a foundation for positive medium- and long-term prospects.

Source: Independent Evaluation Group Ghana case study, interviews with institutional investors.

Demand for World Bank guarantees could increase in the short term be-
cause of the coronavirus pandemic (COVID-19). In light of potentially great-
er demand for PBGs because of the financial implications of COVID-19 in
Bank Group client countries, there is a need for more comprehensive World
Bank–wide corporate guidance on borrowing modalities and on the roles and
responsibilities of relevant units in the World Bank through a memorandum
of understanding between the Global Practices (GPs); Infrastructure, Pub-
lic-Private Partnerships, and Guarantees; and the Regions.

IFC PCM Debt Instruments and Platforms

Clients and investors perceive IFC’s PCM debt instruments and platforms—
especially B loan syndications and the Managed Co-lending Portfolio Pro-
gram (MCPP)—as highly relevant. B loans and the MCPP, both syndicated
loans, together drive nearly 80 percent of IFC’s total PCM volume. B loan syn-
dications and the MCPP improved the bankability and financing structure of
34
projects compared with those that the clients would have obtained from local
markets. For example, in Bangladesh, Jordan, and Zambia, commercial bank
lending terms are at less than five years and are insufficient for infrastructure
asset development. Investors and syndicates of commercial banks perceived
IFC as a valued partner for entering difficult countries. Investors benefited
from IFC’s independent opinion on the country and were able to rely on a
set of prior actions (either as part of World Bank and International Monetary
Fund ongoing reform programs or as part of upstream engagements), helping
lay a foundation for positive medium- and long-term reform prospects.

IFC’s pioneer debt mobilization platform, MCPP-SAFE (State Administra-

tion for Foreign Exchange), has been effective. The MCPP, established in
2013, is a “wholesale” way or platform approach of mobilizing debt capital
from private entities and development partners. It leverages IFC’s project
pipeline and due diligence skills to source opportunities for third-party
investors to co-lend to projects or groups of projects alongside IFC on com-
mercial terms. The MCPP gives IFC the ability to provide larger financing
packages than it could provide from its own account and increases the pool
of financing available for achieving development goals. The MCPP leverag-
es a loan portfolio for an investor that mirrors the portfolio IFC is creating
for its own account, similar to an index fund, for example, with the Chinese
institutional investor SAFE (box 2.2). MCPP has increased clients’ access to
finance, especially in IDA countries, and facilitated portfolio diversification
for the institutional investors.

Independent Evaluation Group World Bank Group

Box 2.2. A
 chievements of the International Finance Corporation MCPP-
SAFE Platform

The trust fund approach under the Managed Co-lending Portfolio Program (MCPP)
with China’s sovereign agency State Administration of Foreign Exchange (SAFE) is
an important pilot that was successfully replicated with the Hong Kong Monetary
Authority to mobilize private capital. The program allowed strategic deployment of
China’s foreign exchange reserves through the International Finance Corporation (IFC),
generating returns, knowledge, and credit assessment insights for the Chinese sover-
eign-linked investor, primarily into East Asia and Pacific, Sub-Saharan Africa, and Latin

(continued)
35
 Box 2.2. A
 chievements of the International Finance Corporation MCPP-
SAFE Platform (continued)

America and the Caribbean. The MCPP-SAFE approach benefited from IFC’s presence
across all emerging market and developing economy countries. It also benefited from
access to a global pipeline of emerging market and developing economy projects.
The MCPP provided SAFE with unique opportunities and access to emerging markets,
a footprint SAFE does not have. SAFE considers the MCPP one of the more innova-
tive investments in its portfolio because it allows SAFE to review and analyze similar
commercial projects on a deal-by-deal basis. Private capital mobilized from SAFE
was disbursed widely by region and by country groups, and was concentrated on
non–International Development Association, nonfragile countries, partly driven by the
characteristics of the development projects in IFC’s pipeline. Most of these borrowers
have the capacity to meet their financial commitments and are less vulnerable to non-
payment than other speculative projects.
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

Source: Independent Evaluation Group review of the MCPP platform.

IFC’s bond mobilization platform, the Green Cornerstone Bond Fund (GCBF),
has been effective. Through its pioneering GCBF, IFC achieved positive
PCM outcomes in its bond mobilization efforts by increasing client firms’
access to green loans through intermediary financial institutions (for exam-
ple, green loans to firms in India). In addition to supporting solar and wind
generation projects, the loans were used for energy efficiency and urban
transport solutions (Axis Bank 2019). This platform, developed in partner-
ship with Amundi Fund Manager, has shown both demonstration effects in
other client countries (for example, the Philippines) and replication effects
in other MDBs.

IFC B loans are effective at the firm level, whereas their demonstration effects
were less pronounced at the country level. B loans led to repeat transactions
with clients and commercial bank partners. They had a positive effect on client
firms’ access to finance. First, firms that borrowed from an IFC syndicated loan
experienced a larger growth in access to funding than firms that did not bor-
row from an IFC syndicated loan. Second, firms that did not access the syndi-
36

cated loan market before borrowing from an IFC syndicated loan were able to
add an additional 70 percent in funding from private lenders after accessing an
IFC syndicated loan. In this approach, both participants and borrowers benefit
from IFC’s presence and activities at the project level, its risk mitigation capa-
bilities, and its preferred creditor status. Borrowers benefit from a potentially
longer tenor of the loan, diversified yet simpler documentation with IFC as the
single lender of record, and new banking relationships. In many projects, cli-
ent firms achieved longer tenors than were available in the local market. This
yields an empirical hypothesis that involvement of IFC in the loan syndication
market should lead to faster growth in this market (appendix C). However, on
a country-by-country basis, IEG finds that although syndicated loan growth
remains positive in the post-IFC involvement period, it is lower than growth
in the pre-IFC period, suggesting less of a demonstration effect than expected
from IFC’s entry into the country. Domestic lenders could not participate in
the B loan program, and local currency solutions were limited. The overlap
between IFC and non-IFC lending suggests that the effectiveness and addi-
tionality of the B loan program beyond firm needs is limited.

IFC Equity Mobilization

Expectations that IFC AMC will result in improvement of IFC’s development
outcomes have not been realized thus far. Two of the five AMC funds eval-
uated (Meso-evaluation of IFC Asset Management Company, IEG, 2018) made
investments which resulted in IFC mostly meeting its development objectives
concerning low-income country (LIC exposure) – but IDA exposure for these

Independent Evaluation Group World Bank Group

funds is below levels that IFC would hope for. Although AMC has enabled
IFC to finance large transactions in which it would not have otherwise been
able to participate in and IFC’s investments in the funds have generated
income on the IFC account, the quantity or quality of IFC’s investments or
IFC’s outcomes have not changed. The number of new transactions and the
investment volume of IFC have remained largely flat from equity financing
approaches. AMC’s value proposition to IFC was predicated on the assump-
tion that there is more demand for IFC’s financing than IFC has the capacity
to meet from its own balance sheet. The stagnant business, however, suggests
that the reverse is true and that more project pipeline generation work is re-
quired to translate latent demand into investable opportunities, in proportion
to the private capital raised and pooled in the form of AMC-managed funds.
37
 IFC PPP Advisory Activities
IFC PPP advisory services are relevant and made a significant contribution to
IFC’s core mobilization, totaling more than $1 billion in recent years. Clients
highly value IFC PPP advisory work, recognizing IFC’s ability to convene pri-
vate sector operators for PPP bids, offer neutral review of private sector pro-
posals, and structure PPP transaction solutions that involve expertise from
various parts of the Bank Group and from other partners. They also value its
ability to act as a neutral party and its contacts with emerging market inves-
tors. PPP advisory has succeeded in bringing domestic and South-South bid-
ders from other emerging markets: more than half of projects awarded over
FY07–18 had a winning bidder in one of these two categories. Mobilization
volumes are concentrated in a small number of countries—Brazil accounts
for almost 40 percent of mobilization volumes over the period under review,
and the three largest countries (which include Colombia and the Philippines)
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

account for 61 percent.

IFC PPP advisory services have been effective. Effectiveness was demon-
strated, for example, in the Colombia 4G roads program, where joint World
Bank and IFC teams undertook upstream institutional capacity building and
strengthening, in addition to work on capital market policies and regula-
tions. This, together with the IFC PPP advisory project, helped the success of
the engagement, which also saw investment in projects by IFC and support
by investors to MIGA. By March 2017, 32 projects in the 4G program were
successfully awarded, for a total expected investment of $14.8 billion. On
completion, the new highway network (293 kilometers of new roads) will
significantly increase connectivity between the northern departments, the
country’s coffee-growing regions, and the Port of Buenaventura. Although
PPP advisory makes a sizable contribution to IFC’s core mobilization, it is
small when compared with the global market for PPPs. Brazil and India,
two very large PPP markets with correspondingly large advisory businesses,
account for 44 percent of PPP mobilization projects. The catalytic effects
stemming from IBRD’s efforts—for example, replication of transactions that
do not involve IFC—are also important.

There is a positive relationship between MDB (including Bank Group) par-

38

ticipation in PPPs and private capital mobilized subsequently as demonstra-

tion effects. IEG undertook empirical work using the Private Participation
in Infrastructure Database to assess the impact of MDB financing on private
infrastructure investments over 2007–18.6 Through this work, IEG found a
positive relationship between MDB participation and the number of projects
and the volume of investments supported through IFC PPP advisory services
(appendix H). More research and analysis would be needed to ascertain caus-
al relationships.

IFC PCM approaches can help respond to COVID-19. The most relevant
instruments in the short-term response phase are IFC trade finance and
distressed asset management approaches through the Global Trade Finance
Program, the Global Trade Liquidity Program, and the Distressed Asset Re-
covery Program. In the mitigation and recovery phase, equity mobilization
approaches through the AMC are highly relevant to support firms that are
cash strapped and have limited capacity to take on additional debt.

MIGA Guarantees
MIGA guarantees are relevant, and MIGA has broadened the market for its
PCM instruments beyond political risk insurance. Stakeholder interviews
suggest that MIGA has demonstrated relevance to clients and partners’ needs
in the following ways: (i) covering additional risk types (for example, through
credit enhancement), (ii) broadening coverage to encompass different un-
derlying financial instruments (for example, swaps and bond issuances), (iii)

Independent Evaluation Group World Bank Group

expanding coverage to new investor groups, and (iv) designing new types of
project structures that increase the relevance of political risk insurance.

MIGA instruments have been relevant in crisis situations. MIGA projects in

finance and capital markets evaluated by IEG in FY12–17 were created in re-
sponse to the global financial crisis. Of 18 MIGA finance and capital markets
projects evaluated by IEG, 14 were in the Europe and Central Asia Region.
These projects focused on strengthening local financial sectors by enabling
banks to improve their assets and liability management and to provide
long-term funding in the markets. The projects that succeeded did so by, for
example, securing financing from other financial institutions or support-
ing targeted rather than general-purpose interventions. Some successful
projects focused on development impacts rather than merely refinancing of
39
 banks. However, most projects did not succeed. Weak outcomes stemmed
from deteriorating macroeconomic conditions affecting bank performance
and asset quality, high leverage, and weak environmental and social aspects
in some projects.

MIGA instruments have been effective in the energy and extractive industries
and infrastructure sectors, which together reveal a step change in outcome
rating from 52 percent in FY06–11 to 77 percent in FY12–17. Projects in these
sectors were successful because of strategic relevance to countries, a stable
regulatory environment, sponsors with strong track records, stable demand,
and competitive products (that is, lower production costs of power genera-
tion projects supported by MIGA). MIGA nonhonoring guarantees have been
relevant but could increase effectiveness further. MIGA’s nonhonoring of fi-
nancial obligations guarantee instruments demonstrated relevance to private
sector clients by, for example, facilitating an investor to obtain an award to
file a claim for compensation with MIGA. MIGA has enhanced its additional-
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

ity through the nonhonoring guarantees instrument focused on public sector

clients. Yet MIGA’s influence with its public sector clients is limited to envi-
ronmental and social compliance and practices (based on IEG’s microevalua-
tion program findings). The IEG evaluation on MIGA’s nonhonoring guarantee
finds that, other than the support for better environmental and social sus-
tainability practices, there is no evidence that MIGA’s nonhonoring insurance
has encouraged public sector clients to adopt increased transparency and
disclosure; good corporate governance practices; or anti-money-laundering,
anticorruption, or antifraud practices (MIGA 2013).

MIGA’s reinsurance program is both relevant and effective. MIGA and its
partners share risk by purchasing reinsurance policies from each other, re-
ducing the exposure they would face individually on certain projects, sectors,
or countries. This, in turn, allows MIGA to support projects that are better
aligned with MIGA’s capital position and risk appetite. In recent years, MIGA
has used the reinsurance program to manage exposure by working with both
public and private sector reinsurers, crowding in new insurance partners and
managing their portfolios, capital, and risk exposure, leading to increased
potential for PCM.

MIGA’s collaborative efforts with IFC and the World Bank were backed by
40

innovative efforts to increase its PCM volume and reinsurance capacity. Nine
joint (cofinancing and sequential) projects with IFC and IBRD together, three
cofinanced projects with IFC, and two with IBRD have increased MIGA’s
PCM volume achievements. Through an innovative IBRD-MIGA exposure
exchange agreement, MIGA further expanded its headroom for additional
guarantee capacity.

MIGA has the potential to help with the COVID-19 emergency response.
MIGA’s nonhonoring guarantees can help subnational governments re-
spond to COVID-19, and MIGA could address COVID-19 implications on
FDIs by innovating its product suite. MIGA’s plan to use its nonhonoring
product to guarantee subnational governments’ acquisition of protective
equipment and ventilators—which are critical to addressing the crisis—is
timely. According to its latest Strategic Business Outlook FY21–23, MIGA
has identified six initial areas for new product applications in the following
areas: capital markets solutions, select local currency solutions, capital relief
(especially for project finance), trade finance, systematic IFC-MIGA product
collaboration, and support for domestic investors.

PCM-Led Country Reforms

Three factors are associated with PCM at the country level: (i) World Bank
policy work through development policy operations (DPOs) or technical
assistance that supports reforms to improve sector policy frameworks and
financial viability of the sector; (ii) a deliberate, joint World Bank–IFC–MIGA

Independent Evaluation Group World Bank Group

approach to the enabling environment for development of a sector; and (iii)
opportunistic efforts in unregulated or lightly regulated jurisdictions. Evi-
dence is mostly based on PCM approaches in the energy sector. Evidence from
projects in the financial sector or in other infrastructure sectors is limited.

Bank Group policy work supporting sector reforms based on countries’ needs
enabled PCM. In cases like Ghana and Jordan, the catalytic efforts were
focused on strengthening sector enabling frameworks that led to PCM. For
example, in Jordan, the World Bank’s upstream interventions shaped the
creation of markets and strengthened the financial situation of the utility.
The interventions included technical assistance to develop the wind power
market, as well as prior actions on power tariffs in development policy loans.
41
 They facilitated sustained mobilization by the World Bank in the energy sec-
tor, including in renewables. DPOs also supported macro and public sector
management reforms that helped facilitate PCM in the renewable energy
sector. In Ghana, sector enabling reforms were covered by prior actions for
DPOs. They focused on financial sustainability of the state offtaker in the
power sector. DPOs also helped introduce the Extractive Industries Trans-
parency Initiative standards, which led to PCM activities. The World Bank
supported these initiatives without an explicit joint plan or deliberate joint
interventions with IFC and MIGA.

A joint, and in some cases deliberate, World Bank–IFC–MIGA effort to devel-

op the enabling environment, including by applying the Cascade framework,
is associated with PCM.

» In the Arab Republic of Egypt, the World Bank, IFC, and MIGA developed a
joint approach to reforms for the broader economy—but also specifically for
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

the energy sector—with the objective of mobilizing private capital. The World
Bank and IFC developed a joint implementation plan for the energy sector,
with the objective of pursuing private sector solutions first and in line with
the Cascade framework. Among other things, this plan identified renewables
and upstream gas as priority areas for private investment. Three World Bank
development policy financing loans between 2014 and 2018 supported the
enactment of relevant laws. One reformed the energy sector (including estab-
lishing an independent regulator). The second set up a strategic policy unit in
the minister’s office. The third implemented a progressive increase of elec-
tricity tariffs. In 2017 and 2018, IFC provided a $200 million loan to a solar
feed-in tariff program, mobilizing $450 million in B loans and parallel loans.
At the same time, MIGA provided a political risk insurance guarantee of up to
$197 million for solar projects (figure 2.12).
42
 SECTOR ENABLING ENVIRONMENT

World Bank World Bank World Bank

DPF1 ($1 billion) DPF2 ($1 billion) DPF3 (closed June 2019)
Figure 2.12. L

Debt management Electricity tariff increase of Electricity tariff increase of 40% on average
strategy 33% on average
Ushering in accountability and transparency
Electricity tariff increase Revise fee in tariff policy for by functional independence of EETC
of 11% on average promoting private (power offtaker of private sector generation)
investment in renewables
Electricity Law enabling Adopting auctions for next phase of private
independent regulator Strategic policy unit set up at investment in solar

megawatts; TA = technical assistance.

Minister’s office
Renewable Energy Law
and feed in tariff policy

World Bank and IFC TA

Joint Implementation Plan identifying renewables and upstream gas as priority areas
for private investment
Provided TA to GOE on energy subsidy and power sector reforms, energy pricing, and
corporate governance

MOBILIZATION

IFC IFC/MIGA
Leading project development Solar FiT program (up to 650 MW of solar photovoltaic
together with EBRD; for example, plants through private investment)
due diligence on plot locations,
engaging facility management entity, IFC provides $200 million financing + mobilizing up to
ensuring environmental and social $450 million in B loans and parallel loans (October 2017)
ital Mobilization in the Egyptian Electricity Sector

standards, and advisory services

MIGA Political risk insurance up to $400 million for
solar projects (January 2018)

ment; EETC = Egyptian Electricity Transmission Company; FiT = feed-in tariff; GoE = government of
Note: DPF = development policy financing; EBRD = European Bank for Reconstruction and Develop-
2014 2015 2016 2017 2018

Egypt; IFC = International Finance Corporation; MIGA = Multilateral Investment Guarantee Agency; MW =
 ink between World Bank Country Reforms and Private Cap-

43 Independent Evaluation Group World Bank Group

 » In Cameroon, parallel public investments and a DPO created an enabling envi-
ronment for the establishment of the first hydro plant in the country (Nachti-
gal). IFC financed the plant ($100 million equity investment) with a $300 mil-
lion guarantee from IBRD and a $188 million guarantee from MIGA. The World
Bank, through investment project financing and technical assistance, con-
tributed to enhance the financial viability of the sector through early reforms,
including the passage of a revised electricity law introducing private sector
participation and supporting privatization of the state-owned power utility.
Although in this case the World Bank, IFC, and MIGA did not have a joint plan
focused on the energy sector and worked in parallel without a deliberate joint
program from inception, their interventions were highly complementary and
ultimately converged to unlock PCM opportunities (figure 2.13).

Although effective in terms of outcome achieved, implementing joint Bank

Group interventions can be challenging because of procedural gaps and
institutional differences. A review of joint projects found that such efforts
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

entailed higher transaction costs caused by more coordination, overlapping

processes, and differing requirements.7 These often led to delays in project
completion, requiring extra project preparation, appraisal, and intra–Bank
Group coordination. Clients had to comply with two sets of World Bank and
IFC environmental and social requirements. Clients in joint projects (both
public sector clients of the World Bank and private sector clients of IFC) also
did not always understand the overlaps and complementarities between, and
value added of, different Bank Group products. Furthermore, evaluative data
gaps on joint Bank Group approaches at the sector level in a given country
constrain PCM outcome achievements. Many project-level evaluations (more
than 75 percent sampled) do not comment substantively on upstream efforts
or Bank Group collaboration that preceded PCM projects.

PCM can also be achieved in countries with weak enabling environments if

project designs are robust. In Argentina, the World Bank provided technical
inputs to shape the approach to renewable energy, and a change in adminis-
tration and approach presented an opportunity for Bank Group mobilization
before a full sector reform initiative. IFC advisory services were able to assist
the government in implementing its plans for renewable energy auctions,
and the World Bank was able to provide a guarantee to backstop government
44

commitments under the renewable energy fund. The Argentina example sug-
 INSTITUTIONAL FRAMEWORK AND ENABLING ENVIRONMENT

Figure 2.13. L
World Bank IPF World Bank TA and IPF
World Bank advised government on the Electricity World Bank advised government on the New Electricity Law
Law of 1998, which introduced private sector (2011/022) – which paved the way for the creation of a new publicly
participation, established a sector regulator and a owned transmission company (unbundling of the sector)
rural electrification agency
World Bank supported operationalization of transmission
Privatization of SONEL, state-owned power utility company SONATREL (2015) + implementation of Least Cost
Transmission Investment Program
World Bank IPF – Electricity Transmission and Reform Project
($325 million) approved in December 2016

MOBILIZATION

World Bank/IFC/ EDF/IFC/

EIB/AfDB World Bank/MIGA
IFC IFC acted as Lead First IPP in Second IPP in First Hydro IPP Nachtigal
arranger for a €250 Cameroon Cameroon Kribi IPP hydropower plant
Transaction million syndicated loan Dimamba IPP
advisory for SONEL $82 million IDA $300 million IBRD guarantee
for AES SONEL to fund
privatization $30.6 million guarantee / $86
a post-privatization Approx. $100 million IFC equity
IFC loan million IFC loan
investment program
$31.5 million MIGA €164.5 million guarantees
MIGA guarantee World Bank/AfB/EIB to two investors (Jan. 2019)

Lom Pangar
hydropower project
$132 million IDA Credit
enabling environment is not conducive to private investment.

ital Mobilization in Cameroon Electricity Sector

Producer; MIGA = Multilateral Investment Guarantee Agency; TA = technical assistance.

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
climates and overall unregulated or lightly regulated environments. This
indicates that the Bank Group can look for PCM opportunities even if the

Note: AfDB = African Development Bank; EDF = Electricite de France; EIB = European Investment Bank;
gests that countries can succeed at PCM despite nonconducive investment

tion; IFC = International Finance Corporation; IPF = investment project financing; IPP = Independent Power
IBRD = International Bank for Reconstruction and Development; IDA = International Development Associa-
 ink between World Bank Country Reforms and Private Cap-

45 Independent Evaluation Group World Bank Group

 1 
The two institutions maintain different sets of definitions internally per their business model
and operational needs. The World Bank counts private capital mobilization (PCM) activities at
Board of Executive Directors approval rather than financing commitments from third-party
capital providers. This tends to overcount World Bank PCM volumes in the case of project can-
cellations after approval. IFC counts public sources of capital in its core mobilization ratio but
at the project commitment stage.

2 
Climate cobenefits are counted as the portion of project financing that delivers either mitiga-
tion or adaptation benefits to project beneficiaries.

3 
International Development Association status was defined as the client country’s Interna-
tional Development Association status at the time of project approval.

4 
Demonstration effects are observed in four ways:

• A project sponsor or investor commits to new PCM projects based on the success of a prior
PCM project in which they participated, suggesting risk mitigated in the same sector or
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 2

country as a result of Bank Group intervention;

• An investor or commercial bank lends to the same PCM project as it expands its operations
or moves to the next phase of development;

• A new project sponsor or new investor commits to new PCM projects based on the success
achieved by other sponsors or investors; and

• Multilateral development banks or development finance institutions replicate the financ-

ing structure of the instrument or platforms in their own portfolio.

5 
Financial additionality means contributions beyond what is already available in the market
and not crowding out the private sector.

6 
Private Participation in Infrastructure Database, World Bank, Washington, DC, https://ppi.
worldbank.org/en/ppi.

Independent Evaluation Group reviews and reports have addressed some of the constraints to
7 

more effective collaboration, including the learning review of World Bank Group Joint Projects: A
Review of Two Decades of Experience and the joint Independent Evaluation Group–International
Finance Corporation report on joint implementation plans (World Bank 2017).
46
3 | Constraints on PCM and
Opportunities to Scale Up

This chapter identifies constraints on PCM, opportunities for scale-up, and

areas for further research. The external constraints are (i) regulatory frame-
work, (ii) client capacity, and (iii) capacity to work with MDBs and meet
government-to-government (G2G) competition. Internal constraints are (i)
Bank Group target setting and implementation, and (ii) instruments and
platform approaches. The chapter also includes an efficient frontier analysis
that identifies opportunities for PCM scale-up. Finally, it identifies areas for
further research.

External Constraints
External constraints are those that governments or all MDBs jointly are
best placed to address. They include regulatory and client capacity con-
straints, lack of coordination among MDBs, and competition from govern-
ment agencies. The Bank Group supports governments in tackling external
constraints through catalyzation activities aimed at improving countries’
policies and regulations, including lending (mostly DPOs to support pol-
icy changes and investment project financing for clients’ capacity build-
ing) and technical assistance or upstream advisory. External constraints
also exist based on the level of market openness, trade openness, political
and economic stability, natural resource management, and human capital
development. Addressing external constraints is important for PCM. How-
ever, these constraints are not at the core of this report’s analysis and are
reviewed only briefly in this section.
47
 Banking and Regulatory Frameworks
The banking and investment regulatory frameworks affect PCM at the
country level. EMDEs rely much more on bank loans and cross-border loans
for infrastructure finance than other economies do. Institutional investors
in different constituencies are subject to legal regimes of varying rigidity,
especially regulations on Organisation for Economic Co-operation and
Development (OECD) country capital stocks to limit funding to EMDEs.
Three sets of regulations can be relevant for investment (particularly for
infrastructure investment): accounting, solvency, and investment rules.
Fair value International Financial Reporting Standards accounting rules
for financial institutions can lead to de-risking and shorter-term investing.
Risk-based solvency rules for insurance companies and pension funds
potentially also lead to procyclical investment behavior.1 Pension funds
in most countries, for example, face some quantitative or qualitative
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 3

investment restrictions.2 Regulation of asset owners and asset managers

also has side effects in this context.3 More research is needed on the impact
of financial regulations on PCM, including on possible trade-offs between
financial stability and creation of an environment that is conducive to
private investment opportunities.

Mobilizing domestic institutional investors can be a major constraint to

PCM. Domestic institutional investors, a key source of PCM, tend to be
highly risk averse and tightly regulated. Nevertheless, mobilizing domestic
institutional investors like pension and insurance funds has extraordinary
potential for financing key priority areas for Bank Group client countries. It
is estimated that $1 trillion of resources in developing countries are parked
in safe assets originating in OECD countries rather than being invested to
develop infrastructure and financial sectors domestically. Some creative
approaches to expand the appetite of local institutional investors have been
successful (box 3.1).
48
 Box 3.1. InfraCredit Nigeria: Mobilizing Domestic Institutional Investors

GuarantCo—a small, multilateral development finance institution that provides guar-

antees and technical assistance in support of local currency capital market develop-
ment—has sought creative ways to expand the appetite of local institutional investors
and has had some success in countries like Nigeria. One of GuarantCo’s innovations
was to support the creation of InfraCredit Nigeria, a local institution with equity stakes
by the Nigerian government and development finance institutions like Germany’s KfW.
InfraCredit helps credit-enhance local bond issuances related to infrastructure to a
level that allows local pension funds to invest in them. GuarantCo itself contributed
only $50 million in contingent capital but was intensively involved in providing tech-
nical assistance to set up the new institution and engaging in dialogue with Nigerian
capital market participants and regulators. Thus far, InfraCredit has successfully en-
hanced two major bond issues: a Nigerian naira (N)10 billion, 10-year bond in January
2018, and an N8.5 billion, 15-year bond in February 2019. The latter, for a hydroelectric
facility, was the first certified corporate green bond issued in Nigeria. Thus, using only
a relatively small, unfunded contingent contribution, coupled with intensive technical
assistance, GuarantCo gave a major boost to the engagement of local institutional
investors in Nigeria’s capital market. Based on this successful example, GuarantCo is
launching a similar project in Pakistan.

Source: Independent Evaluation Group industry interviews.

Client Capacity Independent Evaluation Group World Bank Group

Client capacity and knowledge of PCM instruments and platforms can be a

constraint on expanding PCM. With increasing debt, clients are willing to
explore alternatives through private financing, but their understanding of
PCM instruments and platforms is often limited. Government counterparts
are critical to developing PCM, including by proposing relevant deals. De-
spite their overall interest in PCM approaches, however, clients often per-
ceive the involvement of private actors and Bank Group PCM instruments as
riskier than traditional World Bank instruments such as investment project
financing and DPOs. In many cases, government clients that are used to
concessional loans do not understand the opportunities and consequences of
49
 PCM instruments. Bank Group staff play a key role in engaging with govern-
ment counterparts to identify relevant deals and in building their capacity
to pursue them. Helping clients identify a pipeline of bankable projects and
valuate them correctly is particularly critical (figure 3.1), as is helping clients
understand the costs and benefits of various Bank Group PCM products. A
prerequisite for technical staff to engage with clients on PCM approaches
is getting expression of interest on PCM from clients and having PCM ap-
proaches in the Bank Group country strategies, which technical staff say is
often difficult. Clients also have a limited understanding of alternatives to
World Bank guarantees. For example, some clients (such as Bangladesh) do
not take into account the contingent liability, counterparty risk, or implica-
tions of the counterguarantee mechanism in other forms. Other clients (for
example, Ghana and Mongolia) pursue G2G guarantee mechanisms without
indemnity agreements. Still others (for example, Zambia) issue sovereign
debt on international capital markets as alternatives to PCM solutions and
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 3

take on market risks directly.

Figure 3.1. Key Issues for Infrastructure Investors

Commodity prices

Governance

Perception of industry

Availability of debt financing

Interest ratios

Volatility in global markets

Exit environment

Performance

Intermediary fees

Regulation

Deal flow (pipeline of projects)

Valuations

0 10 20 30 40 50 60 70

Proportion of respondents (percent)

Source: Independent Evaluation Group Global Investor Survey; Preqin 2018.

50
Working across MDBs and G2G Competition
DFIs and MDBs need skills to engage with private sector actors, both proj-
ect sponsors and investors, including on financial structuring. Apart from
IFC and the European Bank for Reconstruction and Development, most
MDBs have long histories of public sector lending, and their staff and pro-
cesses are geared toward that end. Reorienting to the kind of staff capacity
and processes needed to mobilize private investment will require the DFIs
to make concerted efforts to build the skills to structure more complex
financial arrangements.

Several factors constrain MDB collaboration on PCM (for example, exposure

exchanges). Most private sector mobilization—especially syndication—takes
place with financing provided to private sector, nonsovereign clients. Indeed,
all framework arrangements for collaboration thus far have included only
nonsovereign projects.4 Both the quantity and the quality of the project
pipeline are critical for MDBs in pursuing collaboration to increase PCM.
Exposure exchanges have the potential to increase the PCM capacity of the
development partners.5 However, they are limited by several constraints: the
project pipeline, the legal and statutory constraints of each development
partner, and the tendency of MDBs not to consider exposure exchanges
as a potential avenue to increase PCM. Despite these constraints, some
institutions have found innovative ways to optimize their balance sheets and
pursue exposure exchanges, increasing both PCM and their headroom for

Independent Evaluation Group World Bank Group

future lending, including for sectors that do not easily attract private capital
(box 3.2).
51
 Box 3.2. A
 frican Development Bank Portfolio Risk Transfer: An Example
of Exposure Exchange

In September and October 2018, the African Development Bank (AfDB) undertook two
groundbreaking operations that involved transferring a portion of the risk in its portfolio
of development loans to private sector investors. The transfers freed up resources for
additional lending, including lending for development of social sectors for which it is
difficult to mobilize private capital. In the first operation, AfDB undertook a synthetic
securitization, wherein it sold off a portion of the risk embedded in a set of 40 private
sector loans worth about $1 billion on its books to a group of investors led by Mariner,
a United States–based impact investment fund, with support from the European Com-
mission. Investors receive annual payments of 10.65 percent for the duration of the
arrangement in exchange for assuming one of the junior (riskier) tranches of the loans.
In return, AfDB received total capital headroom relief of $650 million for future lending.
Unlike true securitization, where loans are removed from the books of the originat-
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 3

ing institution, these loans stayed legally on AfDB’s books, and AfDB will continue to
administer them for their life. These techniques could be scaled up to involve investors
in development finance at the same time as addressing the headroom constraints of
development finance institutions to channel greater financial resources to clients and
sectors that do not typically attract private capital.

Source: Independent Evaluation Group industry interviews.

G2G sovereign lending can limit the Bank Group’s potential to scale up PCM.
G2G direct lending undercuts MDBs in terms of financing structure, loan pric-
ing, loan tenor, and processing time. It can also distort private actors’ expec-
tations of the addressable project pipeline in a country and reduce the ad-
dressable market for MDBs in general, especially on infrastructure financing.

» OECD countries typically pursue G2G lending in EMDEs directly through spe-
cial investment vehicles to boost returns on their national savings and as an
alternative to traditional, fixed income investments. The sovereign investor
base that pursues G2G has expanded from OECD countries to South inves-
tors, increasing competition among sovereigns. This is particularly evident in
the Sub-Saharan Africa, South Asia, and East Asia and Pacific Regions.6
52
» Middle East sovereigns (for example, Qatar, Saudi Arabia, and the United
Arab Emirates) were once active only in the Middle East and North Africa Re-
gion but have increased commitments to large infrastructure projects across
East Asia and Pacific and Southeast Asia (for example, in Indonesia and the
Philippines) and in the road and air transport sectors. In Bangladesh, Middle
East and North Africa sovereigns fund social sectors with potential for private
sector participation through bilateral agreements.

Internal Constraints
The Bank Group can scale up PCM and improve country outcomes by ad-
dressing internal constraints on mobilization in two areas: (i) definition and
enforcement of Bank Group targets, incentives, and skills; and (ii) design of
instruments and platforms.

Target Setting and Implementation

Unclear PCM targets at the operational level and inconsistent measurement
methods are a constraint. Although progress has been made to systematize
reporting across MDBs, PCM is understood, defined, and discussed different-
ly across the Bank Group institutions. The IFC PCM definitions and targets
are clear. However, IFC’s notion of core mobilization includes both private
capital sources and public capital sources (such as DFIs and sovereign wealth
funds) that take on commercial risk from IFC projects. This allows IFC to tap

Independent Evaluation Group World Bank Group

diverse sources of capital for commercial transactions compared with other
MDBs and DFIs. The World Bank’s accounting of PCM projects at the project
approval stage is not aligned with practices at IFC and MIGA, where PCM
projects are accounted at the commitment stage. The World Bank may be
overestimating PCM because of measuring it at the approval stage rather than
at the commitment stage. However, the World Bank may be underestimating
PCM because it does not account for certain Treasury advisory activities that
mobilize private capital and are aligned with the PCM definitions. Definition
shortcomings make measuring PCM results difficult and reduce the meaning-
fulness of aggregate results in the Bank Group Corporate Scorecard.

World Bank staff do not have incentives to engage and mobilize private ac-
53

tors in World Bank projects and scale up PCM. Although IFC has PCM targets
 that cascade down to various units, World Bank memorandums of under-
standing between Regional vice presidencies and GPs—and related score-
cards—do not include PCM targets. World Bank staff report that the moti-
vation to structure PCM deals primarily comes from (i) client demand, (ii)
a significant gap in financing, (iii) the limited World Bank lending envelope
dedicated to a country, and (iv) rising levels of sovereign debt. These factors
are often interrelated. This was especially relevant in discussions with the
Transport and Digital Development GP, during which staff mentioned that
in some cases, when there is no headroom constraint for the client country,
the incentive for PCM is overridden by the incentive to pursue direct lending
support from the GP teams. Staff indicated that PCM is used as a mechanism
to sustain progress when country strategies and priority sectors shift, reduc-
ing the amount of World Bank funding allotted to practice areas that were
funded in previous years. Interviewees representing World Bank manage-
ment and task teams specifically highlighted the need to better align incen-
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 3

tives to reward good performance (measured through achievement of PCM

targets and pricing) instead of setting targets tied to IBRD or IDA lending
operations only. Some task team leaders emphasized the need to put prop-
er systems in place to track progress and efforts made toward structuring
PCM deals, and others emphasized the need to track the existing PCM data
against the committed targets accurately.

Financial structuring skills are scarce at the World Bank. Few World Bank staff
have the technical skills to design PCM interventions. Staff across sectors
and ranges of experience, both in the GPs and in Regional teams, repeatedly
mentioned this as a constraint. To address this and scale up PCM, sugges-
tions included ramping up relevant training and learning engagements for
staff, with an initial focus on providing them with a better understanding of
existing instruments. World Bank staff could also bring financial structuring
knowledge to operational work by collaborating more systematically with
Infrastructure, Public-Private Partnerships, and Guarantees and the Treasury.
Involving Treasury and Infrastructure, Public-Private Partnerships, and Guar-
antees colleagues in operational work would help in scaling up PCM.

The need for supporting implementation of and sustaining regulatory reforms

can constrain PCM. Addressing regulatory constraints requires sustained
54

actions, including after private capital is mobilized. Investors seek repeat en-
gagements in client countries and see the participation of the Bank Group as
a risk mitigant. Specifically, investors receive comfort from the World Bank’s
continuous sectorwide engagements. The Cameroon and Egypt cases illustrate
the point that concomitant Bank Group support can lead to PCM and generate
greater access to infrastructure service delivery. One interviewee highlighted
that simple Bank Group technical assistance interventions can have a large
multiplier effect, citing the example of Brazil’s reform of currency convertibil-
ity via its national treasury to achieve investment creditor status. The coun-
try cases also highlighted some of the challenges of sustaining reforms. For
example, in Argentina, power network transmission capacity is a substantial
constraint on the implementation of renewable energy generation and there-
fore on mobilizing private investment for this sector. In Mongolia, the World
Bank undertook upstream work to enhance transparency related to revenues
and rents from mining, but the limited success of governance reforms in the
sector affected post-PCM activities. In Zambia, continued government capac-
ity weaknesses and a slower pace of sectoral reform have limited the scale-up
of initial successes with Bank Group–supported solar projects.

Mobilization Instruments and Platforms

The knowledge of World Bank clients and staff about guarantees is suboptimal.
Clients and staff ask whether a guarantee can cover an exposure fully or only
partially. Most major MDBs avoid providing full guarantees as a matter of poli-
cy for several reasons.7 Bilateral DFIs tend to have more flexibility and provide

Independent Evaluation Group World Bank Group

100 percent guarantees. Staff have different opinions as to whether the World
Bank policy of not providing 100 percent guarantees is a constraint on PCM.

Domestic lenders cannot benefit fully from IFC B loans. Local financing
institutions cannot invest domestically under IFC’s umbrella (for example,
syndications) per IFC’s current policies and as a result cannot impart local
knowledge to PCM projects. To partly address this, IFC is trying to innovate
by developing derivative products that would extend local currency financing.
This, however, will not be a game changer for all countries because of
limitations in finding local or overseas swaps with market counterparts.8 If IFC
aims to expand its B loan program and scale up debt mobilization, it has to find
new ways to crowd in domestic lenders (for example, local currency syndication
55

products and hedged A-loan participation to free up PCM capacity).

 It is not clear whether IFC is achieving adequate returns through debt mo-
bilization platforms, and the return on MCPP needs to be assessed. It is not
clear whether IFC is receiving an adequate return after providing first-loss
credit enhancement to the initial three third-party fund managers through
the MCPP platform. Ideally, an external auditor also needs to assess this
platform through an independent risk return analysis. If the return is inade-
quate given the risk, a timeline should be established for modifying the plat-
form design appropriately, allowing the desire to establish a demonstration
effect on debt mobilization platforms.

IFC platforms are not fully aligned with the customs and practices of large
institutional investors. Although IFC targets investments in private com-
panies below a certain valuation (low-medium size by industry standards),
most target investors for platforms like the MCPP and GCBF have invest-
ment portfolios that are vastly larger than IFC’s. They are also more sophis-
ticated in their benchmarking approaches to understand their risk return
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 3

profiles. IFC could either participate in or replicate existing market innova-

tions such as a loan securitization product introduced in Southeast Asia cov-
ering a global portfolio of infrastructure projects (box 3.3). Such approaches
are not without challenges and need to be carefully studied and potentially
piloted (as IFC had attempted to do in Argentina in 1997) to mimic large
institutional investors’ existing portfolio and risk appetite.

Box 3.3. Bayfront Capital Infrastructure Securitization

In July 2018, a Singapore-based financial institution successfully launched the first

large-scale securitization of infrastructure assets in Asia to fill infrastructure financing
gaps in the region and increase access to service delivery. Clifford Capital, owned
by the Singapore government’s sovereign wealth fund, structured a portfolio of 37
project finance and infrastructure loans—totaling $458 million, from 16 countries in the
Asia-Pacific and Middle East regions—that faced a financing gap in their construction
or expansion stages. The issuance was structured into three notes listed on the Singa-
pore Exchange. Clifford Capital retained an unrated subordinate tranche for 10 percent
of the transaction to maturity. The notes were purchased by a mix of major institutional
investors in Asia (65 percent), Europe (25 percent), and elsewhere, including insur-
56

(continued)
 Box 3.3. B
 ayfront Capital Infrastructure Securitization (continued)

ance companies, asset managers, pension funds, and bank treasuries. The landmark
transaction—projected by Clifford Capital to be the first in a series of infrastructure
securitizations—demonstrates the viability of marketing long-dated infrastructure in
developing countries to institutional investors. Development institutions like multilat-
eral development banks (MDBs) can help accelerate this process. MDB involvement
in helping design, fund, or provide risk mitigation products to the underlying infra-
structure strengthens their quality and makes them better candidates for institutional
investment via individual project bonds or through packaged instruments like the
Bayfront deal. In addition, MDBs and other development finance institutions can lend
their financial strength to issuing new securitization packages by helping structure the
deals themselves from their own portfolios or in a mix with commercial banks. They
can also purchase subordinated or senior tranches of the security, depending on the
risk appetite of other investors. MDBs can contribute to building data on the perfor-
mance of infrastructure debt, along the lines of recent evaluations by Moody’s, to help
institutional investors adequately analyze track records and risk probabilities.

Source: Independent Evaluation Group industry interviews.

The common challenges to MIGA guarantees revolve around MIGA’s com-

parative position and considerations about external debt and fiscal sustain-
ability. MIGA’s historical comparative advantage rests in crowding in FDI and

Independent Evaluation Group World Bank Group

underwriting private sector project risks. Its new product offerings, however,
are in public finance, creating dependencies on country performance, fiscal
capacity, and governance quality issues not under MIGA’s control. These con-
siderations raise issues about the complementarity, overlap, and substitut-
ability of MIGA’s new products in relation to the World Bank and IFC guaran-
tee products and sovereign, subnational, and state-owned enterprise loans.

Constraints Affecting All Instruments: Resources and

Design Complexity
Expansion of IFC’s PCM platforms (for example, AMC, MCPP, and GCBF) and
World Bank Treasury advisory is limited by internal capacity. There is a cadre
57

of investors with a long-term approach and a desire to reap yields not avail-
 able in industrial countries. Among them, appetite for long-dated, develop-
ing market assets is very strong, as evidenced in IEG’s Global Investor Survey
(Narayanan 2018). Regardless of the instrument or platform, scaling up PCM
can have implications for the Bank Group institutions’ balance sheets and
investors’ concerns in terms of resource intensity and complexity.

Scaling up PCM requires additional resources partly fulfilled by the recent

approval of World Bank and IFC’s capital increase. Pursuing PCM opportu-
nities requires technical knowledge. Staff must understand the underlying
mobilization instruments and know the techniques required to prepare
projects that align with both client and investor expectations. Projects using
four mobilization approaches (namely, equity, debt, bonds, and guarantees)
tend to be highly specific to client context and require significantly higher
staffing levels, both in number and in technical skills, than projects without
mobilization approaches.
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 3

Economic capital use by PCM instrument is a constraint from the corporate

risk perspective. Economic capital usage is a good proxy for the financial
resource intensity of PCM. The Bank Group sets aside economic capital
for all PCM instruments and platforms.9 The higher the risk of the PCM
approach, the greater the use of economic capital, with implications for
the balance sheet. Investment or lending projects with direct mobilization
require leverage of the institution’s balance sheet, per the skin-in-the-game
principle. Although the mobilized amount does not use up any economic
capital, the cofinanced amount or support directly provided to the same
project requires economic capital allocation. In these terms, advisory
mobilization is the least resource-intensive approach, followed by the debt
mobilization approach (short-term financing aside). The equity mobilization
approach uses the most economic capital.

Guarantee mobilization requires loan loss provisioning on IBRD, IDA, and

MIGA balance sheets, which is a limiting factor in the use of guarantees.
Every World Bank guarantee issued needs to have capital allocation provi-
sioned either on the IBRD balance sheet or on the IDA balance sheet. Scaling
up guarantees thus potentially affects the level of loan provisioning avail-
able for traditional loan products, like investment project financing, devel-
opment policy financing, and Program-for-Results, and implies that World
58
Bank management needs to make trade-off decisions in certain client coun-
tries between lending on its own account versus issuing guarantees. Reinsur-
ing World Bank guarantee exposure through third-party reinsurers, similar
to MIGA’s reinsurance approach, is one option to increase the capacity to
scale up World Bank guarantees. Such trade-off decisions have implications
for IBRD’s fee income and the World Bank’s risk management.10 Reinsurance
of World Bank guarantees is a complex issue that requires other financial
considerations that go beyond the need to increase capacity to issue more
World Bank guarantees.

There are opportunities to scale up PCM, despite these constraints. The next
section discusses them.

Opportunities to Scale Up PCM

Almost all Bank Group client countries have untapped potential to crowd in
private capital. According to IEG modeled estimates, most Bank Group client
countries are attracting only 50–80 percent as much private capital as they
could in normal circumstances (including FDI, portfolio equity, and private
sector borrowing). To test the effects of country capacity for PCM further,
IEG performed a data envelopment analysis of the efficient frontier for 115
client countries (appendix J).11 The analysis generated an efficiency score for
each country.12 On average, private capital flows are at 61 percent of the esti-
mated potential among these countries for the period 2015–18. The analysis

Independent Evaluation Group World Bank Group

further suggests the following:

» Most regions show positive trends in attracting private capital flows (relative
to GDP) and in their domestic investment environment. For the countries
analyzed, figure 3.2 provides an overview of the estimated efficient frontier
based on current income levels and the quality of the domestic environment,
in turn based on country indicators like market openness, institutional quali-
ty, and political stability. The Netherlands, the Republic of Yemen, and South
Africa are at the frontier. All other countries can move toward the frontier by
increasing their private capital flows.
59
 Figure 3.2. Estimated Efficient Frontier
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 3

Source: Independent Evaluation Group.

Note: The dashed line represents the production possibility frontier for attracting private capital flows,

quantified as an aggregate measure—the data envelopment analysis (DEA) output variable—of foreign

direct investment inflows, portfolio equity inflows, and private sector borrowing, ranging from 0 to 1. The

DEA output variable is represented on the vertical axis. DEA inputs are measured in terms of market size

and openness, institutional quality, political stability, financial sector depth, logistics performance, nat-

ural resource rents, and skilled workforce level. The DEA input variable is represented on the horizontal

axis. Exact values of the underlying DEA input and output variables for each country are reported in

appendix J. MOZ = Mozambique; NLD = Netherlands; NPL = Nepal; URY = Uruguay; UZB = Uzbekistan;

VNM = Vietnam; YEM = Republic of Yemen; ZAF = South Africa.

» All regions and all income groups have countries with large untapped mobi-
lization potential. Private capital flows tend to be positively correlated with
income, but there are exceptions. For example, some of the LICs and low-
er-middle-income countries (LMICs; for example, Mozambique and Viet-
nam) are as efficient at attracting private capital as the average high-income
country, and some high-income countries (for example, Uruguay) are only as
efficient as the average LMIC.
60
» Some countries (within income groups) have untapped potential to reach
their peers at the efficient frontier. For example, within the LICs, Mozam-
bique and Nepal have comparable domestic enabling environments (as
measured by the data envelopment analysis efficiency score of 0.4). Yet Mo-
zambique attracted more private capital than Nepal did during the evaluation
period. The discrepancy suggests that there may be opportunities to attract
private capital to Nepal (among other LICs).

» There is a lot of variation in the roles that different types of private capital
play in different income groups. Private sector borrowing plays an important
role among high-income countries and some upper-middle-income countries
but seems almost nonexistent in many LICs. Nevertheless, LICs and LMICs
often attract portfolio equity flows (as a percentage of GDP) similar to those
of countries in other income groups.

The World Bank and IFC do not target specific countries to mobilize pri-
vate capital. The targeting of the World Bank and IFC PCM approaches
was not driven by considerations about countries’ records in attracting
private capital relative to their domestic environments (figure 3.3). The
Bank Group’s PCM portfolio was concentrated on the mean efficiency
scores, suggesting that the Bank Group PCM portfolio focused mainly on
countries with well-developed investment climates, regulatory capacity,
and capital markets. However, there is untapped potential to increase
Bank Group PCM projects in countries that are below the median line.

Independent Evaluation Group World Bank Group

For example, in figure 3.3, Nepal (abbreviated NPL) and Uzbekistan
(abbreviated UZB), together with Chad (abbreviated TCD) and the Dem-
ocratic Republic of Congo (abbreviated COD), feature in the low-low
quadrant (lower than median efficiency score and lower than median
PCM ratio). This confirms that opportunities exist to target LICs and
LMICs and prioritize PCM activities.
61
 Figure 3.3. M
 apping Private Capital Mobilization to Efficiency at Attract-
ing Private Capital to Identify Countries and Economies with
Scale-Up Potential
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 3

Source: Independent Evaluation Group analysis.

Note: The horizontal axis corresponds to the data envelopment analysis efficiency score. CHL = Chile;

CHN = China; CIV = Côte d’Ivoire; COD = Democratic Republic of Congo; GHA = Ghana; HND = Honduras;

HRV = Croatia; HTI = Haiti; HUN = Hungary; JOR = Jordan; KEN = Kenya; LBR = Liberia; MDV = Maldives;

MMR = Myanmar; MNE = Montenegro; MOZ = Mozambique; MRT = Mauritania; NGA = Nigeria; NPL =

Nepal; OMN = Oman; PCM = private capital mobilization; SAU = Saudi Arabia; SLE = Sierra Leone; SRB =

Serbia; TCD = Chad; TGO = Togo; TTO = Trinidad and Tobago; UKR = Ukraine; UZB = Uzbekistan; VNM =

Vietnam; ZAF = South Africa.

Current PCM approaches can likely be scaled up until a client country reach-
es a tipping point. Investors’ perception of risks declines as a country im-
proves its governance, investment climate, and capital markets. The tipping
point can be expected to occur when a country achieves a certain level of
performance in these areas. After the tipping point, the additionality of the
Bank Group’s PCM approaches may decline. At that point, some PCM may
continue with innovative instruments, but private capital is likely to directly
flow to the country without Bank Group involvement (figure 3.4).
62
Figure 3.4. B
 ank Group Private Capital Mobilization Expected Growth
versus Country Reform Progress

World Bank Point at which private sector capital and

Group private FDI flows can happen without MDBs
capital and where MDB additionally tends to be
mobilization low with a business-as-usual approach
activities

Sweet spot for MFD

and increasing PDM Sweet spot for innovative
(such as LIC, LMIC) instruments (such as
greening the financial
system in UMICs)

Creating
Markets
phase

Country governance, investment

climate and capital markets

Note: FDI = foreign direct investment; LIC = low-income country; LMIC = lower-middle-income country;

MDB = multilateral development bank; MFD = Maximizing Finance for Development; PDM = private

direct mobilization; UMIC = upper-middle-income country.

Instruments That Can Help the Bank Group

Scale Up PCM Independent Evaluation Group World Bank Group

Opportunities exist to increase coverage of project- and country-level risks

by innovating and introducing new PCM instruments. Interviews with inves-
tors and clients indicate that Bank Group instruments have the potential to
cover public policy changes, address lack of pipeline, and increase collabo-
ration (for example, with the insurance industry). This requires a thorough
analysis of any internal risks involved in adding to complexity and involves
trade-offs. In IEG surveys, institutional investors highlighted several de-
tailed requirements that need to be filled before such complex investment
opportunities (for example, unfunded risk participation with the MCPP or
scaling up GCBF with regulated entities) can be considered because of the
63
 investors’ own capacity, internal risk, and investment strategies, and to meet
regulatory requirements. Regulatory requirements include investments in
their own reporting currencies, publicly listed securities with a high degree of
liquidity, fixed income interest with an investment grade rating and sufficient
yield, and large transactions to allow for advanced commitments and place-
ments of capital resources.

World Bank disaster risk products are in high demand and could be scaled up
with support from World Bank Treasury and advisory teams. When Treasury
receives a fee for crowding in investors in the context of disaster risk man-
agement solutions to clients, the initiative should be counted toward PCM.
Investors consistently oversubscribe IBRD-intermediated catastrophe bonds
at spreads that are often less than originally forecast and at or below pre-
vailing market levels (appendix E), generating efficiency gains and access to
long-term capital for client countries to address priorities after disaster. But
long-term client demand for disaster risk preparation and resilience building
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 3

has yet to crystallize. For this reason, the World Bank risk transfer program
addressing disaster risk solutions in both preparation and post-disaster
phases will need time to establish itself. Both World Bank Treasury and IFC
Treasury can monitor developments in Part I countries to identify new risk
transfer products that could be applicable to partner countries and are con-
sistent with the SDGs. Blue bonds are one example of an innovation from the
World Bank Treasury (box 3.4). They deserve further attention in the context
of PCM because they contribute to SDG 14 (life below water). Furthermore,
tweaking such World Bank Treasury and advisory initiatives and recasting
them in the PCM context can be considered.

Box 3.4. B
 lue Bonds: A Treasury-Supported Instrument for
Sustainable Investors

Sustainable and green bonds have grown tremendously in the past decade, fueled by
an increasing desire among investors to see their investments not just earn a financial
return but also make the world a better place. Blue bonds use investment proceeds
to help protect the ocean environment, which covers more than 70 percent of the
planet’s surface and is critical to the livelihoods of billions of people across the globe.
64

(continued)
 Box 3.4. B
 lue Bonds: A Treasury-Supported Instrument for
Sustainable Investors (continued)

Blue bonds were first used by a sovereign nation in October 2018, when the Sey-
chelles issued a 10-year, $15 million bond partially guaranteed by the World Bank. The
proceeds of the bond are to be used to help fund a variety of projects to protect and
better use the Seychelles’ ocean environment, including expanding marine reserves,
building a more sustainable fishing industry, and reducing water contamination. The
bond was sold directly to three United States–based impact investment funds: Calvert
Impact Capital, Nuveen, and Prudential. The Nordic Investment Bank, a multilateral
bank owned by Scandinavian countries, issued a second landmark blue bond deal
on January 24, 2019. In April 2019, the Nature Conservancy announced plans to scale
up the use of blue bonds, targeting $1.6 billion in bond issues across 20 countries by
2025, following on from the Seychelles pilot. Also, in April 2019, the World Bank part-
nered with Morgan Stanley to issue and market a $10 million sustainable bond geared
to addressing plastic waste pollution in the world’s oceans.

Source: Bank Group Treasury, Independent Evaluation Group interview notes.

Avenues for Future Research and Analysis

Several questions related to PCM go beyond the scope of this evaluation but

Independent Evaluation Group World Bank Group

deserve further research, analysis, and strategic consideration. Academics
(for example, Banerjee and Duflo 2011) have argued that governments in
developing countries can domestically raise most of the money spent on the
world’s poor (that is, domestic resource mobilization) rather than through
mobilization of international capital inflows. IEG’s empirical analysis on
country potential included a domestic indicator of private sector borrowing
as one of three types of private capital flows into client countries. However,
a more detailed analysis on the (potentially distinct) patterns of domestic
resource mobilization and underlying factors is left for future research.

There are more MFD and PCM opportunities. Some are known, and some are
not known. Several have major implications for Bank Group approaches to
PCM in the future. Chapter 2 discusses all empirical and normative evidence
65
 currently available on MFD and upstream reform engagements. A lot more
reforms work that influences PCM is ongoing, but the links are not recorded
well in the Bank Group systems. IEG stakeholder interviews revealed several
new approaches for the Bank Group to innovate and collaborate with other
MDBs and the broader development community. For example, stakeholders
suggest that the Bank Group, other MDBs, and DFIs work closely with the
Basel Committee on Banking Supervision and the three rating agencies on
the following areas:

» Debt and equity investments: Recognize treatment of syndicated loans provid-

ed to EMDEs to free up commercial bank capital exposure and risk exposure;
develop third-party ratings of Bank Group–supported projects into EMDE
environmental, social, and governance investments for market recognition;
securitize the World Bank loan portfolio and pursue loan syndications; and
explore debt-for-climate swaps, which entail concessional funders buying
back outstanding debt, freeing up resources to address climate change, and
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 3

helping clients mitigate disasters.

» Guarantees: Recognize guarantee products in the Basel framework; recognize

reinsurance and A-loan sales but mark to market on all guarantee exposure;
and pursue comprehensive guarantees, portfolio guarantees, and expansion
of MIGA’s support beyond OECD currencies and beyond green project bonds.

The potential of these techniques and approaches—and the implications

for resources (human and capital)—could not be ascertained at this stage.
Further analysis is required with reliable data sets from internal or external
sources, and all MDBs and DFIs should be engaged, for example, in climate
finance and attribution of climate cobenefits. Such approaches and tech-
niques have major implications for the SDGs and for the Bank Group’s bal-
ance sheet, resourcing, risk management framework, and governance.
66
 For example, in the European Solvency II regime for insurers, capital charges are higher for
1 

less liquid assets and bonds with longer maturities and lower credit ratings. However, the Eu-
ropean Union has introduced “discounts” on capital requirements for lower-risk infrastructure
investments (project and corporate debt).

2 
The Organisation for Economic Co-operation and Development gives an annual overview
of constraints on unlisted and private equity and debt, credit ratings, direct investments,
infrastructure funds, foreign currency, and other instruments (OECD 2018). These constraints
may affect different routes to infrastructure and financial sector investments. In practice, the
constraints may be more binding in some countries (especially emerging markets) than in
others.

Examples are the European Union Markets in Financial Instruments II on the operation of
3 

asset managers and the European Union action plan for sustainable finance, including new
disclosure rules and a green taxonomy. Such regulations affect the International Finance
Corporation’s PCM platform approaches directly.

4 
Including only nonsovereign projects is because of pricing: nonsovereign financing by MDBs
and most development finance institutions is close to market rates. Thus, it is easier to find
private investors willing to join such a deal because they earn a market return commensurate
with their risk. Sovereign financing by MDBs, however, is at rates well below the market. The
low rates mean that investors would earn low returns relative to the risk they take compared
with alternative investments in developing countries.

The sovereign exposure exchange agreement is a risk management tool that the major MDBs

Independent Evaluation Group World Bank Group

5 

developed collaboratively. This initiative was launched in October 2013 by the International
Bank for Reconstruction and Development and endorsed by the MDB heads after a meeting
of the Group of Eight ministers of finance. Unlike commercial financial institutions, which
diversify their loan portfolios across thousands and sometimes millions of borrowers, the MDBs
lend to their sovereign shareholders. The resulting asset concentration reflects the strength
of the relationship between MDBs and their borrowers, but it also requires MDBs to hold
additional capital.

Asian sovereigns (for example, China and Japan) are the most active in infrastructure financing
6 

and crowd out opportunities for low- and lower-middle-income countries to pursue private
capital in East Asia and Pacific and in South Asia. Several projects initiated by the World Bank
or the International Finance Corporation in Bangladesh, India, and Mongolia in the energy
67
 or extractive sectors were financed by Asian sovereigns directly under their bilateral treaty
agreements.

7 
These reasons include reducing moral hazard, exposing the borrower at least partially to the
market to build toward future borrowings without MDB support, and not contaminating the
market for MDB bonds, among others.

8 
A currency swap is an agreement in which two parties exchange the principal amount of a
loan and the interest in one currency for the principal and interest in another currency. At the
inception of the swap, the equivalent principal amounts are exchanged at the spot rate.

9 
Economic capital is the capital required for the Bank Group institutions to maintain their
AAA rating.

10
  One way to look at the trade-off decision is to explore the causal relationship between a loss
on a project and inability to pay by the sovereign—in other words, to assess whether the project
risk can cause a sovereign loss or vice versa. Seen in this light, there are different potential lines
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 3

of causality. The first line is from the project in difficulty to the sovereign in difficulty: Should
a project not perform well, it may not be able to service its debt. But typically, it seems unlike-
ly that a project default would lead to a sovereign default, except for an exceptionally large
project in a significant sector, particularly for most middle-income countries. As such, project
risk will necessarily be higher than sovereign payment risk because the latter is unaffected by
a project default, thus justifying the need to hold more capital for project loans than for sov-
ereign loans, which is reflected in differential spreads between project and sovereign lending.
The second line is from the sovereign in difficulty to the project in difficulty: If a sovereign is
facing difficulties with payments to its creditors, it is likely that it may not be in a position to
meet its contractual obligations to projects. (It will also be likely that the economic situation
in the country is deteriorating and projects are facing increased risk.) In such a situation, it is
most likely (but not inevitable) that a project with, for example, a partial risk guarantee will
face serious difficulties that could lead to a default on the commercial loans, which would trig-
ger a call on the partial risk guarantee (assuming that it covers payment risk). Such a situation
would indicate that the sovereign payment risk is highly correlated with project default risk,
which means that a lender would need to hold the same or more capital for a project loan than
for a sovereign loan. The third line, in the case of MIGA, is that the Council of Governors and
Board of Directors set the maximum amount of contingent liability that may be assumed by
MIGA as 350 percent of the sum of its unimpaired subscribed capital and reserves and retained
earnings, 90 percent of reinsurance obtained by MIGA with private insurers, and 100 percent
68

of reinsurance from public insurers. MIGA’s maximum net exposure is therefore determined by
the amount of available capital after setting aside contingencies. The Council of Governors and
Board of Directors approved an increase to 500 percent in 2016, in accordance with the pro-
cedures set forth in Article 22(a) of the MIGA Convention. In addition, the Board approved an
increase in MIGA’s portfolio reinsurance limit from 50 percent to 70 percent of gross exposure.

11
The obtained efficiency scores are normalized to range between 0 and 1, where units located
on the frontier are assigned the maximum value of 1. In the presented study, the data envelop-
ment analysis first calculates an empirical production possibility frontier for private capital flows,
which is then used to rate the performance of each country relative to the frontier. This provides
an estimate of the capital flows each country should be able to achieve based on what other coun-
tries with similar characteristics and domestic investment environments are achieving.

12 
The distance between an observed input-output combination and the estimated frontier is
used to quantify each unit’s relative efficiency. The obtained efficiency scores are normalized to
range between 0 and 1, where units located on the frontier are assigned the maximum value of 1.

Independent Evaluation Group World Bank Group

69
 4 | Conclusions and
Recommendations

PCM approaches increase access to new financing sources for develop-

ment projects and are highly relevant to achieving the SDGs. PCM approach-
es channel investors’ capital to developing countries and investee firms for
the financing of large infrastructure and finance projects, in turn increasing
access to energy, finance, and other services for households and firms. Many
important operations relevant to the SDGs (for example, building dams to
generate renewable energy) require investment that governments of devel-
oping countries cannot meet with public funding only. An important second-
ary benefit of PCM is that it saves Bank Group financial resources to channel
to operations in sectors, such as social protection or health, that are not
conducive to private sector investment. It thereby increases the efficiency
with which Bank Group financial resources create development impact.

Bank Group approaches to PCM have been relevant and mostly effective for cli-
ent countries. They partially meet investors’ expectations. Bank Group instru-
ments were largely effective. World Bank guarantees had positive outcomes.
IFC syndicated loans had positive effects on client firms’ access to finance. IFC
debt and bond mobilization platforms, namely the MCPP and the GCBF, were
effective in meeting client and investor expectations. Equity platforms such as
AMC showed mixed results in meeting IFC’s development objectives (based on
IEG’s 2018 meso evaluation of the IFC Asset Management Company). PPP advi-
sory projects have resulted in a substantial role for domestic and South-South
bidders from other emerging markets. MIGA has positioned itself well among
the MDBs in addressing PCM thanks to its products (political risk insurance,
nonhonoring guarantees) and the use of reinsurance.

Both external and internal constraints limit PCM. Several business envi-
ronment constraints limit PCM, including poor governance and regulatory
barriers to investors. Internally, IBRD PCM targets have not cascaded down
70  

to the Regional teams and Practice Groups: World Bank memorandums of

understanding between Regional vice presidencies and GPs—and related
scorecards—do not include PCM targets. Use of PCM instruments is limit-
ed by the amount of economic capital available and the risk appetite of the
Bank Group institutions, by the complexity of design, and by the skills and
knowledge of the staff.

Enabling environment reforms are often success factors for PCM and should
be sustained. Bank Group–supported reforms that address both sector and
macroeconomic constraints are more successful than other, less compre-
hensive reforms. However, PCM opportunities also arise in lightly regulated
environments and in the absence of extensive upstream reform efforts by the
Bank Group.

There are opportunities to scale up PCM, especially among LICs and LMICs.
IEG’s efficient frontier analysis suggests that, given investment climate and
income levels, private capital flows (including FDI, portfolio, and private
sector borrowing) are at only 50–80 percent of their potential. This suggests
that there are opportunities to increase PCM across all client countries.

COVID-19 may dim the prospects for certain traditional PCM instruments,
like the B loan program, but increase the potential for other PCM instru-
ments and platform approaches. In view of COVID-19, World Bank guaran-
tees will likely be in greater demand to support new project financing or re-
financing efforts. Treasury advisory efforts in support of client governments’
pandemic responses will become a priority. A pandemic crisis response that

Independent Evaluation Group World Bank Group

includes issuances of World Bank and MIGA guarantees, expansion of short-
term liquidity facilities, IFC’s Distressed Assets Recovery Program, and inno-
vative forms of local currency facilities and rescue financing efforts through
PCM approaches would be highly relevant to the COVID-19 response. Sim-
ilarly, as equity valuations drop, investor and client interest for long-term
commitments to private equity could increase (BlackRock Investor Pulse
Survey, March 2020), leading to greater demand for PCM platform approach-
es.1 At the same time, traditional PCM instruments such as the B loan pro-
gram would face reduced demand as commercial banks and investor partners
reduce their EMDE exposure.

For the Bank Group to increase the relevance and effectiveness of PCM ap-
71

proaches, IEG recommends the following:

 Recommendation 1. To meet the 2030 PCM targets, prioritize client
countries for PCM approaches, with corresponding targets cascading to
the Regional units and GPs (for IBRD). Country strategies can be used to
discuss PCM opportunities and priorities, including in LMICs and LICs. Given
the variation in the roles that different types of private capital play in differ-
ent income groups, it is important to tailor programs to countries’ individual
characteristics and target mobilization efforts at specific types of private
capital flows. In many countries, upstream sector and policy work to support
legal and regulatory reforms for financial sector deepening remain critical
to PCM and investors’ interest. Ensuring that reforms are supported over
time—including after private capital is mobilized—is essential to ensuring
sustainability of the PCM approaches, replication, and demonstration ef-
fects. The Bank Group needs to respond flexibly and quickly as development
opportunities arise. Furthermore, ensuring that the World Bank includes
PCM targets in its Regional and GP scorecards is important for the institu-
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 4

tion to reach its 2030 targets. IBRD needs to cascade PCM objectives to the
Regions and Practice Groups, with clear incentives for operational units to
meet them.

Recommendation 2. Expand PCM platforms, guarantees, and disaster

risk management products commensurate with project pipeline devel-
opment (for the World Bank Group).

» Expand existing PCM platform approaches (in IFC). Much of the internal
narrative on PCM has been about bankability of projects, which favors a debt
approach. However, the heterogeneity of clients and investor constituencies
suggests that a strong pipeline of investable and insurable projects is re-
quired to expand the scope and scale of current PCM approaches,2, 3 including
IFC platforms such as the AMC, the MCPP, and the GCBF. For example, the
insurance industry has the capacity to fund long-term infrastructure projects
(given the asset-liability match) and support green initiatives. Private capital
raised through the AMC or the MCPP platforms meets the necessary condi-
tion to mobilize private capital. However, the necessary condition is met only
when a healthy pipeline of projects is developed in proportion to the private
capital raised in the form of funds and those projects achieve their develop-
ment outcomes.
72
» Expand PCM approaches to support policy reforms and disaster risk
financing, leveraging Treasury and advisory capabilities (in IBRD). For
IBRD, guarantees have been the primary instrument for PCM. There is room
for them to grow, especially instruments tied to client reforms. World Bank
disaster risk management products and programmatic PPP solutions are
experiencing a renewed demand and could be scaled up with support from
the World Bank Treasury and Infrastructure, Public-Private Partnerships, and
Guarantees units.

Recommendation 3. Develop new products and improve product alignment

with the needs of new investor groups and partners (for IFC and MIGA).

» Simplify products for most institutional investors. Although IFC has

developed complex instruments and platforms to mobilize private capital, it
has not fully developed its approach to institutional investors. To engage with
institutional investors, IFC needs to accept their investment objectives, project
parameters, decision-making processes, and industry best practices. These may
stand in contrast to those on which IFC has achieved the current platform deals
with the MCPP and the GCBF. Most institutional investors lack the capacity to
work with complex Bank Group instruments and platforms and develop custom
portfolios. Simpler products with solutions comparable to their existing portfo-
lios but with exposure to EMDEs are relevant to these investors.

» Maintain leadership in products for sophisticated investors. A small

group of sophisticated investors prefers complex products, such as securitiza-

Independent Evaluation Group World Bank Group

tion of EMDE projects. Hence, scaling up Bank Group PCM operations re-
quires making trade-off decisions within and across the various instruments
and platforms. IFC can continue to maintain its leadership in this space if it
staffs and resources these platforms appropriately, for example, by adding
IFC advisory services offerings to increase capacity and knowledge in new
EMDE issuers.

» Continue to innovate instruments. Global and regional clients also seek

innovative instruments, for example, to better support local currency financ-
ing through pooled currency facilities. Certain innovative approaches require
projects to engage with credit rating agencies. Green financing and new
instruments addressing climate change require working with international
73

consortia, research and rating agencies, and data providers. There is market
 demand for political risk guarantee solutions that offer comprehensive cover-
age or support collective investment vehicles targeting LMICs and LICs. Such
opportunities can be translated into innovative new MIGA products. MIGA’s
latest strategic business outlook provides an outline for six new applications.
Pilot approaches using innovative instruments and better investor alignment
can help scale up PCM and improve outcomes.

» Conduct regular reviews. Risk assessments of each instrument and plat-

form, analyzing implications for the three institutions’ balance sheets and
determining the corresponding financial needs, are required before scaling
up. PCM instruments and platforms’ alignment with investors’ risk appetite,
internal capacity, and engagements over time need to be reviewed, as they
are for client countries and client corporates.

Implementing these recommendations will increase the likelihood that the

Bank Group will meet its PCM corporate targets and make significant contri-
World Bank Group Approaches to Mobilize Private Capital for Development  Chapter 4

butions to meeting the SDGs and development more broadly.

74
1
 https://www.blackrock.com/corporate/insights/investor-pulse

2 
Investable projects are those seeking equity investments.

3 
Insurable projects are those with insurable risk.

Independent Evaluation Group World Bank Group

75
 References
Axis Bank. 2019. “Green Bond Impact Report.” Axis Bank, Mumbai.

Banerjee, Abhijit V., and Esther Duflo. 2011. Poor Economics: A Radical Rethinking of
the Way to Fight Global Poverty. New York: PublicAffair Books.

MIGA (Multilateral Investment Guarantee Agency). 2013. Proposed Coverage of a New

Risk: Non-Honoring of Financial Obligations by a State-Owned Enterprise. MIGA,
Washington, DC.

Narayanan, Raghavan. 2018. “Hope or Hype? Attracting Investors to Emerging

Markets and Developing Economies.” Independent Evaluation Group (blog), July
30, 2018. https://ieg.worldbankgroup.org/blog/hope-or-hype-attracting-inves-
tors-emerging-markets-and-developing-economies.
World Bank Group Approaches to Mobilize Private Capital for Development  References

OECD (Organisation for Economic Co-operation and Development). 2018. Develop-

ment Co-operation Report 2018. Paris: OECD Publishing.

Preqin. 2018. 2018 Preqin Global Private Equity and Venture Capital Report. London:
Preqin.

World Bank, IFC (International Finance Corporation), and MIGA (Multilateral In-
vestment Guarantee Agency). 2016. World Bank Group Climate Change Action
Plan 2016–2020. Washington, DC: World Bank.

World Bank 2017. World Bank Group Joint Projects: A Review of Two Decades of Expe-
rience. Lessons and Implications from Evaluation. Independent Evaluation Group.
Washington, DC: World Bank. https://ieg.worldbank.org/sites/default/files/Data/
Evaluation/files/lp_wbgjointprojects.pdf.

World Bank Group. 2015. From Billions to Trillions: MDB Contributions to Financing for
Development. Washington, DC: World Bank Group.

World Bank Group. 2017. Maximizing Finance for Development: Leveraging the Private Sec-
tor for Growth and Sustainable Development. Washington, DC: World Bank Group.

World Bank Group. 2018. Sustainable Financing for Sustainable Development: World
Bank Group Capital Package Proposal. Washington, DC: World Bank Group.
76
Appendix A. Evaluation Methodology

Evaluation Questions
In the context of the World Bank Group’s ambitious targets for mobilizing
private capital, this evaluation has two key objectives: (i) to gain a better
understanding of the Bank Group’s approach to private capital mobilization
(such as instruments and engagements with investors and clients), its relevance
for client countries, and its contribution to development outcomes; and (ii) to
identify the factors and enabling conditions that contribute to successful
outcomes in mobilizing private capital for development. The evaluation will
synthesize lessons of good practice to help the Bank Group enhance its future
capital mobilization role. This evaluation will not assess outcomes from all
activities of the Bank Group that may have a bearing on the level and quality of
private investments, because this include would nearly all Bank Group activities;
it will highlight the relationship between the Bank Group’s upstream activities
and the various private capital mobilization activities when and as appropriate
(figure A.1).

80
Figure A.1. Mobilization of Private Capital: Conceptual Framework

Source: Independent Evaluation Group.

81
Overarching Principles
The overarching issues this evaluation addresses relate to the relevance of the
Bank Group’s approaches to private capital mobilization for its clients and
achieving the twin goals; and its effectiveness in meeting client and investor
expectations and in maximizing the potential contribution of private capital
mobilization to global development priorities. The report seeks to address these
issues by providing analysis and presenting evidence that will answer several
questions and subquestions (table A.1).

Table A.1. Evaluation Criteria, Questions, and Subquestions

Criteria and Evaluation Questions Evaluation Subquestions

1. Relevance: To what extent are the Bank (a) What approaches has the Bank Group used
Group’s approaches to mobilization to mobilize private capital over time?
consistent with its capabilities, client (b) How aligned are the Bank Group’s
needs, and global priorities? approaches to mobilization with development
priorities as reflected in its strategy and the
SDGs?

2. Effectiveness: How effective has the (a) How successful is the Bank Group in
Bank Group been in meeting clients' advancing its strategic priorities through
expectations? What factors drive results, mobilizing private capital and meeting clients'
and what opportunities exist to channel expectations?
private capital for development? (b) Do the Bank Group’s approaches meet
investors' expectations?

(c) What are the internal and external drivers of

results?

(d) What are the internal opportunities (for

example, structure, selectivity, new products,
and platforms) and external opportunities (for
example, innovations outside the Bank
Group)?

Source: Independent Evaluation Group construction.

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Overview of Methodological Design

This evaluation used a multilevel framework for data collection. The evaluation
covered three main levels of data collection and analysis: the global level
(including the total portfolio level of relevant selected mobilization approaches),
the level of selected countries, and finally, selected mobilization approaches in
selected countries. The evaluation was conducted with a mixed-methods
approach, through a combination of portfolio analysis, industry benchmarking,
statistical analysis, case-based analysis, semistructured interviews, and review of
surveys and strategies. The methods are further discussed in table A.2 and
figure A.2.

Table A.2. Evaluation Methods and Description

Evaluation
Component Description
Academic literature Specifically, the structured literature reviews, undertaken in different
review sections of this evaluation, covered the roles that the selected
mobilization instruments play in emerging markets, and at the same
time researched the relevance of these instruments to the clients’
needs and challenges. Moreover, literature about how private
capital flows are related to domestic factors in the host economies
was reviewed for analyses of the impacts of the Bank Group’s
mobilization efforts on countries’ performance in attracting private
capital.

Review of surveys The evaluation team reviewed and analyzed market data and
and strategies surveys, available self-evaluations, Bank Group strategy
documents, and other literature on (i) identifying appropriate
benchmarks to assess the effectiveness of Bank Group approaches,
and (ii) leveraging the private sector for sustainable development
and innovative approaches adopted by other actors.

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Evaluation
Component Description
Global Level

Portfolio review The portfolio data analysis was conducted to identify the trends and
and analysis (PRA) allow the categorization of activities, outputs, and outcomes of the
Bank Group’s mobilization activities. Additional project and country-
level data that were generated from this analysis include (i) the
instruments employed; (ii) the desired results and their
achievements; (iii) lessons from experience; and (iv) relevant
contextual factors. Data on each instrument were analyzed and, to
the extent feasible, classified and assessed using simplified coding
and text analytics tools. Sources of data include internal Bank Group
documents, Bank Group Approval Databases to analyze the drivers
of mobilization initiatives, and changes between Approval and
Commitment related to pricing, tenor, and structure of the activity.
Independent Evaluation Group (IEG) referred to Bank Group Country
Program Ratings and International Monetary Fund Country Analysis
Papers to assess the private sector development aspects.

Frontier analysis The data envelopment analysis assessed the frontier regions for
long-term financial flows and compared the presence of priority
countries (for example, International Development Association
countries or countries affected by fragility, conflict, and violence
relative to the efficient frontiers, and the concentration level of the
Bank Group’s portfolio.)

Semi-structured The evaluation team conducted face-to-face interviews with select

interviews Bank Group staff, global stakeholders, syndication partners, and
clients. This information supplements and complements the
documentary information collected and hence increases the validity
of findings through triangulation. The evaluation team plans to
combine semi-structured interviews (with a protocol to guide
interviewers) with desk reviews to gather views on relevant
benchmarking.

Country Level

Case-based The evaluation team conducted case-based analysis along two

analysis dimensions: (i) the country case studies through field visits and
desk-based research, and (ii) the cross-case-level analysis.

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Evaluation
Component Description
In seven countries, IEG carried out country case studies and
covered more than one mobilization approach through field visits.
The country case study method brought together several data
collection and analysis approaches, such as interviews with key
informants (clients, investors, partners, and staff), document reviews,
and an overall survey of investors. Desk-based reviews were also
conducted for six additional countries. These can be described as
shortened versions of the country cases, with the critical difference
that stakeholders were not interviewed. Further, the cases reflected
on the investors’ preferences for emerging markets and developing
economies, asset allocation rules, and risk appetite as factors
driving private capital mobilization. Case studies are specific
examples of the three selected mobilization approaches. Moreover,
these cases covered the private indirect mobilization aspect of the
relevant mobilization approaches with a focus on the International
Bank for Reconstruction and Development and the International
Development Association. With the rich data collected from the
consistent templates in case studies, the cross-case comparisons
and synthesis were conducted. In the cross-case analysis, the
instrument mapping was undertaken that identified the potential for
risk mitigation and an increase in volume. The analysis contributed
to answering the main evaluation questions, in addition to providing
clients’ perspectives and capturing investor perspectives.

Instrument and
platforms

Econometric The evaluation used data envelopment analysis and econometrics

analysis to assess the relevance and effectiveness of Bank Group
interventions, respectively. The econometric analysis assessed
whether the investors and borrower clients benefited from the role
and additionality of Bank Group approaches.

Industry The benchmarking exercise was conducted to identify public and

benchmarking private benchmarks for Bank Group programs and projects and
assess the risk-adjusted returns to investors compared with
benchmarks.

Source: Independent Evaluation Group.

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Figure A.2. Mapping Evaluation Question with Components

Source: Independent Evaluation Group.

Ensuring the Validity of Findings

The evaluation team applied the components of evaluation methods with a
consistent approach under systematic frameworks. Multiple levels of
triangulation were applied during the evaluation. Common templates were used
by the team members conducting portfolio reviews, case-based analysis, and
interviews. The Independent Evaluation Group (IEG) team members also
routinely crosschecked the portfolio review results to form consensus on the
alignment of review templates and evaluation questions. A workshop was held to

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discuss the results after the coding was completed. Coders were given an
opportunity to revise their work before the validation process.

Robust Validation of Portfolio

 All coded operations were subjected to consistency checks. The team leader
coded three operations given to each coder and compared the results with
those received. At the same time, coders were given 20 operations across the
different approaches they had not coded to recode. The selection of these
operations was by random sampling, and coders were not allowed to share
their original codes with other colleagues.

 The second stage of coding helped validate the results and to check whether
specific questions had been answered based on the protocol. Where there
were discrepancies, the team discussed and harmonized the answers.
Consistency checks were also performed for all questions for which coders
had put “N/A,” indicating information was unavailable. The results of the
validation indicated that the coders had followed the protocol or that the
protocol was easy to apply. At this stage, World Bank information
technology colleagues ran keyword searches through the Bank Group Portal
on specific project IDs and provided keyword extractions in a separate file for
validation.

 As a third stage, the team leader conducted consistency checks through

random sampling of each of the six approaches. For unknown entries, the
team leader sat with the individual coders to validate against the project
documents and interpret private capital mobilization (PCM) data.

 The complete portfolio, and internal institutional project information and

external indicators, 1 was loaded into Stata for in-depth analysis. Descriptive

1 The internal institutional data included project geographic information, direct and indirect
mobilization amount, and project commitment amount. The external data included country-level
macro- and microeconomic indicators from the World Bank and International Monetary Fund, and

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statistics were produced to identify the pattern of the PCM. Crosstabs were
produced for the key variables of interest, where t-tests and ordinary least
squares regression analyses were conducted to test the hypotheses. The
team determined the variables, which had enough variation and could be
used for analysis. Where a variable did not have enough variation, the team
explored the use of other external variables.

Further, internal and external validation mechanisms were applied during the
evaluation. The team consulted and cross-validated with external data
management teams in the World Bank, the International Finance Corporation
(IFC), and the Multilateral Investment Guarantee Agency (MIGA) to compare the
evaluation team’s scoped portfolio to ensure the accuracy of the project
identification and the records of the mobilized capital. In addition, several
rounds of peer reviewers provided feedback during the evaluation process to
guarantee the evaluation’s relevance and effectiveness.

 Feedback from IEG selected peer reviewers: 2 rounds

 Feedback from Country Management Units: 2 rounds (during mission and ex

post)

 Feedback from Project task team leads: 1 round (per specific intervention)

 Consultations with Bank Group Management: 1 workshop

 Consultations with Bank Group staff: several bilateral meetings (>30)

 Consultations with investor data providers: 3 agencies

 Consultations with clients: several (>20)

 Consultations with institutional investors: multiple (>15)

the data envelopment analysis scores that were estimated from the frontier analysis conducted by
the evaluation team.

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 Global survey of institutional investors: 3,200 reached, response rate, 8

percent

Description of Methods
Portfolio Reviews
The portfolio review identified the Bank Group’s private capital mobilization
portfolio. The review provided a rich data set that enabled the evaluation team
to categorize and understand the intervention activities conducted by Bank
Group and their achievement at the output and outcome level. Moreover, it
provided detailed data at the project level on the experience and lessons learned
with relevant contextual factors. This practice allowed further text analysis to
extract the pattern of Bank Group engagement. The data points generated from
the PCM portfolio review were used in analyzing the relevance and effectiveness
of the mobilization approaches. 2

Criteria for Evaluation Portfolio Selection

This evaluation covered all Bank Group approaches to mobilization (table A.3),
namely debt, equity, bonds, guarantees (including MIGA reinsurance), public-
private partnership (PPP) advisory, and special and short-term initiatives. The
scope of this evaluation is linked directly to the Bank Group ambitions to
increase its mobilization ratio, as outlined in the capital increase commitments,
the “Forward Look,” and IFC’s 3.0 Strategy. The period of the evaluation is the
most recent 12-year period, fiscal years (FY)07–18). The primary screening of all
Bank Group projects resulted in a set of 1,382 operations, of which 1,248 are

2 The descriptive statistics of the private capital mobilization portfolio in terms of project number
and volume were based on the complete portfolio instead of the sampled portfolio review results.
The t-tests, which examine the impacts of development finance institution, domestic investors,
and multilateral development bank participation in project outcome were conducted using the
data generated from the sampled portfolio review; these data are statistically representative at the
portfolio level.

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lending or guarantee operations and 134 are Advisory Services and Analytics
(ASA) operations.

What is not in scope is the array of World Bank activities, such as policy
dialogue, investment reforms, privatization reforms, and development policy
financing that play an important catalytic role, but are not, according to the
multilateral development bank–level definition, components of total private
capital mobilization. This definition leaves the following Bank Group activities
outside the scope of this evaluation: World Bank Group Global Programs and
Partnerships, blended finance operations and concessional finance activities,
Bank Group trust fund operations, the World Bank’s Reimbursable Advisory
Services and Analytical and Advisory Services (ASA) business lines in the
absence of a client mandate letter with fees linked to financial commitment or
auditable evidence of the multilateral development bank’s active role leading to
private capital flows. These Bank Group activities can be the subject of ex post
evaluations in future IEG work programs.

Broad consultations within the team and IEG methods advisory on the most
appropriate approach to use. The team developed a protocol based on the theory
of change, theoretical review, and Operations Policy and Country Services
Guidelines for Private Capital Mobilization—direct and indirect.

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Table A.3. Criteria for Evaluation Portfolio Selection

Support Type Product

Debt Debt Syndications

Managed Co-lending Portfolio Program

Bonds Green Bond Fund

Local Currency–Linked Bonds

Thematic Bonds

Equity Equity Syndications

Asset Management Company

Guarantees / Insurance Traditional

Non-Honoring

Advisory PPP, Upstream

Short-term / Special initiatives Trade and Structured

DARP, MEF, ICF, CFP

Note: Asset Management Company funds can invest through senior debt and sub-debt instruments.
Syndications include Parallel loans, in which projects get financed as a result of a Master Cooperation
Agreement. In some cases, DFIs and other MDBs can participate in the same project without a Master
Cooperation Agreement. DARP, MEF, and ICF are special initiatives that are not short-term facilities. DARP =
Distressed Asset Recovery Program; MEF = multilateral environmental funds; International Climate Finance;
Climate Finance Partnership; PPP = public-private partnership.

Portfolio Review Sampling Strategy

To ensure the inclusion of the evaluated projects and the projects from selected
case study countries in the portfolio review, purposive sampling was conducted.
The portfolio review was conducted based on purposive sampling composed of
171 IEG-evaluated projects, 242 projects from selected case study countries
(mobilization portfolio population for the seven countries selected for case
study). To ensure that the sample projects were representative at the region,
institution, IDA status, portfolio status, and country income levels according to
the formula for sample size determination, the initial purposive sampled
projects were supplemented by the projects stratified sampled from the rest of

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the portfolio. Random stratified sampling is used to ascertain and maintain an

unbiased representation of the remaining 869 projects. The portfolio is
subdivided into the following categories: institutions, regions, income level, and
status.

Minimum Sample Size

The sample size of each category in which a statistically representative sample
needs to be drawn can be determined using the following formula:

where

 N is the size of the population of reference;

 Zα is the value of α% (significance level) probability of a type-I error in a

 normal standard distribution;

 e represents the margin of error (affecting the confidence interval of

estimations); and

 p is the expected proportion of success. q is 1 − p.

The estimator of a proportion is p = X/N, where X is the number of “positive”

observations. When the observations are independent, this estimator has a
(scaled) binomial distribution (and is also the sample mean of data from a
Bernoulli distribution). The maximum variance of this distribution is 0.25/n,
which occurs when the true parameter is p = 0.5. In practice, since p is unknown,
the maximum variance is often used for sample size assessments.

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Reference Populations and Sample Size

Table A.4. Sample Breakout
(number)

Breakout Total (N) Sample Size (n)

Region

AFR 329 60

EAP 169 48

ECA 270 52

LAC 293 63

MENA 132 50

SAR 140 67

Other 49 5

Total 1,382 345

IDA status

IDA 818 246

Non-IDA 439 86

Other 125 13

Total 1,382 345

Institution

IBRD/IDA 129 36

IFC-AS 134 14

IFC-IS 805 241

MIGA 314 54

Total 1,382 345

Country income level

High 48 9

Upper Middle 479 136

Lower Middle 526 144

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Breakout Total (N) Sample Size (n)

Low 198 43

Other 131 13

Total 1,382 345

Portfolio status

Active 786 205

Closed 564 139

Other 32 1

Total 1,382 345

Note: AFR = Sub-Saharan Africa; AS = Advisory Services; EAP = East Asia and Pacific; ECA = Europe and
Central Asia; IBRD = International Bank for Reconstruction and Development; IDA = International
Development Association; IFC = International Finance Corporation; IS = Investment Services; LAC = Latin
America and Caribbean; MENA = Middle East and North Africa; MIGA = Multilateral Investment Guarantee
Agency; SAR = South Asia.

Frontier Analysis
To evaluate how the Bank Group’s mobilization efforts are distributed across
countries with certain needs and characteristics, the evaluation team also
conducted the frontier analysis. The analysis evaluated countries’ performance
in attracting private capital in relation to the World Bank Group’s mobilization
efforts. Specifically, the analysis was conducted to estimate the empirical
production possibility frontier for private capital flows and to rate countries’
performance relative to other countries facing a similar domestic investment
environment. The analysis constructed composite measures as a proxy of the
domestic investment and the private capital flows for each country; the Bank
Group efforts on private capital mobilization were measured by both the Bank
Group's own commitment allocated to projects with the objective of private
capital mobilization and the amount of private finance mobilized by the relevant
Bank Group projects. The results of the frontier analysis are presented separately
in appendix J.

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Survey with Development Finance Institutions and Investors

As part of IEG’s evaluation of the Bank Group’s efforts to mobilize private capital
for development, two surveys were taken with development finance institutions
(DFIs) and Investors. These two surveys were conducted to understand the needs
and views of private investors and, at the same time the activities of other DFIs
in private capital mobilization.

Survey with DFIs

The survey established a useful benchmark to compare the Bank Group’s
activities to those of other development institutions and to generate ideas and
experiences that can inform changes to Bank Group policies or strategies related
to private capital mobilization.

Eighteen staff members from 12 development institutions participated in detail,

covering MDBs, bilateral DFIs, and specialized DFIs. All interviewees work
directly on mobilizing private capital for development purposes. The interview
questions covered four broad topics: (i) investor type and interests; (ii) target
country, currency, and sector; (iii) mobilization instruments; and (iv) obstacles
to greater mobilization. The focus of the interviews was on direct and indirect
mobilization techniques, as defined by the multilateral development bank
Reference Guide.

Survey with Investors

The survey was conducted via the approach of interviewing a subset of
investors—representing different investor classes—in substantial detail, rather
than a broad "N" approach of sending out more simplified surveys to a larger set
of investors. The results generated are not intended to achieve statistical
significance; rather, they provide a rich, nuanced set of responses from a group
of major investors.

Fourteen investors were interviewed. The interviewees group comprised large

institutional investors, strategic investors, and impact investors. All the
interviewees are based in Organisation for Economic Co-Operation and

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Development countries, and all have at least some investments (in some cases
substantial) in countries eligible for Bank Group financing. The interview
questions included: (i) target country and currency; (ii) obstacles to greater
mobilization; (iii) investment interest; and (iv) engagement with multilateral
development banks and development finance institutions.

Key Stakeholder Interviews

Interviews with IFC Syndication Partners

The data generated from the DFI and Investor surveys were also triangulated
through in-depth interviews of IFC syndication partners. The specific purpose of
these consultations was to better understand motivations and expectations
related to IFC’s Managed Co-Lending Portfolio Program (MCPP) (reflecting the
“wholesale” approach) and B-Loan (reflecting the “retail” approach) program,
respectively, while also assessing IFC’s value added (or “additionality”) to these
institutions. The list of indicative questions is in table A.9.

Interviews with World Bank Group Staff

To compare investors’ views to internal perspectives, the evaluation team also
conducted several interviews with Bank Group staff—with a focus on task team
leaders in PCM priority sectors—and relevant management. The objective of
these interviews was to assess the enabling environment for private capital
mobilization within and outside the Bank Group and to better understand the
internal and external drivers and factors for successful mobilization across Bank
Group interventions. Again, this information is meant to supplement and
complement the documentary information collected, to increase the validity of
other findings through triangulation.

Because these interviews were to be semi-structured, a list of guiding questions

was shared with interviewees prior to the scheduled conversations. The
questions were divided into three broad categories: (i) Design of PCM
Interventions, (ii) Investor Interest and Expectations, and (iii) Achievement of
Objectives. This list of specific questions shared with interviewees is in Note:

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MCPP = Managed Co-Lending Platform Program; PCM = private capital

mobilization.

Overall, IEG conducted interviews with 23 Bank Group managers and task team
leads. Their responses have been anonymized for this evaluation. Figure A.3
reflects the breakdown of coverage between task team leads and management
staff and across sectors where mobilizing private capital is a priority.

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Figure A.3. Breakdown of World Bank Group Staff Interviews

a. Interviews by personnel type

2 2 4 2

1 3 1 4 2 3 1 1

Interview (no.)

Series1 Series2 Series3 Series4

Series5 Series6 Series7

b. Interviews by industry group

7 1 Series1 Series
6 1
5 3
4 2 2
3 4
2 1 4
1 3 2

0 2 4

Interviews (no.)

Note: MNGT = management; TTL = task team lead.

Case-Based Analysis
A total of 13 countries were selected to be reviewed in depth through (i) country
cases, which involve field missions and desk-based case studies, with selective
focus on mobilization approaches for each country; and (ii) cross-case analysis,
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where instrument mapping was conducted based on collective data from case
studies. The regional breakdown of the countries selected is reflected in
table A.5.

Country Case Studies

The initial list of seven country case studies (table A.5) was selected according to
the following criteria: (i) the availability of country-level data, (ii) the
representativeness of the Bank Group private capital mobilization portfolio, and
(iii) coverage of more than one mobilization approach. These country case
studies bring together several data collection and analysis approaches, such as
key informant interviews (with clients, investors, partners, and staff), document
reviews, and an overall survey of investors—capturing both client and investor
perspectives. The country case template to be completed with background
information and findings from the field mission is in table A.11.

Table A.5. Country Case Studies

Projects
(no.)
Country IFC MIGA IBRD/IDA
India (n = 65) 55 — 10

China (n = 53) 36 10 7

Argentina (n = 34) 30 1 3

Jordan (n = 31) 20 6 5

Bangladesh (n = 20) 13 5 2

Zambia (n = 17) 5 9 3

Mongolia ( n= 7) — 6 1

Source: Independent Evaluation Group.

Note: — = not available; IBRD = International Bank for Reconstruction and Development; IDA = International
Development Assciation; IFC = International Finance Corporation; MIGA = Multilateral Investement Guarantee
Agency.

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Desk-Based Case Studies

In addition to the country cases, six countries were originally identified for desk-
based reviews. The identification of countries was based on (i) requests from the
Board or management, (ii) additional representation of IDA, Latin America and
the Caribbean, and Europe and Central Asia countries, and (iii) results of the
Data Envelopment Analysis. The final list of countries selected is reflected in
table A.9, which also provides the breakdown of countries originally identified
for desk-based reviews as well as the source and reasoning behind their
selection. As demonstrated in table A.11, the template to be completed for desk-
based cases is a shortened version of the country case template, with the critical
difference that stakeholders were not interviewed for desk-based case studies.

Table A.6. Desk-Based Case Studies

Note: AFR = Sub-Saharan Africa; EAP = East Asia and Pacific; ECA = Europe and Central Asia; LAC = Latin
America and Caribbean; MENA = Middle East and North Africa; SAR = South Asia.

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Table A.7. World Bank Private Capital Mobilization, Interview Questions for
IFC Syndication Partners

Questions to Retail Investors (IFC B-Loan Program)

1. What market failures and gaps does IFC Syndications Program address, in your opinion?

2. How has IFC Syndications program and IFC engagement with your firm evolved over
time? in terms of deal characteristics and coverage (risk/reward, countries, sectors, and
so on)

3. What are the unique attributes, value proposition and comparative advantage of IFC
Syndications program in relation to other options that you may have considered?

4. What has been IFC’s work quality in administering and processing the syndicated deals?
and

5. What are the potential areas of improvement and lessons of experience from this
engagement?

Additional Questions to Wholesale Investors (MCPP Program)

6. What are the motivating factors to participate in IFC MCPP?

7. What other comparable strategies have you considered in private debt / fixed income?
Do you have a specific/separate investment strategy for the Sustainable Development
Goals?

8. Based on your experiences so far, what are the unique attributes, value proposition and
comparative advantage of IFC MCPP in relation to other options that you may have
considered?

9. Based on your experiences so far, what are the limitations of IFC MCPP and potential
areas of improvement?

10. How would you assess and describe IFC’s work quality in investor relations, due diligence,
administering, documenting, processing and supervision and reporting of MCPP-linked
transactions?
11. What are the emerging lessons of experience from your engagement with IFC so far?

12. How do you perceive your relationship with IFC evolving in the future after the MCPP
experiences?

13. What other opportunities (debt, equity, capital markets) are you considering in the
medium-long-term, either with IFC or other multi-lateral or development finance
institutions?

Note: MCPP = Managed Co-Lending Platform Program; PCM = private capital mobilization.

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Table A.8. World Bank Private Capital Mobilization—Interview Questions for

Bank Group Task Team Leads and Management

Design of PCM Interventions

1. What are some of the reasons why you have (or have not) targeted to mobilize private
lending in the design and interventions of projects that you have led?

2. Are any incentives put in place internally for you to include PCM in your interventions as
opposed to regular IDA/IBRD lending?

3. Are the resources available within the World Bank Group sufficient for the successful
mobilization of private investment in Bank Group interventions? If not, what resources
are lacking?

4. Which mobilization instruments have you used in your projects (Debt, Bonds, Equity,
Guarantees, PPP, and so on)?

5. What are some unique attributes/characteristics of PCM-related projects and coverage

(that is, related to risk, sector, region, and so on)?

6. What attributes / characteristics of the context and environment do you believe are
necessary to implementing such projects (that is, should "catalytic work" precede
mobilization)?

7. Have you brought in any guarantees into the design of your interventions? If so, please
specify from which institution (IFC, MIGA, World Bank) and what specific need
motivated you to bring them into your project design?

8. Have you leveraged synergies across World Bank Group institutions in such projects?
Have you leveraged synergies with other MDBs? If so, how have these counterparts
been involved in PCM projects?

Investor Interest and Expectations

1. What instruments do you believe are most effective in drawing in private investors into
World Bank projects? Do these reflect modern financial characteristics, and are these
considered within the context of a country's financing needs to ensure a smooth and
sustainable flow of capital for project financing?

2. What are some of the most significant risks and factors that constrain the involvement
of private investors in Bank Group projects?

3. What sectors/industries/regions do you think are most attractive to private investors'

involvement in development projects? Do these align with the needs for private
financing?

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Design of PCM Interventions

4. Have you worked with repeat investors through your projects and interventions? If so,
what has drawn investors to support multiple phases/projects, and how has this
relationship evolved over time?

Achievement of Objectives

1. In projects involving PCM, what was the value-added (or reason for lack of value-
added) from private investment in the implementation of the project and achievement
of its results?

2. What are some examples of positive demonstration effects that you have observed
through the implementation of PCM projects (that is, catalyzation of other investments
from the private sector / local financial institutions, replication of World Bank
approaches, and so on)?

3. If you have collaborated with other Bank Group institutions and/or MDBs in PCM
interventions, has this been a positive or negative factor to the achievement of project
results?

4. What areas of improvement—internal to Bank Group—do you believe are critical to

mobilizing more private capital toward development objectives?

5. What do you see as most common / most successful in drawing in the private sector in
World Bank operations—catalyzation (including policy dialogue, investment reforms,
privatization reforms, relevant development policy financing) or mobilization? And why?

6. What are specific challenges and/or opportunities to working with repeat investors?

7. How does the World Bank build/enhance local capacity for clients and counterparts to
draw in financing from private sources independently? Do you consider Bank Group-
instruments to be relevant and appropriate toward this goal?

8. In mobilizing private finance, what are some challenges faced in scaling-up projects
(that is, weak regulatory environment, lack of financial sector understanding and/or
infrastructure, local capacity, and so on)?

Note: IBRD = International Bank for Reconstruction and Development; IDA = International Development
Association; MDB = multilateral development bank; PCM = private capital mobilization.

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Table A.9. Country- and Desk-Based Case Study Template

1.1. Country Context *

Capture the country environment through investment climate, law and order situation,
and other governance factors, as stipulated by the DEA variables below:

Domestic Environment Indicators

Dimension Indicator Description

I. Market-related I.a Market size and Inverse of real gross domestic product
factors capital return (GDP) per capita (constant 2010 $)

I.b Growth potential GDP per capita growth (annual %)

II. Institutional and II.b Business Ease of doing business score, scale from 0
regulatory quality regulation (worst) to 100 (best) regulatory
environment performance.

III. Openness III.a Trade openness Sum of exports and imports of goods and
services (% of GDP)

III.b Market Index of economic freedom, average score

openness for trade, investment, and financial
freedom, scale from 0 (lowest) to 100
(highest) degree of freedom

IV. Economic and IV.a Inflation Inflation rate (annual %)

political stability

IV.b Risk of conflict Political Stability and Absence of Violence –

Governance indicators

V. Infrastructure V.a Logistics Logistics Performance Index, overall score

development
V.b ICT Fixed broadband subscriptions (per 100
people)

VI. Financial VI.a Financial depth Liquid liabilities (% of GDP)

development
VI.b Banking 5-bank asset concentration
competition

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VII. Natural and VII.a Natural Total natural resources rents (% of GDP)
human resources resources

VII.b Skilled Secondary school enrollment (% net)

workforce

1.2. Private Capital Mobilization *

Highlight the FDI and domestic mobilization highlights and potential (Private capital flows)
through graphs and illustrations as well, using the indicators from the table below:

Private Capital Flows

Dimension Description
Foreign direct investment Foreign direct investment, net inflows (% of GDP)

Portfolio equity Portfolio equity, net inflows (% of GDP)

Private sector borrowing Domestic credit to private sector (% of GDP)

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1.3. Capital Mobilization Strategies Review *

This section highlights any capital mobilization strategies developed by various

stakeholders in the country

Institution
World Jordan MDBs
Bank
MDB1 MDB2
Group
Framework CPF (National Country Country
investment engagement / engagement /
strategy or cooperation strategy cooperation strategy
national action / investment plan / / investment plan /
plan) capital market dev capital market dev
strategy strategy

SCD

FSAP

1.4. World Bank Group Portfolio *

Capture each World Bank Group institution’s capital mobilization portfolio (limit each
institution’s portfolio to 1 paragraph, using graphs and illustrations)

IBRD/IDA

IFC

MIGA

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1.5 Stakeholders*

Tabulate the country- and project-level stakeholders in this section

World Bank
Group/MDB Public Private
Partners Notes Sector Notes Sector Notes
Example: Example: Example:

CMU Ministry of Leading

USAID capital finance commercial

mkt team Investment bank

Project TTLs Board Project investor

Private client /
borrower

1.6. Semistructured Stakeholder Interview Questions

Questions to be asked from country- and project-level stakeholders, responses will

make up the main body of the case study around “relevance, effectiveness, and scale-
up.”

Relevance (Overarching evaluation question: To what extent are Bank Group mobilization
approaches consistent with its capabilities, client needs and global priorities?)

World Bank Group-facing questions:

• Is private capital mobilization a part of the country strategy and/or Bank Group
sector strategy focusing on the country?

• What are IFC's, MIGA's, and World Bank's diagnostic and support instruments for
private capital mobilization, and how do they relate to each institution's
corporate strategy? How do they differ from each other, and are they consistent
and complementary?

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• Are the three institutions leveraging synergies through adequate coordination

and sequencing of activities? Has the presence/absence of such synergies
influenced the outcomes of activities?

• Are Bank Group approaches to private capital mobilization in line with

recommendations of MDBs to crowd-in investments for SDGs, e.g., the 17 Jordan
forum by UNDP to identify means to achieve all 17 SDGs in Jordan?

Investor-facing questions:

• What is your principal target market? E.g., the domestic market, export to the
regional or global market?

• Is the investment climate ideal for investing in the country? What kind of
changes would you like to see, and has Bank Group supported the country in
making those changes?

• What are the drivers of risk-tolerance for you, e.g., length of investments in the
country, macroeconomic environment, regulatory frameworks? To what extent
has Bank Group's support influenced your risk-tolerance through risk mitigation
measures.

• What asset-allocation rules do you follow when making investment decisions?

Based on your risk tolerance, how would you rank different asset classes used in
the country by preference?

• Were resources deployed from Bank Group institutions to assist you in the
transactions adequate? Did you see complementarity in Bank Group from
multiple institutions, when additional support from these institutions was needed
to provide different risk-mitigation measures?

Do you view the country's development challenges as an opportunity for investment?

E.g., surge in refugee influx burdens public infrastructure, calling for enhanced
investments for infra. support. Has Bank Group supported investments to address these
challenges?

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Sponsor-facing (government, investee, borrower, etc.) questions:

• What has driven the country ratings for various approaches to private capital
mobilization? What are the top approaches used for PCM? (Sovereign debt
rating, govt bond yield, national and private savings rate)

• Is Bank Group support to PCM aligned with top approaches used in the country?
Which approach is a priority for borrowers, and how Bank Group's support has
complemented that approach?

• Were resources deployed from Bank Group institutions to assist you in the
transactions adequate? Did you see complementarity in Bank Group from
multiple institutions, when additional support from other institutions was
needed?

Are Bank Group approaches to private capital mobilization in line with recommendations
of MDBs to crowd-in investments for SDGs, e.g., the 17 Jordan forum by UNDP to identify
means to achieve all 17 SDGs in Jordan?

Effectiveness (Overarching evaluation question: How effective has Bank Group been in
meeting investors’ and clients’ expectations?)

World Bank Group-facing questions:

• Has Bank Group played any role in supporting the establishment, operations,
and/or policy development of the special economic and development zones?

• Is there an asset-liability mismatch in the financial sector, making long-term

financing difficult? Has Bank Group strategized to support the development of the
corporate securities market in the country to meet long-term needs?

• Has Bank Group been supportive of creating new investor classes domestically
for PCM? These new classes can include non-bank financial institutions (NBFIs),
like insurance funds that have long-term liabilities but might not have access to
long-term assets to match and diversify their corporate risk?

• Overall, how important has the financial sector deepening objective been for
Bank Group, and where does Bank Group currently stand in achieving that
objective?

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• Did Bank Group focus on creating local currency debt/bond markets in the
country to reduce currency mismatches? If yes, how effective has it been?

• How effective has Bank Group portfolio been in enhancing quality infrastructure in
the country?

Investor-facing questions:

• How important are incentives for investment in the country for you? To your
knowledge, has Bank Group supported the flow of incentives for investors? These
incentives can include tax incentives, customs incentives, special zones,
financial incentives (subsidies, loan guarantees, matching grants, etc.) or others.

• Does the financial sector have the ability/capacity to cater to the financial needs
of the real sector? To what extent has Bank Group supported the sector's
functionality to cater to long-term infrastructure financing?

• For domestic investor: In the absence of Bank Group, would you still have opted
for fixed capital formation in this sector? What would have you done with the
financing capital instead?

• For foreign investors: In the absence of Bank Group, would you still have opted
for fixed capital formation in this sector? What would have you done with the
financing capital instead (like investing in another sector or another country)?

• What is Bank Group’s additionality to you when making an investment decision?

Do you see Bank Group’s role and your decision rationalized by the following:

• New Market seeking support

• Efficiency seeking support

• Return seeking support

• Impact seeking support

• Risk mitigation support

• Did Bank Group focus on creating local currency debt/bond markets in the
country to reduce currency mismatches? If yes, how effective has this support
been?

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• How effective has Bank Group been to influence your decision to invest in the
infrastructure sector?

`Sponsor-facing (government, investee, borrower, etc.) questions:

• How important are incentives for investment in the country for investors? To
your knowledge, has Bank Group supported the flow of incentives for investors
and domestic companies? These incentives can include tax incentives, customs
incentives, special zones, financial incentives (subsidies, loan guarantees,
matching grants, etc.) or others that you may have seen.

• Are the country’s investment needs focused on big investments in the real
sector? Does the financial sector have the ability/capacity to cater to the
financial needs of the real sector?

• How effective has Bank Group been in creating a demonstration effect for
mobilizing domestic capital from local institutions like non-bank financial institutions
(NBFIs)?

• In the case of Bank Group using PCM approaches successfully, did you witness
the replication of Bank Group's approaches from this project to other Bank Group
projects? In your opinion, what sector benefitted the most from this
demonstration effect?

• Did you witness the demonstration effect of Bank Group's approaches, e.g.,
guarantees, bonds, equity, and debt to catalyze private capital from both
existing and non-traditional sources, e.g., MDBs, fund managers, asset mgmt.,
companies, pension funds, insurance companies, etc.?

• Are your financing needs better catered to by local or international securities

markets? Which one has Bank Group supported, and how effectively?

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Has Bank Group support been adequate to maintain/enhance quality infrastructure that
offers attractiveness to investors interested in the real sector?

• How important are incentives for investment in the country for investors? To
your knowledge, has Bank Group supported the flow of incentives for investors
and domestic companies? These incentives can include tax incentives, customs
incentives, special zones, financial incentives (subsidies, loan guarantees,
matching grants, etc.) or others that you may have seen.

• Are the country’s investment needs focused on big investments in the real
sector? Does the financial sector have the ability/capacity to cater to the
financial needs of the real sector?

• How effective has Bank Group been in creating a demonstration effect for
mobilizing domestic capital from local institutions like non-bank financial institutions
(NBFIs)?

• In the case of Bank Group using PCM approaches successfully, did you witness
the replication of Bank Group's approaches from this project to other Bank Group
projects? In your opinion, what sector benefitted the most from this
demonstration effect?

• Did you witness the demonstration effect of Bank Group's approaches, e.g.,
guarantees, bonds, equity, and debt to catalyze private capital from both
existing and non-traditional sources, e.g., MDBs, fund managers, asset mgmt.,
companies, pension funds, insurance companies, etc.?

• Are your financing needs better catered to by local or international securities

markets? Which one has Bank Group supported, and how effectively?

• Has Bank Group support been adequate to maintain/enhance quality

infrastructure that offers attractiveness to investors interested in the real sector?

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Scale-up (Overarching evaluation question: What are the opportunities and challenges
associated with Bank Group mobilization approaches, and to what extent can successful
approaches be scaled up?)

Bank Group-facing questions:

• Given the net savings rate in the country, do you think the available domestic
capital is adequate? If yes, where is the capital used (deposits, short term
investments, long-term investments, etc.), and what are the
challenges/opportunities of mobilizing this capital for the private sector?

• How important are macroeconomic challenges in the selection of Bank Group's

PCM approaches? E.g., is a high debt-GDP ratio a deterrent or incentive or
irrelevant for debt-mobilization? Do sovereign credit ratings come into play
when Bank Group supports PCM in the country?

• What are the drivers of types of investment Bank Group helps mobilize in Jordan?
Does Bank Group specifically target investor groups like natural resource-
seeking, domestic market-seeking, efficiency-seeking, or does it work across
the spectrum without necessarily targeting strategically?

• Is investor perception influenced by any lingering effects of the global financial

crisis? Is regional landscape/instability considered a significant challenge by
investors when making investment decisions? What has Bank Group done to
address that?

• What role has Bank Group played in improving corporate governance and
enhancing institutional capacities?

• Are the existing Bank Group approaches (equity, bond, debt, etc.) reflective of
modern financial characteristics? Are these approaches integrated with the
financing needs of the country and ensure the smooth flow of capital for project
finance?

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Investor-facing questions:

• What are the available options for asset-allocation in the country? What
challenges/opportunities arise when structuring deals using Bank Group
approaches to PCM through asset classes like bonds, equity, and debt? What
role has Bank Group played in addressing these challenges or capitalizing on
these opportunities?

• Is Bank Group's choice of PCM approaches in the international capital market (e.g.,
Eurobonds, green bonds) considered a viable option for long-term investments
and subsequent scale-up for development needs, including climate financing?
Do you see these approaches as challenges or opportunities in making financing
decisions?

• How effective has Bank Group been in capital mobilization for scale-up and
sustainability of long-term projects through its role as a risk-mitigator? This
question can be answered in the context of:

• Bank Group as an underwriter of guarantees for development projects

• Bank Group with its preferred creditor status, protecting investing participants
from convertibility and foreign exchange risks

• Bank Group's upstream role as a risk manager through correcting market failures,
reducing regulatory risk, institutional capacity building, and improving the overall
investment climate.

• Has successful scale-up support by Bank Group to capital mobilization resulted in

catalyzation of investments for public goods outside of Bank Group platforms?
Examples can include:

• Bank Group catalyzing other MDB(s) to work on macroeconomic stability in the

country

• IFC green bonds influencing other issuers to mobilize investments for climate
change projects

• Bank Group's result-based financing creating a demonstration effect for other

lenders to fund public infrastructure projects conditionally

• Given the financial landscape, regulatory & legal frameworks, are there
adequate provisions made for arbitration and conflict resolution? Do you see the

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current frameworks as a challenge or facilitation to scale-up? What’s Bank

Group’s role?

• Did Bank Group play an additional role in garnering investor comfort or

"sweetened the deal" by providing additional incentives, rebates, or
commitment-based rewards?

• What specific challenges/opportunities have been characteristic of repeat

engagements with Bank Group, for example, when implementing:

• Repeat transactions in the same sector

• Scale-up of infrastructure financing, like energy and transport

• Developing regional capital markets through demonstration effect for investors

and other MDBs, e.g., developing regional bond funds that can provide greater
operating scale to lower costs and diversify risks

• Did partnering with Bank Group also open avenues of non-traditional or innovative
financing mechanisms, like sovereign wealth funds, climate financing, insurance
and pension funds, specialized investment vehicles (SIVs) for you?

• Are the existing Bank Group approaches (equity, bond, debt, etc.) reflective of
modern financial characteristics? Are these approaches integrated with the
financing needs of the country and ensure a smooth flow of capital for project
finance?

Sponsor-facing (government, investee, borrower, etc.) questions:

• Given the net savings rate in the country, do you think the available domestic
capital is adequate? If yes, where is the capital used (deposits, short term
investments, long-term investments, etc.), and what are the
challenges/opportunities of mobilizing this capital for the private sector?

• To mobilize private finance for development, what are the challenges faced by
borrowers in scaling-up development projects? These can include long-
standing macro challenges like:

• Weak regulatory regime

• Lack of depth in the financial sector (little diversity in lending instruments)

• Inadequate financial infrastructure

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• Lack of support to local currency options to avoid risks associated with foreign
currency borrowings

• Or more immediate challenges like:

• Inadequate project mgmt. support

• Lack of co-investment platforms that can enhance investor comfort

• Lack of institutional capacity to support credit enhancement, structured finance,

and hedging solutions that can potentially increase the attractiveness of
securities offering by capital market.

• Is Bank Group's choice of PCM approaches in the international capital market (e.g.,
Eurobonds, green bonds) considered a viable option for long-term investments
and subsequent scale-up for development needs, including climate financing?

• Are the existing Bank Group approaches (equity, bond, debt, etc.) reflective of
modern financial characteristics? Are these approaches integrated with the
financing needs of the country and ensure a smooth flow of capital for project
finance?

• Is investor perception influenced by any lingering effects of the global financial

crisis (like overcautious regulatory regime)? Is regional landscape/instability
considered a significant challenge by investors when making investment
decisions? What has Bank Group done to address that?

• What specific challenges/opportunities have been characteristic of repeat

engagements with Bank Group, for example, when implementing:

• Repeat transactions in the same sector

• Scale-up of infrastructure financing, like energy and transport

• Developing regional capital markets through demonstration effect for investors

and other MDBs, e.g., developing regional bond funds that can provide greater
operating scale to lower costs and diversify risks

• Did partnering with Bank Group also open avenues of non-traditional or innovative
financing mechanisms, like sovereign wealth funds, climate financing, insurance
and pension funds, specialized investment vehicles (SIVs) for you?

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• Are the existing Bank Group approaches (equity, bond, debt, etc.) reflective of
modern financial characteristics? Are these approaches integrated with the
financing needs of the country and ensure a smooth flow of capital for project
finance?

Note: IBRD = International Bank for Reconstruction and Development; IDA = International Development
Association; MDB = multilateral development bank; PCM = private capital mobilization; Bank Group = World
Bank Group.

1.7. Consensus Analysis

Based on responses collected, record the overall experience of each of the three groups
of respondents.

Stakeholder Positive Negative Neutral

Bank
Group/CMU/TTL

Investor

Sponsor

Government,
Investees, etc.

1.8. Challenges & Opportunities *

Identify key messages of challenges and opportunities pertaining to private capital

mobilization in the country, using your overall research, including, literature review,
portfolio review, interviews, and other sources.

1.9. Way Forward *

Recommendations.

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Cross-Case Analysis: Instrument Mapping

Based on the products identified under each of the Bank Group’s direct
approaches to mobilization, the team conducted instrument mapping to
evaluate how the risks were addressed by the current products.

This analysis mapped the Bank Group’s mobilization products to the risks
identified via interviews. The mapping identified potential for improvement in
financial product innovation, scaling up, and upstream catalytic work. Based on
data collected from informant interviews with staff, syndication partners, and
investors, the analysis mapped the products to the identified risks, the products’
complexity to risk mitigation potential, and the products’ complexity to volume
potential (tables A.13, A.14, and A.15).

The volume potential in the analysis was defined as the advanced commitment
from investors that has limited impacts on the balance sheet and financial
regulations and playing a cyclical or countercyclical role that is complementary
to other products that are playing a cyclical role. The complexity was measured
using the definition of Basel and the International Organization of Securities
Commissioners, where the Bank Group’s Resource Intensity measured the cost
dimension. In addition, both the investor perspective and the Bank Group
perspective were considered on complexity and costs with three different
scenarios: the investor perspective, Bank Group perspective with Bank Group
intensity equally weighted, and Bank Group perspective with Bank Group
resource intensity weighted more.

Econometric Analysis
The econometric analysis evaluated the impacts of three Bank Group products
that mobilized private capital via different approaches. The products are IFC’s
syndicated loan and green bonds and the World Bank’s PPP projects by,
respectively mapped under the categorized activities Debt Mobilization, Bond
Mobilization, and Advisory Mobilization.

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Debt Mobilization
To examine how IFC's participation in the syndicated loan market facilitates
mobilizing private capital in emerging economies, the evaluation team used
various statistical measures to see whether IFC's involvement triggered faster
growth in loan syndication at the country, sector, and firm levels. At the country
level, the econometric analysis was conducted to estimate the market influence
of IFC, measured by the average growth rate of syndicated lending. At the sector
level, IFC's involvement was disaggregated to industry sectors to examine
whether it addressed market failure in specific industries. At the firm level, the
analysis constructed indicators to measure the firms' capacity to mobilize
additional sources of funding and estimated the influence of IFC participation
on the constructed indicators. The results of the analysis are presented
separately in appendix C.

Bond Mobilization
The evaluation team conducted an econometric analysis with the intent to
quantify IFC’s impact on the green bond market. The analysis attempted to
answer the question of whether IFC participation in the green bond market
increased activity in the market, as measured by issue size. The analysis used the
green bond data from Bloomberg, controlling for factors like issue year, maturity
year, yield, and credit rating, to estimate IFC’s influence on market activity. The
results of the analysis are presented separately in appendix F.

Advisory Mobilization
The evaluation team conducted an econometric analysis to measure the effects
of Bank Group intervention on PPP investment measured by the number and
amount of PPP investments. Bank Group interventions are measured by the ratio
of the total value of World Bank and IFC intervention to the total investment in
each year, with a dummy variable for the Bank Group's participation. The
analysis controlled for the other factors influencing PPP investments. These

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factors are the governments' PPP experience, economic, and institutional

features. The results of the analysis are presented separately in appendix H.

Industry Benchmarking
As part of the component that evaluates the effectiveness of debt mobilization,
the evaluation team conducted industry benchmarking. The benchmarking
exercise identified public and private benchmarks to IFC’s MCPP. The MCPP
platform is used to attract a new class of investors to the development priorities
in a sector or region. This platform gives IFC the ability to provide larger
financing packages than could be provided from its own account. The
comparable selected included the JPMorgan Emerging Bond Index, the largest
exchange traded fund of the index by Blackrock iShares (EMB), and a few funds
comprising a mixture of holdings (table A.6 and table A.7). From an investment
grade perspective, MCPP outperforms in risk-adjusted returns on capital. (For
detailed analysis and results, see appendix D).

Table A.10. World Bank Private Capital Mobilization, Interview Questions for
IFC Syndication Partners

Questions to Retail Investors (IFC B-Loan Program)

1. What market failures and gaps does the IFC Syndications Program address, in your
opinion?

2. How has the IFC Syndications program and IFC engagement with your firm evolved
over time in terms of deal characteristics and coverage (risk/reward, countries,
sectors, etc.)

3. What are the unique attributes value proposition and comparative advantage of the
IFC Syndications program vis-à-vis other options that you may have considered?

4. What has been IFC’s work quality in administering and processing the syndicated
deals? And

5. What are the potential areas of improvement and lessons of experience from this
engagement?

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Questions to Retail Investors (IFC B-Loan Program)

1. What are the motivating factors to participate in IFC MCPP?

2. What other comparable strategies have you considered in private debt / fixed
income? Do you have a specific/separate investment strategy for the Sustainable
Development Goals?

3. Based on your experiences so far, what are the unique attributes, value proposition,
and comparative advantage of the IFC MCPP vis-à-vis other options that you may
have considered?

4. Based on your experience so far, what are the limitations of IFC MCPP and potential
areas of improvement?

5. How would you assess and describe IFC’s work quality in investor relations, due
diligence, administering, documenting, processing and supervision, and reporting of
MCPP-linked transactions?

6. What are the emerging lessons of experience from your engagement with IFC so
far?

7. How do you perceive your relationship with IFC evolving in the future following the
MCPP experiences?

8. What other opportunities (debt, equity, capital markets) are you considering in the
medium-long term, either with IFC or other multilateral or development finance
institutions?

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Table A.11. Managed Co-Lending Platform Program Benchmarking—Indexes

and Exchange Traded Funds

Indexes /
ETFs 5-Year (14–18)
Benchmark Index Investment Returns Annual Top
Type Vehicle Multiple Return Holdings
(%)
IFC MCPP x.x Y. Y

1) Bond Index JPMorgan Blackrock 1.19 3.54 Sovereign debt

(Emerging Emerging iShares J. P. in the Russian
Markets) Bond Morgan USD Federation
Index Emerging 3.55%,
Markets Bond Colombia, 3.5%,
ETF (EMB) Philippines
[AUM: $17Bn] 3.48%, Brazil
3.16%

2) Bond Index BofAML Various ETFs 1.21 3.88 Broad,

(Emerging Emerging capitalization-
Markets) Markets weighted
Corporate composite
Index index of US
dollar- and
euro-
denominated
debt of
corporate
issuers in
emerging
market

3) Bond Index BofAML Various ETFs 1.20 3.80 Index of US

(Emerging High Yield dollar–
Markets) Master II denominated
below
investment
grade
corporate debt
publicly issued

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Indexes /
ETFs 5-Year (14–18)
Benchmark Index Investment Returns Annual Top
Type Vehicle Multiple Return Holdings
(%)
in the United
States

4) Bond Index Bloomber Blackrock 1.13 2.38 US Treasury

(US) g iShares Core 39.52%, Federal
Barclays US Aggregate National
US Bond Index Mortgage
Aggregat (AGG) [AUM: Association
e Bond $57Bn] 12.47%,
Index Government
National
Mortgage
Association
7.39%, Federal
Home Loan
Mortgage
Corporation—
Gold 4.66%,
Federal Home
Loan Mortgage
Corporation
3.17%

5) Equity Index FTSE Vanguard 1.09 1.78 Tencent 4.70%,

(Emerging Emerging FTSE Alibaba 3.80%,
Markets) Markets Emerging Taiwan
Index Markets Index Semiconductor
Fund ETF Manufacturing
Shares (VWO) Co 3.5%,
[AUM: $62Bn] Naspers 1.8%,
China
Construction
Bank 1.4%

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Indexes /
ETFs 5-Year (14–18)
Benchmark Index Investment Returns Annual Top
Type Vehicle Multiple Return Holdings
(%)
6) Bond Index FTSE Index (USD 1.06 1.16 Combination of
(Global) World unhedged) other indexes
Broad (multi-asset,
Investme multi-currency
nt-Grade benchmark, a
Bond broad-based
Index measure of the
global fixed
income
markets)

7) Bond Index Barclays Index (USD 1.06 1.21 Combination of

(Global) Multivers unhedged) other indexes
e Total (multi-asset,
Return multi-currency
Index benchmark, a
Value broad-based
Unhedge measure of the
d USD global fixed
income
markets)

8) Equity Index Russell Various ETFs 1.35 6.11 Market-

(US) 3,000 capitalization-
weighted
equity index
tracking 3,000
largest US-
traded stocks

Note: AUM = assets under management; ETF = exchange-traded fund.

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Table A.12. Managed Co-Lending Platform Program Benchmarking—Funds

Funds 5-Year (14–18)

Benchmark Investment Returns Annual Top Holdings
Type Vehicle Multiple Return
(%)
IFC MCPP x.x Y.Y

9) Fund Blackrock 1.11 2.11 Sovereign debt in

Emerging Hungary 10.97%,
Markets Flexible Nigeria 9.25%,
Dynamic Bond Ukraine 6.52%,
Fund [AUM: Angola 5.67%, the
$100M] Arab Republic of
Egypt 5.64%, Saudi
Arabia 4.32%, Gabon
3.87%; Corporate
debt in Petróleos de
Venezuela S. A.
4.32%, Petrobras
Global Finance B. V.
3.45%, KazMunayGas
3.22%

10) Fund Blackrock 1.23 4.27 Sovereign debt in

iShares Turkey 9.11%,
Emerging Argentina 6.16%,
Markets High Brazil 6.16%, Ecuador
Yield Bond ETF 3.13%, Lebanon
(EMHY) [AUM: 2.95%, Ukraine 2.88%,
$324M] South Africa 2.84%,
Dominican Republic
2.73%, the Arab
Republic of Egypt
2.49%; Corporate
debt in Petrobras
Global Finance B. V.
6.65%

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Funds 5-Year (14–18)

11) Fund Templeton 1.11 2.10 Secretaria Tesouro
Emerging Nacional (9.76%)
Markets Bond 8.18%, Argentina
Fund [AUM: (16%) 2.91%,
$30M] Secretaria Tesouro
Nacional (0%) 2.91%,
Argentina (15.5%)
2.88%, Bank of
Thailand 2.63%, Brazil
1.97%, Argentina (0%)
1.73%, Reventazon
Finance Trust 1.55%,
Indonesia 1.53%

12) Fund Franklin 1.24 4.37 Uruguay 3.69%,

Emerging Société Des
Market Debt Hydrocarbures Du T
Opportunities 3.43%, PBR KYIV
Fund [AUM: Finance Plc 3.34%,
$300M] South Africa 2.97%, El
Salvador 2.66%,
Mexico (United
Mexican States)
2.41%, Oilflow Spv 1
DAC 2.18%, European
Bank for
Reconstruction and
Development 2.17%,
Alternative
Strategies (Ft) Li
2.10%, International
Bank of Azerbaijan
2.10%

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Funds 5-Year (14–18)

13) Fund Invesco 0.84 −3.53 Czech Republic
Emerging Government Bond
Markets Flexible 3.50%, Mexican
Bond Fund Bonos 2.78%,
[AUM: $37M] Indonesia Treasury
Bond 2.77%,
Indonesia Treasury
Bond 2.26%, Brazil
Notas do Tesouro
Nacional Serie F
1.78%, Colombian
TES 1.62%, African
Export-Import
Bank/The 1.61%,
Corp Financiera de
Desarrollo SA 1.61%,
Russian Foreign
Bond—Eurobond
1.60%, Mexico
Government
International Bond
1.59%

14) Fund Pimco Emerging 1.20 3.63 Cdx Em30 Ice 5.82%,
Markets Bond US 10-Year Note
Fund [AUM: (CBT) 5.52%, Irs Usd
$2.2B] 4.32%, Zcs Brl 2.40%,
Zcs Brl 2.10%, Brazil
Minas SPE 1.70%,
United States
Treasury Note: 1.67%,
Zcs Brl 1.61%

15) Funds Pitchbook Data: 1.16 3.01 Median performance

Private Debt of 41 funds in Direct
Benchmark lending, Bridge
financing, Distressed
debt, Credit special
situations,

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Funds 5-Year (14–18)

Infrastructure debt,
Venture debt, Real
estate debt

Note: AUM = assets under management; ETF = exchange traded fund.

Methodological Limitations
There are limitations on scope and coverage with respect to the World Bank's
efforts in private capital mobilization. The World Bank's efforts are distinct from
those of IFC and often involve upstream catalytic support to enabling
environment and policies. In addition, for most of the review period (FY07–18),
the World Bank was not explicitly mandated to mobilize private capital; this
mandate was explicitly adopted only recently, with the introduction of the
Maximizing Finance for Development initiative. The coverage of the World Bank
activities is limited because the report excluded activities such as policy
dialogue, upstream analytical work, nonlending technical assistance or support
to investment policy reforms through ASA, and development policy financing.

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Table A.1. Mapping Products to Risk Mitigation

Types of Risks
Macro Credit and Commercial Technical Thematic
WBG use -
Political
and
Currency /
Credit Liquidity
Construction
and Venture
Public Policy Operation Env &
Financial sector Infrastructure sector
WBG Toolbox degree and
Country
FX
stage
Changes stage Decomm
Lack of Access to Lack of Off-take and intensity
pipeline Finance pipeline Demand Risks
PRI  High
PCG and PRG  Low
PBG  Low
Guarantees, Insurance
NH  High
Commercial Instruments

and ReInsurance
Portfolio Insurance (wholesale)
Co-Insurance and Guarantee
Syndications
Local Currency (retail)  Low
Currency and Hedging
Pooled LCF (wholesale)
Short-term initiatives Trade finance  Low
Mezzanine Sub Debt, Junior tranches  Low
B-loan Syndications (retail)  High
Debt
MCPP, RSF (wholesale)  Low
AMC (wholesale)  High
Equity
EMP (retail)  Low
Green Bonds (retail)  Low
Bonds
GB Funds (wholesale)  Low
Advisory Securitization / Warehousing
Advisory PPP / Contractual Mechanisms  Low
Advisory Results based (DIB, SIB)
Blending Grants and Concessional
Blending Unfunded Risk Participation
Capital
Public

Blending Infraventures
Paris Club - lending Multilateral
Non-Paris Club lending Sovereign and Others

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Figure A.4. Mapping Complexity with Risk Mitigation Potential

Note: AMC = Asset management Company; DRM = disaster risk management; EMP = Equity Mobilization
Program; LCF = local currency facility; MCPP = Managed Co-Lending Platform Program;

Figure A.5. Mapping Complexity with Volume Potential

Sources: IEG analysis based on International Organization of Securities Commissioners; and Bank Group
definitions.
Note: AMC = Asset Management Company; DRM = disaster risk management; EMP = Equity Mobilization
Program; LCF = local currency facility; MCPP = Managed Co-Lending Platform Program.

130
Appendix B. Mobilization Approaches
The World Bank Group’s approaches to mobilizing long-term private capital fit
into five broad categories: debt mobilization, equity mobilization, bond
mobilization, guarantees-linked mobilization and advisory mobilization
(primarily via public-private partnerships [PPPs]). In addition, the International
Finance Corporation (IFC) directly mobilizes short-term private capital via
several facilities and collective investment vehicles to provide liquidity support
in areas such as trade finance, distressed asset recovery, micro-finance
institutions, and critical commodity financing.

Private direct and indirect mobilization–linked financing flows don’t “pass

through” the Bank Group’s balance sheet (assets), but they do leverage the
balance sheet. Typically, Bank Group lending and advisory activities use the
assets of its balance sheet to support client countries or corporates. Any
proceeds from AAA-rated bonds issued by the Bank Group, including the
International Development Association (IDA), are used for its own funding (not
for client funding), flow into the balance sheet, and are then channeled toward
lending activities. IFC Advisory Services and World Bank Advisory Services and
Analytics (ASA) activities are similarly funded using the Bank Group balance
sheet or supported by public sector–linked trust funds. Capital raised through
mobilization activities does not pass through the Bank Group balance sheet, is
typically considered to be off balance sheet, and is channeled directly to support
the client.

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Mobilization Approaches

Figure B.1. Own-Account Lending versus Mobilization-Linked Lending

Source: Independent Evaluation Group.

Note: Capital flows in green are accounted for as Private Direct Mobilization and flows in orange are Private
Indirect Mobilization. IFC = AMC = asset management company; IBRD = International Bank for Reconstruction
and Development; IFC = International Finance Corporation; MIGA = Multilateral Investment Guarantee
Agency.

IFC mobilizes private capital directly and delivers large volume commitments to
projects primarily via debt and equity mobilization. The two approaches support
a development project’s financial close following IFC’s direct involvement in due
diligence, structuring, and risk assessment of environmental and social
safeguards (figure B.2). Another subapproach is through the deployment of debt
and equity platforms in which private capital is committed in advance by
investor-participants (on a portfolio approach basis) and then channeled to
development projects at the time of financial close. This subapproach is done via
the Managed Co-Lending Portfolio Program (MCPP) and Asset Management
Company (IFCAMC) platforms. In the case of debt and equity platforms, the
investor-participants are typically passive and delegate all aspects of the project
development to IFC.

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Figure B.2. Stylized Structures for Debt Mobilization (Illustrative only)

a. Debt mobilization, deal-by-deal basis

b. Debt mobilization through MCPP

Sources: International Finance Corporation; Independent Evaluation Group.

Note: MCPP = Managed Co-Lending Portfolio Program.

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Figure B.3. Stylized Structures for Equity Mobilization

a. Equity mobilization, deal-by-deal basis

b. Equity mobilization, advanced commitment basis, through IFC AMC

Source: Independent Evaluation Group.

Note: AMC = Asset Management Company; IFC = International Finance Corporation; LP = Limited Partnership.

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Through its guarantees instrument for project support and policy support, the
World Bank mobilizes private capital (equity and debt) and offers de-risking
solutions to both investors and client countries. World Bank guarantees provide
“AAA” risk mitigation with respect to obligations due from government, political
subdivisions, or government-owned entities to private investors (such as equity,
debt, contractors, and so on) and to foreign public entities on cross-border
projects. Risk mitigation is of a partial nature and aims to promote balanced risk
allocation between government and private investors, or between public entities
in cross-border projects. For countries, the World Bank guarantees facilitate
PPPs and reduce government’s direct exposure to project-level risk.

Project-based guarantees may be structured so that they combine different types

of coverage for the same project. For example, they may guarantee a certain
amount of scheduled monthly payments due from a government-owned utility
to a private project under a contract combined with a guarantee for liquidated
damages payable by a government in the event of an unfavorable change in
tariffs. Similarly, two or more gas production projects procured under a single
gas expansion tender program, which will be owned by the same or various
investors and will sell gas to a single government-owned gas off-taker, may
benefit from a separate payment guarantee for each project under the same
tender program and a single guarantee series approach.

In addition to project-level guarantees, the World Bank offers policy-based

guarantees to client governments. In the context of development policy
operations where the World Bank supports a member country with their program
of policy and institutional actions that promote growth and sustainable poverty
reduction. This type of guarantee is intended to provide risk mitigation to
commercial lenders with respect to debt service payment defaults by the
government, when the proceeds of the financing are applied to budgetary
support in the context of development policy operations. It can only be used by
governments to access budgetary support within a specific program of policy and
institutional actions. The main benefits of the policy-based guarantees are that
they enhance the credit quality of the government, potentially improving the

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Mobilization Approaches

financing terms for a government (lower interest rates and longer tenors) and
provide long-term macroeconomic support while attracting private investment.

Figure B.4. Stylized Structure of World Bank Guarantee–Linked Private

Capital Mobilization

a. Project Guarantee–linked mobilization

b. Policy Guarantee–linked mobilization

Sources: International Bank for Reconstruction and Development; International Development Association.

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The Multilateral Investment Guarantee Agency (MIGA) promotes foreign direct

investment by offering political risk insurance and credit enhancement to clients
via its non-honoring guarantees. The political risk insurance product covers four
types of key risks: currency transfer restriction and convertibility, expropriation,
war or civil disturbance, and breach of contract. MIGA’s non-honoring guarantee
product provides risk cover for unconditional financial obligations to sovereigns
and state-owned enterprises, where no arbitration is required. MIGA guarantees
cover equity, debt, shareholder loans, and non-equity direct investments to its
client corporates, countries, subnationals or state-owned enterprises
(figure B.5).

Figure B.5. Stylized Structure of MIGA Guarantee in Private Capital

Mobilization

a. MIGA Non-Honoring Guarantee (for example, Commercial Bank loan to Municipality of

Istanbul)

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Appendix B
Mobilization Approaches

b. MIGA Political Risk Insurance (for example, Dubai Ports World equity investment in container
terminal)

Source: Multilateral Investment Guarantee Agency.

Note: MIGA = Multilateral Investment Guarantee Agency.

Bond mobilization, a relatively new approach for the World Bank Group, has
primarily been focused in the green financing space and primarily linked to
green bond issuances by private entities (for IFC clients) and sovereign or
subnational entities (for World Bank clients). In a first of its kind, IFC and
Amundi devised a bond fund structure (figure B.6) to support green bond
issuances as a way to contribute to the climate change mitigation agenda. The
green bond fund, which closed at $1.4 billion, was expected to deploy nearly
$2 billion into emerging markets Green Bonds over its lifetime, as proceeds are
reinvested for seven years. This strategy is designed to stimulate demand and
supply of green financing in emerging markets. The value proposition offered by
IFC in this example is its ability to share expertise in climate finance, emerging
markets, and the green bond market in one package, and to facilitate higher
returns for investors and attract new investors to the green financing business.
In conjunction with the Swiss State Secretariat for Economic Affairs (SECO), IFC
offered a technical assistance fund to support green bond issuers (primarily

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Mobilization Approaches

corporate clients) on transactional structures, certifications, and qualified

second opinions on pricing.

Figure B.6. Structure of Bond Mobilization Approach

Sources: International Finance Corporation; Independent Evaluation Group.

The advisory mobilization approach primarily refers to IFC's transaction

advisory work in PPP projects. PPPs are long-term contracts between a private
company and a government agency for providing a public asset or service. IFC
advises national and municipal governments in emerging market and developing
economies, on a remunerated basis, partnering with the private sector to
improve access to education, energy, transport, health care, and sanitation. IFC
takes full responsibility for technical due diligence, preparation of financial
structuring options, assisting clients in carrying out competitive tender
process/negotiated deal (figure B.7).

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Figure B.7. Structure of Typical Public-Private Partnership Mobilization

Approach

Fees

IFC PPP
Transaction
advisory

Sources: International Finance Corporation; Independent Evaluation Group.

Note: BOT = build–operate–transfer; EPC = engineering, procurement, and construction; FX = foreign
exchange; LD = liquidated damages; O&M = operations and maintenance; SOE = state-owned enterprise.

World Bank Treasury is active, although selectively, in the bond mobilization

space through its client advisory services. Client governments and subnationals
have benefited from World Bank Treasury’s advisory services in issuances of
catastrophe bonds and insurance-linked securities.

Comparative Analysis of the Approaches

Bank Group mobilization approaches can be compared in three dimensions: (i)
resource intensity, (ii) complexity, and (iii) volume potential. Although the first
two dimensions are easily relatable, the latter two are harder to envision and
tend to be qualitative judgments made by stakeholders.

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Staffing levels and related budget allocation are a good proxy for assessing the
Bank Group resource intensity required for a particular approach. With
knowledge of underlying mobilization instruments or approaches to preparing
the project (that is, making them bankable), to achieve financial close of a Bank
Group project, and staffing levels required to maintain and monitor the project
or portfolio’s outcomes, and ability to generate new leads or project expansion.
Based on assessment of staffing levels and experiences from prior IEG
evaluations, the other approaches (except advisory mobilization) tend to be
highly context specific and require significantly larger staffing levels than
projects without any mobilization approaches. For example, analysis of
IBRD/IDA guarantee projects suggest that at least 20–30 percent of additional
resources need to be allocated task team leads to get the project to financial
close. In the case of IFC, the equity mobilization approach requires higher
staffing levels than the debt mobilization approach.

Further, economic capital usage can be treated as a good proxy for resource
intensity of the mobilization approaches. Investment or lending projects with
direct mobilization require leverage of the institution’s balance sheet as per the
“skin in the game” principle. All mobilization approaches use up economic
capital from the balance sheet; for example, debt approaches require IFC own-
account lending, equity approaches require IFC investing in the same project
concurrently, and guarantee approaches require capital allocation for potential
losses. Though the mobilized amount does not in itself use up any economic
capital, the co-financed amount or support directly provided to the same project
requires economic capital allocation. The examples in figure B.8 illustrate that
mobilization approaches cannot lead to perpetual volume growth and will be
limited by the amount of economic capital that can be allocated and used up
internally based on existing corporate risk frameworks.

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Figure B.8. Lending Type and Related Use of Economic Capital from the
World Bank Group Balance Sheet

Source: World Bank.

Note: EAR = effective annual rate.

Based on economic capital framework advisory mobilization is least resource

intensive, followed by debt mobilization (short-term financing aside). Equity
mobilization uses up the most economic capital from the balance sheet.

Guarantee mobilization requires loan loss provisioning in the Bank Group

balance sheet and can be a limiting factor in scaling up guarantee-linked project
support. For example, IBRD and IDA guarantees of $6,342 million were
outstanding as of September 30, 2018 ($6,357 million—June 30, 2018). This
amount represents the maximum potential amount of undiscounted future
payments that IBRD could be required to make under these guarantees and is
not included in the Condensed Balance Sheet. These guarantees have original
maturities ranging between 5 and 20 years and expire in decreasing amounts
through 2037. As of September 30, 2018, liabilities related to IBRD's obligations
under guarantees of $429 million ($427 million—June 30, 2018), have been
included in other liabilities on the Condensed Balance Sheet. These include the
accumulated provision for guarantee losses of $86 million ($86 million—June 30,
2018). During the three months ended September 30, 2018 and the three months
ended September 30, 2017, no guarantees provided by IBRD were called. IBRD
executed Exposure Exchange Agreements with MIGA for $120 million, with the
African Development Bank for $1,588 million, and with the Inter-American
Development Bank for $2,021 million. Although these agreements are not legally

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Mobilization Approaches

considered guarantees, they meet the accounting criteria for financial

guarantees and are therefore recognized as financial guarantees in IBRD’s
financial statements.

143
Appendix C. Effectiveness of B Loan
Syndications

Introduction and Summary of Main Results

Syndicated loans are a significant source of capital for private sector firms in the
United States (Sufi 2007) and Europe (Carey and Nini 2007). In recent years, this
market has become increasingly important for emerging market firms as well. In
this paper we examine the role played by the International Finance Corporation
(IFC) in assisting the development of the syndicated loan market for World Bank
regions: South Asia, Middle East and North Africa, Latin America and the
Caribbean, Europe and Central Asia, East Asia and Pacific, and Sub-Saharan
Africa.

A syndicated loan is made by a group (a syndicate) of lenders. Typically, one

lender acts as the “lead” lender (sometimes referred to as the “Arranger”), while
the remaining members of the syndicate are referred to as “participants.” The
lead bank is responsible for the traditional roles of screening and monitoring
performed by the banks in traditional loans. The participants are largely passive
creditors. This arrangement is possible only if the participants believe that the
lead lender will conduct due diligence before making the loan and will monitor
the loan after it is made. The lead lender retains only a fraction of the total loan,
and a moral hazard problem can arise between the lead bank and the potential
participants, because the lead bank is the one that knows most about the
borrower. If this information is private or hard to verify, the participants will be
concerned that they may be taken advantage of. For example, the lead bank may
keep the loans it makes to good borrowers on its own books, but syndicate the
loans of lower-quality borrowers with the participants. Because the borrower
quality is only known to the lead, this concern can be difficult to overcome. Sufi
(2007) shows that the reputation of the lead lender can help relieve this concern:

144
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Effectiveness of B Loan Syndications

lead banks with strong reputations are more likely to form larger syndicates and
are also likely to retain a lower share of the loan. 1

The role played by the lead bank’s reputation provides a strong motivation for
IFC to mobilize and catalyze syndicated loans in countries with limited private
capital. IFC has a long history of operating in such countries and brings to a
syndicate a strong reputation that potential participants may find reassuring in
the lead lender. This yields an empirical hypothesis: involvement of IFC in the
loan syndication market should lead to faster growth in loan syndication. In this
paper we conduct an empirical examination to test this hypothesis. Specifically,
we examine the average growth rate of syndicated lending in country for the
period before IFC gets involved and for the period after IFC’s involvement. We
find that on a country basis the syndicated loan growth is lower (both in terms of
the value and the number of loans) in the period after IFC’s entry as a syndicate
lender in that country. Thus, on a country-by-country basis we find that while
the syndicated loan growth remains positive in the post-IFC involvement period,
it is lower compared with the growth levels in the pre-IFC period. We also find
that IFC tends to lend to sectors that are broadly similar to the sectors favored
by non-IFC lenders. The four sectors that account for over 80 percent of lending
by non-IFC lenders also account for 71 percent of IFC lending. These fours
sectors are (i) Transportation, Communications, Electric, Gas, and Sanitary
services; (ii) Mining; (ii) Manufacturing; and (iv) Finance, Insurance, and Real
Estate. Thus, there is little evidence that IFC targets sectors neglected by non-
IFC lenders. Our final set of results explores the impact on individual borrowers.
Here we find that IFC has, on average, a positive effect on firms. First, firms that
borrowed from an IFC syndicated loan experienced larger growth in access to
funding than firms that did not borrow from an IFC syndicated loan. Second,
firms that did not access the syndicated loan market prior to borrowing from an

1 The fraction of loan retained by the lead bank, and the size of the syndicate, are the key measures
of syndicate structure. See for example, Dennis and Millineux (2000), Sufi (2007), Bharath, Dahiya,
and Hallak (2018).

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Effectiveness of B Loan Syndications

IFC syndicated loan were able to add an additional 70 percent in funding from
private lenders after accessing an IFC syndicated loan.

Motivation for the Study

A primary goal of this study is to examine how IFC’s participation in the
syndicated loan market helps mobilize private capital in emerging economies.
Many countries lack deep capital markets, and their domestic banking sectors
are either ill-equipped or too small to provide capital to private sector firms. If
IFC arranges syndicated loans in such markets as either sole lender or as lead
arranger, its reputation can help jumpstart capital raising in these countries. In
such a case we should expect to see significantly higher growth of loans in the
period after IFC entry into the market. This study is an attempt to shed light on
this question.

Table C.1 provides a preliminary analysis, comparing loans in which IFC was
either a sole lender or loan syndicate member to the loans made by syndicates
that did not have IFC as a member. The table reports results from a regression
analysis focusing on how IFC’s role affects the size of the loan syndicate and the
amount of the loan. The omitted category is the loans made by IFC as a sole
lender. The specification follows the standard approach of the literature (for
example, Bharath, Dahiya, Srinivasan, and Saunders 2009) of including loan
characteristics. In addition, country-level controls are also added to account for
differences in the financial market development of the borrower’s country.
Unsurprisingly, the coefficients on IFC in Syndicate and IFC not in Syndicate are
both positive, implying that the syndicate size is larger compared with when IFC
is the sole lender. Interestingly, the coefficients are also similar in size (1.87 and
1.88, respectively). This suggests that compared with IFC sole-lending loans, the
increase in syndicate size is about two additional lenders regardless of whether
IFC is or is not in the syndicate. However, the results for loan amounts are
strikingly different. Again, the coefficients for both IFC in Syndicate and IFC not
in Syndicate are positive, implying the syndicated loan are larger compared with
loans made by IFC as a sole lender. However, the coefficient for IFC not in

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Syndicate is four times larger than for IFC in Syndicate (158.9 versus 39.3). Thus,
the loans made by non-IFC syndicates are, on average, larger by $160 million
compared with loans made by IFC as a sole lender. The IFC syndicated loans on
the other hand are larger by only $40 million compared with IFC’s sole-lender
loans. This suggests that IFC loans tend to be significantly smaller compared
with the sample averages, after controlling for loan-specific and country-specific
factors.

Table C.1 shows the results of Poisson (column 1) and ordinary least squares
(OLS) (column 2) regressions. In column 1 the dependent variable is the size of
the syndicate (number of lenders) while the second column reports the
regression estimates of a model with loan amount (in $ millions) as the
dependent variable.

Table C.1. Results of Poisson and Ordinary Least Squares Regressions

By Number of
Lenders By Loan Size
Maturity −0.0036*** 0.5793***

(0.0004) (0.1343)

Senior debt 0.4971* 37.3655

(0.0969) (29.1570)

Borrower presence 0.0068*** 2.0643***

(0.0016) (0.5534)

Term loan 0.1440*** −53.9003***

(0.0294) (17.1076)

Revolver 0.2124*** −14.1482

(0.0411) (27.0956)

Syndicated loans issues −0.0000*** −0.0267***

(0.0000) (0.0052)

Overheads −0.0018 4.7038***

(0.0016) (1.2138)

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By Number of
Lenders By Loan Size
Bank concentration −0.0002 −2.2594***

(0.0008) (0.5280)

Stock market 0.0010*** 0.8337***

capitalization

(0.0003) (0.1820)

Domestic private debt −0.0099*** 1.0777**

(0.0013) (0.4283)

Domestic public debt 0.0015 0.8023

(0.0012) (0.8166)

IFC in syndicate 1.8682*** 39.2901*

(0.1030) (23.4424)

IFC not in syndicate 1.8798*** 158.6660***

(0.0362) (12.9513)

Constant −0.1982 93.4191

Observations (no.) 13,590 13,590

Pseudo R−squared 0.0839 0.0289

Note: *p < .05 **p < .01 ***p < .001.

Impact of IFC at the Country Level

In our sample period there were 47 countries where IFC entered the loan
syndication market, that is, countries where IFC has made at least one loan. The
country is attributed based on the borrower company’s nationality. To test
whether IFC entry had a significant effect on the development of syndicated loan
markets of these countries, we first employed a straightforward test of growth
rates for pre-IFC and post-IFC periods for each of these countries. Table C.2
reports the average annual growth in syndicated loans for the period before IFC
entry and the same average for after IFC entry. We first estimate year-on-year
growth rate in syndicated loans for each country. We identify the pre-IFC and
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the post-IFC periods using the year when IFC made its first loan in that country.
This allows us to estimate average pre-IFC and post-IFC growth rates for that
country. Note that the number of years in the pre- and post- will differ across
countries, but for each country we are able to a create point estimate of the
average annual growth rate in the pre- and post- IFC periods. In the final step,
we calculate the average pre- and post-IFC growth rates across the 47 countries.
Table C.2 shows that the average growth rate in dollar amounts is about
200 percent in the pre-IFC period and about 79 percent in the post-IFC period.
The difference is weakly significant at the 10 percent level. The bottom two rows
repeat the same analysis using the growth rate in number of loans rather than
amount borrowed for each country. The growth rate in loan count is over
100 percent in the pre-IFC entry period and drops to 26 percent in the post-IFC
entry period. The difference in growth rates is significant at the 1 percent level.
We also report average growth rate for countries where IFC has never been part
of a syndicated loan. For these countries, the average growth rate is about 227
percent in dollar amounts and 63 percent in number of loans. Taken together,
these results suggest that IFC tends to enter markets at a more advanced stage of
development, that is, when growth, while still positive, have converged to lower
rates as the economy develops, in line with macroeconomic indicators such as
Gross Domestic Product and credit growth.

Table C.2 reports the average annual growth rate in syndicated loan markets (in
US dollar amounts and number of loan facilities) for the 47 countries in which
IFC entered the loan syndication market for the first time during the sample
period.

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Table C.2. Annual Growth in Loan Syndication Markets

Observations
Country Characteristic (no.) Mean t-test
Annual growth by loan amount

Borrowing before IFC 47 203.1 *

Borrowing after IFC 47 79.1

Where IFC has not entered 40 227.4

Annual growth by number of loans

Borrowing before IFC 47 114.3 ***

Country Borrowing after IFC 47 26.0

Where IFC has not entered 40 62.9

Note: *p < 0.10 ***p < 0.01.

Table C.3 reports the results of multivariate analysis. Again, the negative
coefficient on the Post IFC coefficient implies that the annual growth is about 30
percent lower in the post-IFC-entry period. As expected, late growth in dollar
amounts is positively associated with real GDP growth, because an increase in
economic activity is likely associated to an increase in supply and demand of
credit. Interestingly, the coefficient for the interaction term is insignificant,
implying that while GDP growth is a strong determinant of syndicated loan
market growth, IFC’s presence does not have a significant impact.

Table C.3 reports the OLS regression with dependent variable as the annual
growth rate in country-syndicated loan. Post IFC (Syndicate) is a dummy
variable if the growth rate is for a year after IFC had syndicated its first loan in
that country and zero otherwise.

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Table C.3. Ordinary Least Squares Regression Results

Column Head Column Head Column Head

Post IFC (Syndicate) −0.3226*** −0.3704***

(0.1178) (0.1264)

Real GDP Growth 4.1529*** 3.5582***

(0.8590) (1.0304)

Post IFC (Syndicate) x Real GDP Growth 1.8187

(1.7405)

Constant 0.1685** 0.1841**

(0.0752) (0.0766)

Observations 1,263 1,263

R−squared 0.0264 0.0273

Countries (no.) 106 106

Note: Country-level controls included in the regression.

*p < 0.10 **p < 0.05 ***p < 0.01.

The results from tables C.2 and C.3 fail to provide strong empirical evidence that
IFC involvement makes a significant impact on the growth of syndicated loan
markets. There is a weak effect (positive interaction term) that suggests that IFC
may help loan growth in a growing economy. This suggests an opportunity for
IFC to target countries, which are expected to show significant future GDP
growth. These economies will experience a significantly higher demand for
credit, and IFC can position itself to be the lender of choice.

Impact of IFC at the Sector Level

After examining the role of IFC syndicated lending on a country-by-country
basis, we also disaggregated IFC’s involvement in industry sectors. The guiding
motivation for this analysis was to test whether IFC focuses on “neglected”
sectors. In other words, IFC may be addressing a market failure where private
sector lenders simply are unwilling or unable to fund projects or borrowers in

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specific industries. Table C.4 reports our analysis. It is clear that IFC, both as a
syndicate lender and as a sole lender largely focuses on the same four sectors
that receive the majority of loans from non-IFC lenders. The four sectors
(Transportation, Communications, Electric, Gas and Sanitary service; Mining;
Manufacturing; and Finance, Insurance and Real Estate) account for more than
80 percent of the loan amounts across all three groups. Thus, there is little
evidence that IFC syndicate loans are addressing any market failure.

Table C.4 reports the distribution of loans across different industry sectors both
in terms of loan amounts and fraction of total loan amounts. The table reports
this information for three groups of loans: loans made by syndicates that did not
have IFC as lender, loans made by syndicates with IFC as lender, and loans made
by IFC as sole lender.

Table C.4. Distribution of Loans, by Sector

IFC Not in IFC as Sole

Syndicate IFC in Syndicate Lender
Amount Share Amount Share Amount Share
Sector ($) (%) ($) (%) ($) (%)
Transportation, 1,432,865 24 11,190 31 4,168 23
communications, electric,
gas, and sanitary service

Mining 1,189,282 20 7,961 22 4,037 22

Manufacturing 1,175,902 19 6,057 17 3,761 21

Finance, insurance, and real 1,145,084 19 4,395 12 2,897 16

estate

Public administration 355,795 6 3,950 11 2,181 12

Not reported 256,551 4 1,730 5 360 2

Services 138,627 2 225 1 316 2

Wholesale trade 127,203 2 173 0 295 2

Construction 120,988 2 170 0 210 1

Agriculture, forestry, and 63,731 1 25 0 40 0

fishing

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Effectiveness of B Loan Syndications

IFC Not in IFC as Sole

Syndicate IFC in Syndicate Lender
Amount Share Amount Share Amount Share
Sector ($) (%) ($) (%) ($) (%)
Retail trade 54,555 1 0 0 0 0

Nonclassifiable 1,552 0 0 0 0 0

Note: Bolded sector indicate focus areas for IFC, which receive the majority of loans from non-IFC lenders.

While the bulk of lending by IFC mirrors the lending done by non-IFC lenders,
there is an interesting fact – IFC lends almost twice as much to borrowers
classified as Public Administration, compared with non-IFC lenders. It may be
worth examining more closely the drivers of IFC’s relative preference for this
class of borrowers.

Impact of IFC at the Firm Level

After examining the role of IFC syndicated lending on country-by-country basis,
we also disaggregated IFC’s involvement at the firm level. To do so, we first
computed the average increase in borrowing by firms after IFC’s first syndicated
loan. To measure whether IFC’s participation in a syndicated loan had a
beneficial effect on the firm’s capacity to borrow, we compared the increase in
the firm’s borrowing with the average increase for firms that did not borrow
from IFC syndicated loans (table C.5). The average increase in borrowing is about
10 percent for firms that borrowed from IFC, and about 6 percent for firms that
borrowed from alternative lenders.

Since growth rates in borrowing are typically higher for smaller, faster-growing
firms, these results are consistent with the fact that IFC syndicated loan volumes
are shown on average to be smaller than non-IFC syndicated ones; that is, IFC
might specifically target firms that are at an early stage of development, thus
enabling them to grow by scaling up their funding and by connecting them to a
larger pool of lenders. To further validate this hypothesis, we computed a
measure of a firm’s capacity to mobilize additional sources of funding once it has
access to IFC syndicated loans, that is, the net increase in non-IFC funding after

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Effectiveness of B Loan Syndications

accessing an IFC syndicated loan, divided by the amount of IFC syndicated loan.
For firms that did not borrow or did not have access to any funding prior to IFC,
a leverage larger than zero can be interpreted as a direct causal mobilization
effect of IFC entry on their access to commercial lenders.
𝑁𝑁𝑜𝑜𝑜𝑜_𝐼𝐼𝐼𝐼𝐼𝐼 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 −𝑁𝑁𝑁𝑁𝑁𝑁_𝐼𝐼𝐼𝐼𝐼𝐼 𝑃𝑃𝑃𝑃𝑃𝑃
𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 =
𝐼𝐼𝐼𝐼𝐼𝐼

The average leverage ratio for firms that borrowed at least once from an IFC
syndicated loan is 3.4; that is, firms mobilized on average additional $3.4,
relative to the pre-IFC period, for each dollar borrowed in an IFC syndicated
loan. We disaggregated further between firms that did not borrow at all before
borrowing from IFC, and firms that had access to alternative syndicated loans
prior to borrowing from IFC. For the first subsample, which accounts for 77
percent of firms that accessed IFC syndicated loans, the leverage ratio is 1.7,
while for the remaining 23 percent of the sample the ratio is 9.1. These results
stand to indicate that most firms targeted by IFC had never borrowed in the
syndicated loan markets prior to borrowing from IFC. In this context, IFC’s
primary role can be thought of as “creating” access to the market. The leverage
ratio of 1.7 for this subsample shows that, once these firms borrow in an IFC
syndicated loan, they are then able to add an additional 70 percent in funding
from private lenders. For the remaining subsample, that is, firms that already
had alternative sources of funding prior to IFC, the average leverage ratio is 9.1;
IFC syndicated loans represent a small share of these firms’ total borrowing. For
this second subsample, IFC’s primary role appears to be that of a lead bank
responsible for the traditional functions of project screening and monitoring or
of implicit guarantor, as the presence of multilateral development banks in
several public–private partnerships in developing countries can attest.

Table C.5 reports the increase in the average annual value of a firm's borrowing
in the syndicated loans market after it borrows from an IFC syndicated loan. For
firms that never borrow from an IFC syndicated loan, the increase is computed
using a pseudotime threshold equal to the median threshold for firms that
borrowed from IFC. The leverage ratio is computed by dividing the difference in
non-IFC borrowing post- and pre-IFC, divided by IFC borrowing.

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Table C.5. Increase in Firm Borrowing in Syndications Market

Mean Standard
Firms Increase Deviation
Increase in Firm Borrowing (no.) (%) (%)
Increase in firm borrowing after IFC 83 10.1 21.1

Increase in firm borrowing (non-IFC firms) 786 6.0 16.0

Leverage Ratio

All firms 360 3.4 13.9

Firms that did not borrow before IFC 277 1.7 4.7

Firms that borrowed before IFC 83 9.1 27.0

Conclusions
In this paper we conduct an empirical examination to test whether IFC’s
involvement in the loan syndication market leads to faster growth in loan
syndication at country, sector, and firm levels. Specifically, we examine the
average growth rate of syndicated lending for the period before IFC gets involved
and for the period after IFC’s involvement. While on a country-by-country basis
we find that the syndicated loan growth remains positive in the post-IFC
involvement period, this growth is lower compared with the growth levels in the
pre-IFC period, suggesting that IFC tends to enter markets in countries, which
are at a more advanced stage of development.

We also find that IFC tends to lend to sectors that are broadly similar to the
sectors favored by non-IFC lenders. The four sectors that account for over 80
percent of lending by non-IFC lenders also account for 71 percent of IFC lending.

Our final set of results explores the impact on individual borrowers. Here we find
that IFC has a positive effect on firms. First, firms that borrowed from an IFC
syndicated loan showed on average a larger growth in access to funding over
time than firms that did not borrow from an IFC syndicated loan. Second, firms
that had no access to the syndicated loan market prior to borrowing from an IFC

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Effectiveness of B Loan Syndications

syndicated loan, were able to add an additional 70 percent in funding from

private lenders after accessing an IFC syndicated loan.

References and Caveats in Interpreting the Results

This section describes the data sets used and the econometric tests. The starting
point for our analysis is the DealScan data from Loan Pricing Corporation. DealScan
provides extensive data on terms of syndicated loans made to private sector
borrowers at the time of origination. These data have been used extensively to study
bank loan markets in the Unites States (Sufi 2007; Bharath, Dahiya, Srinivasan, and
Saunders 2009) and in the international setting (Qian and Strahan 2007). The
databases consist of individual loan facilities (or tranches) as single observations.
Our starting universe consists of 349,267 unique loan facilities as reported in the
DealScan database. We focus on loan facilities made to borrowers based in the
following World Bank regions: i) South Asia, ii) Middle East and North Africa, iii)
Latin America and the Caribbean, iv) Europe and Central Asia, v) East Asia and
Pacific, and vi) Sub-Saharan Africa. We also chose to focus on loans denominated in
US dollars. These restrictions reduce the sample of loan facilities to 27,228
observations, wherein IFC was the sole lender in 330 loans or part of syndicate in
325 loans. We then merge the loan facility data with the World Bank’s Global
Financial Development Dataset, which allows us to include country-level controls
such as banking concentration, stock and bond market capitalization, GDP growth,
and so on.

The results reported in table C.1 are obtained by estimating an OLS regression where
the dependent variable in the first column is the number of lenders in the syndicate
while the dependent variable in the second column is the dollar amount of the loan
facility (in millions of US dollars). DealScan is the source for these data. It should be
noted that the OLS regression did not consider problems of endogeneity. One
possible extension of the analysis is to incorporate an identification strategy (such
as an instrumental variables approach) to ensure that reverse causality is not an
issue when interpreting the results. On the robustness of results, the regressions
could be extended to (i) log transformation of the dependent variable (that is, the
size of loans), and (ii) inclusion of time and region fixed effects. Finally, another

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Effectiveness of B Loan Syndications

possible extension is to check for robustness of the specification regarding potential

correlation between IFC syndication activities and other country-level control
variables.

For table C.2 we focused on 47 countries in which IFC was involved in the syndicated
loan markets. For each of these countries we divided the sample period in pre-IFC
and post-IFC subperiods. Within each subperiod for a specific country we estimated
the year-on-year growth in syndicated loan originations (both in terms of numbers
and the amount). We first estimated the average annual growth rate in these two
subperiods for each country. We finally calculated the average pre-IFC growth rate
by averaging the 47 estimates of pre-IFC growth rates for each country. We repeated
this to estimation for calculating the post-IFC growth rate. The final column of
table C.2 reports the t-test of the null hypothesis that the difference in average
growth rate in the loan syndication market in the pre-IFC entry period is the same as
in the post-IFC entry period. The null hypothesis is rejected at the 1 percent level.
Given that table C.2 is a simple differences-in-means test, further research is needed
to provide stronger evidence of IFC’s effect on loan growth rates.

The unit of analysis in table C.3 is the country-year. For each country we estimate
the year-on-year growth rate of the total syndicated loan amount for that country.
This growth rate is the dependent variable for the OLS regression. The regression
specification also includes individual country fixed effects. Table C.4 results report
the loan volumes across different industrial sectors in millions of US dollars. The
identification of the sector is based on the primary Standard Industrial Classification
code of the borrower as reported in the DealScan database.

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Effectiveness of B Loan Syndications

Figure C.1. The Market for Syndicated Loans and IFC Market Share (Left
Scale)

a. East Asia and Pacific b. Middle East and North Africa

c. Latin America and the Caribbean d. Europe and Central Asia

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Effectiveness of B Loan Syndications

d. South Asia e. Sub-Saharan Africa

Source: Independent Evaluation Group.

References
Bharath, S. T., S. Dahiya, A. Saunders, and A. Srinivasan. 2009. “Lending Relationships
and Loan Contract Terms.” The Review of Financial Studies 24 (4): 1141–1203.

Bharath, S. T., S. Dahiya, and I. Hallak. 2018. “Corporate Governance and Loan Syndicate
Structure.” Working Paper. Available at SSRN 1731374.

Carey, M., and G. Nini. 2007. “Is the Corporate Loan Market Globally Integrated? A
Pricing Puzzle.” The Journal of Finance 62 (6): 2969–3007.

Dennis, Steven A., and Donald J. Mullineaux. 2000. “Syndicated Loans.” Journal of
Financial Intermediation 9: 404–426.

Qian, J., and P. E. Strahan. 2007. “How Laws and Institutions Shape Financial Contracts:
The Case of Bank Loans.” The Journal of Finance 62 (6): 2803–2834.

Sufi, A. 2007. “Information Asymmetry and Financing Arrangements: Evidence from

Syndicated Loans.” The Journal of Finance 62 (2): 629–668.

159
Appendix D. Relevance and Effectiveness
of the MCPP-SAFE Program

Relevance
A good example of an International Finance Corporation (IFC) approach to
mobilization of private capital is its use of the Managed Co-Lending Portfolio
Program (MCPP) as a “wholesale” platform to generate advance private capital
commitments from an institutional investor, the People’s Bank of China’s State
Administration for Foreign Exchange (SAFE). MCPP is a highly relevant debt
mobilization platform from a safety, liquidity, and profitability perspective for
investors like SAFE. The program allowed strategic deployment of China’s
foreign exchange reserves through a trusted entity (IFC), generating returns,
knowledge, and credit assessment insights for the Chinese Sovereign–linked
investor into primarily Sub-Saharan Africa and Latin America regions.

The MCPP-SAFE approach benefited from IFC’s global-local footprint and access
to a global pipeline of emerging market and developing economy projects. MCPP
provided SAFE with unique opportunities and access to emerging markets. IEG
considers that MCPP is one of SAFE’s more innovative investments in their
portfolio, because it relieves them of the need to conduct review and analysis on
a deal-by-deal basis for similar commercial projects.

The MCPP platform is as relevant to the Bank Group’s approach for potential
replication as it is to the investor. In this case, the Bank Group’s deal teams had
access to expanded pools of funding without sacrificing returns for the Bank
Group; at the same time they met the required investment parameters of the
investor.

MCPP capital was disbursed widely by region and country groups and was
concentrated on non-IDA, nonfragile countries.

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Relevance and Effectiveness of
the MCPP-SAFE Program

Effectiveness
MCPP has generated financial returns consistent with public or private market–
equivalent investments (because of confidentiality the details are left out of this
summary). Although its primary asset allocation has always been in fixed-
income investments such as US Treasury bills, SAFE has pilot-tested private
equity investments as a limited partner to private equity funds prior to MCPP.
Although it has invested in emerging markets because of its liquidity
requirements, most of its portfolio investments are in developed markets. MCPP
allowed SAFE to add more emerging markets risk to its portfolio; this is further
aligned with Bank Group client countries seeking a diversified investor base for
portfolio flows.

MCPP-SAFE delivered results to objectives set out by the agreement, which was
further supported by good quality administration, monitoring, and supervision
by IFC’s Syndications and Portfolio teams. SAFE commended IFC’s high quality
in reporting performance for being timely and accurate. When they asked IFC to
provide supplementary info, IFC responded promptly.

IEG believes that, as an institutional investor, the SAFE team benefited from
intensive knowledge transfer efforts between IFC and the People’s Bank of
China, and that SAFE considered knowledge transfer to be a part of the MCPP
program: sought to learn how to select investments, analyze risk, apply credit
analysis, structure loans, and negotiate terms.

MCPP-SAFE is not directly comparable to traditional investment platforms.

However, it may be instructive to compare it to bond funds. The most relevant
and largest comparable emerging market bond index may be the JPMorgan
Emerging Bond Index, and the largest exchange traded fund of the index by
Blackrock iShares (EMB) with $17 billion under management.

As against public or private market equivalents, MCPP-SAFE would place in the

top quartile of all emerging market bond funds in terms of size. Deploying
$3 billion of capital is considered a sizable investment. There exist only a few

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Relevance and Effectiveness of
the MCPP-SAFE Program

funds with more than $1 billion of assets under management. Also, there are few
comparable funds that have an underlying investment portfolio like MCPP’s. All
other funds comprise a mixture of holdings in sovereign debt, many of which are
of speculative grade.

MCPP-SAFE overall has demonstrated success in attracting investors to

participate in the program’s replication. MCPP's eight investors now include six
private insurers: Allianz, AZA, Liberty Mutual, Munich Re, Prudential, and Swiss
Reinsurance. They together have committed $3.1 billion. The new MCPP FIG and
MCPP Infrastructure facilities are allowing third-party investors to gain
exposure to IFC debt portfolio. Although IFC has highlighted to investors that
through MCPP partners join IFC to invest for impact, IEG believes this was not
one of the primary motivation factors for SAFE.

Bank Group staff have welcomed MCPP into their basket of offerings. When IFC
presents MCPP as an additional pool of funding to borrowers, borrowers typically
are generally pleased that their projects’ funding size can be increased or can be
met beyond initial expectations. IFC on the other hand, also values this extension
because it can conduct transactions in amounts that it otherwise would not have
been able to without such a program in its tool kit. Overall, MCPP gives IFC the
ability to provide larger financing packages than IFC can provide from its own
account and increases the pool of financing available for achieving development
goals.

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Relevance and Effectiveness of
the MCPP-SAFE Program

Table D.1. Reference benchmarks: Indices or Exchange Traded Funds

Indexes /
ETFs 5-Year (14–18)
Annual
Benchmark Investment Returns Return
Type Index Vehicle Multiple (%) Top Holdings
1) Bond Index JPMorgan Blackrock 1.19 3.54 Sovereign debt in
(Emerging Emerging Bond iShares J. P. the Russian
Markets) Index Morgan USD Federation 3.55%,
Emerging Colombia, 3.5%,
Markets Bond Philippines 3.48%,
ETF (EMB) Brazil 3.16%
[AUM: $17Bn]

2) Bond Index BofAML Various ETFs 1.21 3.88 Broad,

(Emerging Emerging capitalization-
Markets) Markets weighted
Corporate Index composite index
of US dollar- and
euro-
denominated
debt of corporate
issuers in
emerging market

3) Bond Index BofAML High Various ETFs 1.20 3.80 Index of US

(Emerging Yield Master II dollar–
Markets) denominated
below investment
grade corporate
debt publicly
issued in the
United States

4) Bond Index Bloomberg Blackrock 1.13 2.38 US Treasury

(US) Barclays US iShares Core 39.52%, Federal
Aggregate US National
Bond Index Aggregate Mortgage
Bond Index Association

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Relevance and Effectiveness of
the MCPP-SAFE Program

Indexes /
ETFs 5-Year (14–18)
Annual
Benchmark Investment Returns Return
Type Index Vehicle Multiple (%) Top Holdings
(AGG) [AUM: 12.47%,
$57Bn] Government
National
Mortgage
Association
7.39%, Federal
Home Loan
Mortgage
Corporation—
Gold 4.66%,
Federal Home
Loan Mortgage
Corporation 3.17%

5) Equity Index FTSE Emerging Vanguard 1.09 1.78 Tencent 4.70%,

(Emerging Markets Index FTSE Alibaba 3.80%,
Markets) Emerging Taiwan
Markets Index Semiconductor
Fund ETF Manufacturing Co
Shares (VWO) 3.5%, Naspers
[AUM: $62Bn] 1.8%, China
Construction
Bank 1.4%

6) Bond Index FTSE World Index (USD 1.06 1.16 Combination of

(Global) Broad unhedged) other indexes
Investment- (multi-asset,
Grade Bond multi-currency
Index benchmark, a
broad-based
measure of the
global fixed-
income markets)

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Relevance and Effectiveness of
the MCPP-SAFE Program

Indexes /
ETFs 5-Year (14–18)
Annual
Benchmark Investment Returns Return
Type Index Vehicle Multiple (%) Top Holdings
7) Bond Index Barclays Index (USD 1.06 1.21 Combination of
(Global) Multiverse Total unhedged) other indexes
Return Index (multi-asset,
Value multi-currency
Unhedged USD benchmark, a
broad-based
measure of the
global fixed-
income markets)

8) Equity Index Russell 3000 Various ETFs 1.35 6.11 Market

(US) capitalization-
weighted equity
index tracking
3,000 largest US-
traded stocks

Table D.2. Reference Benchmarks: Funds

Funds 5 Year (14–18)

Annual
Benchmark Investment Returns Return
Type Vehicle Multiple (%) Top Holdings

9) Fund Blackrock Emerging 1.11 2.11 Sovereign debt in

Markets Flexible Hungary 10.97%, Nigeria
Dynamic Bond Fund 9.25%, Ukraine 6.52%,
[AUM: $100M] Angola 5.67%, the Arab
Republic of Egypt
5.64%, Saudi Arabia
4.32%, Gabon 3.87%;
Corporate debt in
Petróleos de Venezuela

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Funds 5 Year (14–18)

Annual
Benchmark Investment Returns Return
Type Vehicle Multiple (%) Top Holdings
S. A. 4.32%, Petrobras
Global Finance B. V.
3.45%, KazMunayGas
3.22%

10) Fund Blackrock iShares 1.23 4.27 Sovereign debt in

Emerging Markets Turkey 9.11%, Argentina
High Yield Bond ETF 6.16%, Brazil 6.16%,
(EMHY) [AUM: Ecuador 3.13%, Lebanon
$324M] 2.95%, Ukraine 2.88%,
South Africa 2.84%,
Dominican Republic
2.73%, the Arab Republic
of Egypt 2.49%;
Corporate debt in
Petrobras Global
Finance B. V. 6.65%

11) Fund Templeton 1.11 2.10% Secretaria Tesouro

Emerging Markets Nacional (9.76%) 8.18%,
Bond Fund [AUM: Argentina (16%) 2.91%,
$30M] Secretaria Tesouro
Nacional (0%) 2.91%,
Argentina (15.5%) 2.88%,
Bank of Thailand 2.63%,
Brazil 1.97%, Argentina
(0%) 1.73%, Reventazon
Finance Trust 1.55%,
Indonesia 1.53%

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Funds 5 Year (14–18)

Annual
Benchmark Investment Returns Return
Type Vehicle Multiple (%) Top Holdings
12) Fund Franklin Emerging 1.24 4.37 Uruguay 3.69%, Societe
Market Debt Des Hydrocarbures Du
Opportunities Fund T 3.43%, PBR KYIV
[AUM: $300M] Finance Plc 3.34%,
South Africa 2.97%, El
Salvador 2.66%, Mexico
(United Mexican States)
2.41%, Oilflow Spv 1 DAC
2.18%, European Bank
for Reconstruction &
Development 2.17%,
Alternative Strategies
(Ft) Li 2.10%,
International Bank of
Azerbaijan 2.10%

13) Fund Invesco Emerging 0.84 −3.53 Czech Republic

Markets Flexible Government Bond
Bond Fund [AUM: 3.50%, Mexican Bonos
$37M] 2.78%, Indonesia
Treasury Bond 2.77%,
Indonesia Treasury
Bond 2.26%, Brazil Notas
do Tesouro Nacional
Serie F 1.78%,
Colombian TES 1.62%,
African Export-Import
Bank/The 1.61%, Corp
Financiera de Desarrollo
SA 1.61%, Russian
Foreign Bond—
Eurobond 1.60%, Mexico
Government
International Bond 1.59%

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Funds 5 Year (14–18)

Annual
Benchmark Investment Returns Return
Type Vehicle Multiple (%) Top Holdings
14) Fund Pimco Emerging 1.20 3.63 Cdx Em30 Ice 5.82%, US
Markets Bond Fund 10 Year Note (CBT)
[AUM: $2.2B] 5.52%, Irs Usd 4.32%, Zcs
Brl 2.40%, Zcs Brl 2.10%,
Brazil Minas SPE 1.70%,
United States Treasury
Notes 1.67%, Zcs Brl
1.61%

15) Funds Pitchbook Data: 1.16 3.01 Median performance of

Private Debt 41 funds in Direct
Benchmark lending, Bridge
financing, Distressed
debt, Credit special
situations, Infrastructure
debt, Venture debt,
Real estate debt

Scaling Up
A sequel fund, as a sign of demonstration effects, is of interest to SAFE, but is
currently on hold. IFC has continued to expand the MCPP program into the
financial sector and the insurance industry (Allianz, Liberty and AXA) which is
of interest to the equivalent Chinese institutions. However, IEG believes that
SAFE may be concerned about the number of MCPP “funds” added to the
program for several reasons (pipeline, returns, size).

In terms of pioneering approaches, the Inter-American Development Bank came

up with a private debt partnership structure with SAFE before IFC did, and is still
working with SAFE (committed capital not fully disbursed).

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SAFE is pursuing similar EMDE exposure through private equity and local
currency investment platforms with the EBRD and the Government of Brazil
respectively. Although development results are readily available on a per deal
basis, MCPP currently does not offer results as a whole on a program basis, and
the underlying legal agreements don’t have a clear results framework linking the
project outcomes to an overarching program or platform-level framework

There is, however, evidence of impressive demonstration effects in an adjacent

jurisdiction with the Hong Kong Monetary Authority (HKMA). HKMA committed
$1 billion to MCPP in 2017. As part of their due diligence, HKMA sought
references from SAFE, and with SAFE providing positive feedback, HKMA was
able to proceed with an increased level of comfort.

MCPP-HKMA was the first commitment HKMA has ever placed into or with IFC.
HKMA was extremely impressed with the portfolio construction, as it gave them
access to emerging markets at scale and exposure to environmental, social, and
governance investing on commercial terms. During this time, HKMA was eager
to expand its impact investing initiatives, and IFC became their perfect partner
to achieve this. As a testimony of this success, HKMA expanded its commitments
into a sequel fund of an additional $1 billion in 2019.

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Private Capital Mobilization through
Treasury Advisory and Disaster Risk
Management Support
This appendix analyzes the World Bank’s support to sovereign clients on disaster
risk management and insurance-linked securities (ILS). Some advisory activities
of Treasury have been conducted on a fee-basis and some free. The ones that
have a mandate letter from the client should be treated as private capital
mobilization activity, as they have been treated in the Independent Evaluation
Group (IEG) analysis.

Outline

Glossary............................................................................................................................................................................................. 172
Executive Summary................................................................................................................................................................ 175
Relevance to Sustainable Development Goals and World Bank Twin Goals ...................... 175
Key Recommendations ....................................................................................................................................................................... 177

Effectiveness ................................................................................................................................................................................................. 178

Key Considerations .................................................................................................................................................................................. 179

Opportunities and Scaling Up ........................................................................................................................................ 179

Key Consideration ................................................................................................................................................................................... 180

Background ................................................................................................................................................................................................... 180

Relevance ........................................................................................................................................................................................................ 185

Catastrophe Risk Pools ........................................................................................................................................................188

How Aligned are These Instruments with World Bank Group Development Priorities (Partner
Needs)? ............................................................................................................................................................................................................. 190

Caveats and Counterfactuals ......................................................................................................................................................... 197

Can the Use of Risk Transfer Instruments Be Expanded by the World Bank and Other
International Financial Institutions? ........................................................................................................................................... 206

Conclusions and Lessons ................................................................................................................................................. 209

Effectiveness ................................................................................................................................................................................................. 210

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Country Demand ....................................................................................................................................................................................... 210

Timeliness and Application............................................................................................................................................................... 210

Basis Risk ........................................................................................................................................................................................................... 211

Pricing ................................................................................................................................................................................................................. 212

Do Bank Group Mobilization Approaches Meet Investors’ Expectations? ............................................... 216

Conclusions and Lessons ................................................................................................................................................. 220

What Are the External and Internal Drivers of Results? ........................................................................................... 221

Other Insurance-Linked Securities Instruments ............................................................................................................. 221

Other Risks ...................................................................................................................................................................................................... 222

IFC Fund............................................................................................................................................................................................................ 223

Conclusions....................................................................................................................................................................................223
References .....................................................................................................................................................................................223

Annex E.1. Relevant Tables ...............................................................................................................................................229

Annex E.2. Mobilization Attribution of “Unfunded” Risk Transfer ...................................................... 233
Annex E.3. Optimal Use of Uncollateralized Reinsurance and Collateralized Risk
Transfer..............................................................................................................................................................................................235

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Glossary
AAL Average annual loss

ARC African Risk Capacity – an extreme weather capacity

building and insurance plan – an agency of the African
Union.

Artemis Database of insurance-linked securities.

AUM Assets under management.

Catastrophe (cat) bond Three to five-year bond backed by high-quality

collateral or a highly rated balance sheet where the
ultimate return depends on whether a hazard event
occurs.

Catastrophe (cat) DDO Catastrophe draw-down option.

Catastrophe (cat) swap Intermediated transfer of hazard risk to reinsurers or

capital markets.

CFE Contingency Fund for Emergencies managed by the

World Health Organization, established to enable
immediate response to health crises.

Collateralized reinsurance Technically, reinsurance secured by collateral held in

trust by the reinsurer with the cedant having a direct
contractual link to the trustee. Term is also used where
a fronting reinsurer is backed by a fund available to
professional investors. The latter is similar in concept to
a cat bond.

CCRIF Caribbean Catastrophe Risk Insurance Facility, a virtual

organization managing several segregated risk pools

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covering disasters in the Caribbean and Central America

through a network of service providers.

DRFI Disaster Risk Financing and Insurance Program. A joint

venture of the World Bank and the Global Facility for
Disaster Reduction and Recovery; established to advise
governments on their disaster funding planning and
strategies.

EML Estimated maximum loss or the largest loss allowed for

in determining reinsurance coverage. It typically does
not allow for extremely improbable, but still possible
events. The frequency of event assumed (often called
the return period, which is the inverse of frequency) and
loss probability density curve determines the EML.

Exposure Physical and economic assets exposed to hazards.

FONDEN Mexico’s fund for natural disasters. Funds from

FONDEN can be used for rehabilitation and
reconstruction and disaster risk reduction activities.

Hazard Original event leading to direct losses and derivative

economic losses.

ICR Implementation Completion and Results Report.

Modeled loss Loss determined after applying actual hazard

characteristics to a catastrophe model allowing for
assumed exposures and vulnerabilities.

MCII Munich Climate Insurance Initiative.

Parametric trigger Loss determined only on the characteristics of a hazard

(such as wind speed). Also called “cat in a box” trigger.

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PCRAFI Pacific Catastrophe Risk Assessment and Financing

Initiative, which manages a specialist catastrophe
insurer.

PEF Pandemic Emergency Financing Facility

Return period The inverse of the probability that an event generating a

payment will occur in a 12-month period. A probability
of attachment of 1 percent corresponds to a return
period of 100 years.

SDGs: Sustainable Development Goals

Twin goals: The World Bank’s twin poverty reduction and inequality
reduction targets (“reducing extreme poverty and
promoting shared prosperity.”

Vulnerability Measures of the impact of hazards on different types of

exposure according to severity of the hazard.

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Executive Summary
The World Bank has a long history of providing funds through loans and grants
for post-disaster recovery and reconstruction. However, its role as an arranger
and provider of ex ante risk transfer instruments that provide immediate post-
disaster liquidity has been a relatively recent development. To date the World
Bank has mobilized approximately $3 billion of private sector risk capital for
purposes of transferring a range of economic and humanitarian shocks on behalf
of sovereign entities (as of February 2020):

Catastrophe bonds: $2.7 billion

Catastrophe swaps: $100 million

Reinsurance of multicountry pools: $180 million

This review is organized around the headings of relevance, effectiveness, and

opportunities.

Relevance to Sustainable Development Goals

and World Bank Twin Goals
There is now a large body of evidence demonstrating that a range of exogenous
shocks, including natural disasters, have negative impacts on medium-term
economic growth. In addition, a growing body of empirical econometric and case
studies shows long-term negative impacts on certain classes of developing
country and on vulnerable and poor populations. However, the key question for
this review is whether the World Bank has a role in helping to fund humanitarian
and recovery efforts in the immediate aftermath of major shocks.

The core arguments for World Bank provision of disaster insurance are the
following:

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 Most other sources of funds take considerably longer to be mobilized. By

employing parametric triggers International Bank for Reconstruction and
Development (IBRD) instruments can release funds within weeks, if not
days, of an event for initial recovery efforts.

 The World Bank, by acting as arranger and more recently as intermediary,

reduces counterparty risk and arrangement costs, and may make risk transfer
a feasible component of disaster planning.

 Numerous partner countries are unable to engage in adequate fiscal

planning, given the frequency and severity (in terms of impact on gross
national income [GNI]) of the disasters to which they are exposed. Larger
emerging countries that could establish fiscal measures may still prefer to
use insurance instruments because of bureaucratic or process frictions.

 This initiative is consistent with those Sustainable Development Goals

(SDGs) that are supportive of the World Bank’s twin goals and with disaster
planning best practice.

 Normal donor sources of immediate post-disaster recovery funding are

under increasing stress in terms of quantum and targeting, and vulnerable
populations are frequently not being reached.

 Insurance funds are released directly to governments and thus involve

immediate and centralized engagement at the local level, in contrast to
many funds that are sourced from nongovernmental organizations (NGOs)
and donors.

 The World Bank as a provider of both immediate and long-term funding is

well placed to bridge the divide between humanitarian aid and development.

 Insurance instruments fit naturally, in a temporal sense, into a range of

potentially integrated disaster funding instruments and approaches provided
by the World Bank Group.

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These justifications notwithstanding, NGOs have published a number of caveats

and possible counterfactuals. These can be summarized as follows:

 Parametric triggers introduce an element of gambling: payouts may not

occur, they may be delayed, or they may be limited, even if significant losses
have been incurred.

 The funds released by World Bank instruments are small compared with total
damages and economic losses.

 Funds used to purchase risk transfer could in some circumstances be better

used for disaster risk management.

 Parametric style triggers do not provide enough incentive for countries to

engage in risk reduction.

 Some countries may need long-term subsidies to purchase risk transfer; this
introduces moral hazard.

The first two of these represent a misunderstanding of the current role of the
World Bank instruments in immediate recovery and undervalue the progress
being made in modeling natural disaster risks. However, there is potential for
reputational damage if payout triggers are either difficult to measure or to
verify. The other three are legitimate and should be addressed through the
World Bank’s policies, safeguards, and operational approach.

Key Recommendations
 On balance, the disaster risk transfer initiative warrants ongoing support.

 World Bank risk transfer instruments should be subject to relevant

safeguards, and particularly to preconditions regarding the ability of a
partner country to effectively employ quick-release liquidity after a disaster
occurs. If such preconditions cannot be satisfied, then relevant technical
assistance should be provided, working with qualified NGOs.

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 Clear guidelines should exist for when the World Bank should intermediate
risks, as opposed to providing advisory services, where active and deep
markets already exist such as the hedging of commodity price volatility.

 Formal coordination and integration of disaster-related activities at

operational and policy levels within the World Bank Group would provide a
useful link between country disaster relief and developmental programs. In
this regard the World Bank could play a key role in the current UN-based
discussions linking humanitarian aid and the broader development agenda.

Effectiveness
Given their relatively recent introduction, the World Bank Group’s
intermediated risk transfer products and supporting structures still need some
time to establish and prove themselves, although initial outcomes are
encouraging.

The World Bank (mainly Treasury and the Disaster Risk Financing and Insurance
Program [DRFI]) has accurately identified and supported a subset of partner
countries subject to the most extreme risk levels. The parametric and modeled
loss triggers employed for rapid-onset events have in most cases performed well
in terms of time to payout after a disaster, with cheques often being delivered
within 10 days of an event occurring. However, triggers related to slower onset
disasters (including drought and pandemics) have been more problematic.

Rapid-onset event triggers are also increasingly reflecting the financial impacts
of shocks, although ongoing research is required to further improve loss models
and coverage definitions. In addition, funds released by World Bank–mobilized
instruments have, in most cases where evidence is available, been effectively
applied by governments, although more focus on those SDGs core to the World
Bank’s objectives is desirable.

Capital market and reinsurer demand for IBRD-intermediated risk transfer

products appears to be strong, with pricing usually at or below general market

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levels and final sums at risk underwritten always being the same as or larger
than originally sought. However, the potential demand for sovereign protection
has yet to be crystallized, though renewal rates are encouraging. Of concern is
that some countries appear to require ongoing subsidies to pay premiums. This
raises the possibility of moral hazard and the “Samaritan’s dilemma” for donors.

Key Considerations
Treasury should support the development of the cat bond market by working
with modelers, actuaries, and broker-dealers to improve market transparency
and liquidity.

Where experimental triggers are involved, the World Bank should limit
exposures until the underlying models and trigger determination procedures
have satisfied proof of concept.

If the World Bank is to participate as an intermediary in reinsurance placements,

it should encourage reinsurance brokers to seek terms that are competitive, but
that will maintain ongoing interest from the global reinsurance sector. In
particular, placements should be of at least a minimum economic size.

The development plans of the countries requiring premium subsidies should

incorporate strategies to reduce risk and develop alternative disaster funding
sources, in addition to credible post-disaster recovery capacities.

Treasury should help countries to optimize the application of different risk

transfer instruments.

Opportunities and Scaling Up

The main avenues for scaling up entail new products, new risks, and extension of
the existing instruments to the private sectors in partner countries, in the latter
case through the International Finance Corporation (IFC).

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Key Consideration
The World Bank Group should monitor developments in Part I countries with a
view to identifying new risk transfer products that could be applicable to partner
countries and that are consistent with the SDGs.

Background
The Multilateral Development Bank/Development Finance Institution
(MDB/DFI) Reference Guide on calculating and reporting private investment
mobilization does not explicitly mention insurance, except in terms of the
“unfunded” transfer of credit risk. However, the insurance instruments and
operations covered in this review involve a direct relationship between fund
sourcing and application and are covered under the “Direct Transaction
Support” heading. Moreover, insurance is referenced in the MDBs’ “From
Billions to Trillions” document (AfDB et al. 2015) under the heading “Financial
Risk Management Solutions,” which links explicitly to “sovereign risk and/or
macroeconomic and climate driven vulnerabilities.” 1

Catastrophe risk transfer instruments for sovereigns were introduced by the

World Bank in 2006, when the first cat bond being issued for Mexican
earthquake risk. 2 Total cat bonds issued to date by the World Bank either as

1 This lacuna could be addressed next time the Reference Guide is updated.

2 Despite its long history of providing recovery and reconstruction loans the World Bank’s
involvement in ex ante funding mechanisms only began in the late 1990s and early 2000s (for
example the Turkish Earthquake Pool and various index-based agricultural initiatives). These
projects initially involved advisory and knowledge development work (advisory and analytic
services) carried out by relevant Anchor and Regional sector teams with the early structures based
on models developed in advanced economies. These projects, though they sometimes resulted in
the engagement of private capital, do not provide enough documentary evidence to meet the
multilateral development bank capital mobilization criteria. An ex ante accelerated release loan
product, the catastrophe draw-down option (Cat-DDO) was introduced in 2008, but is not directly
relevant to this review.

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arranger or intermediary amount to $3 billion in eight countries. Cat bonds

typically incorporate a potential loss of total capital on the part of investors and
have been counted in full toward mobilization.

Reinsurance swaps intermediated to date by IBRD amount to total sums at risk

of covering natural hazards in countries and covering global pandemic risk.
Non-intermediated classical reinsurance arranged through World Bank–initiated
multicountry pools has been counted based on project period sums insured
(World Bank 2012): in practice this means reinsurance not involving Treasury
instruments arranged for the Caribbean Catastrophic Risk Insurance Facility
(CCRIF). To date, uncollateralized reinsurance or swap capital mobilized has
been $3 billion, based on an assumption of a marginal solvency requirement of
20 percent of sum at risk (see annex E.4 for the source of this ratio).

The theoretical basis for sovereign use of insurance instruments was outlined in
a World Bank paper (Ghesquiere and Mahul 2007) demonstrating that the Arrow
and Lind assumption of risk neutrality at country level does not apply where
catastrophe losses are potentially large relative to national income, where there
is little or no fiscal space (especially in a post-disaster scenario), or where the
cost of maintaining reserve funds is excessive, given low tax ratios and large
domestic social and economic needs. In these circumstances the payment of a
premium to hedge risk (that is, more than expected losses) could be justified
from a social welfare viewpoint.

However, catastrophe risk transfer is not cheap. Catastrophe reinsurance pricing

and the average risk spread for catastrophe bonds tends to vary between 2 and 3
times modeled average annualized losses 3 (Lane and Mahul 2008). 4 The Q1 2019

3 Average annual loss (AAL) is the industry term for expected annual loss based on either
statistical experience or physical modeling.

4 Catastrophe (cat) bonds were developed to add capacity to reinsurance markets in the mid-1990s
largely to deal with increased peak US risks.

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cat bond average multiple rose to 3.65 and for some risks has been up to 11.5
times after an average of 1.82 in Q4, 2018 (Artemis Market Report). The
reinsurance multiple partly reflects the capital needed to support the
assumption of large, infrequent losses but also varies according to available
capacity and market sentiment. 5

Ideally, a sovereign state when developing its risk management strategy would
consider the range of both ex ante and ex post funding options available
(table E.1). In this regard early theoretical and empirical work on sovereign risk
financial strategies was focused on the simulation of temporal post-disaster
liquidity gaps arising from delays in accessing funds from the various transfers
and budget strategies available. More recent work has focused on the
opportunity costs of the full suite of options available calibrated according to
event severity (Clarke et al. 2016).

5 Retail insurance (loss frequency typically approximately 15 percent per year.) sells at a
comparatively small premium over expected loss and its opportunity cost is less than that of
savings or credit for most individuals, particularly in developed markets. For relatively infrequent
events, expense loadings tend to be lower, but capital requirements and the cost of capital are
greater, leading to premium levels that are significantly higher than expected loss.

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Table E.1. Disaster Funding Options

This strategic approach to catastrophe funding suggests that risk transfer

instruments (direct insurance, cat bonds, swaps, and derivatives) are most
effectively used for the generation of liquidity by partner countries immediately
after major shocks (World Bank 2012), where inefficiencies and delays in aid
delivery point to insurance instruments offering better and timelier alternative
for the funding of immediate relief and recovery efforts (Talbot and Barder 2016;
Walker et al. 2005). Lower-cost options that release funds more slowly, such as
loans, budget reallocation, other fiscal measures, and longer-term grants are
more appropriate for the later recovery and reconstruction stages. For example,
World Bank estimates place the opportunity cost of catastrophe draw-down
options (cat DDOs) at approximately 40 percent less than that of comparable risk
transfer instruments.

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The World Bank Treasury advises that another factor has also become relevant in
recent years, reflected in a noticeable increase in interest in risk transfer
instruments shown by financial and spending ministries in partner countries
(including International Development Association [IDA] countries). The reasons
for this are pragmatic and bureaucratic: for many large emerging partner
countries the cost of hedging risk is still small compared with their national
budgets and does not need to clear the bureaucratic and approval processes that
normal borrowing 6 and ex post budget adjustments do. In consequence an
idealized optimization approach will possibly be modified to accommodate
political and process frictions (figure E.1).

Figure E.1. Designing a Sovereign Risk Funding Approach in Practice

Source: Independent Evaluation Group.

6 Because catastrophe (cat) bonds are fully collateralized, they do not affect a country’s fiscal space
or World Bank lending caps. They also have the advantage of being familiar instruments to
operational staff in many finance ministries.

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Other factors can also preempt an idealized funding approach. For some
developing countries, such as small island states, and for catastrophes (low-
probability extreme disaster events) fiscal measures may not be available, or may
be inadequate, and large injections of international aid have been the usual
default.

Relevance

What Instruments and Approaches Has the Bank Group

Used, and Are They Appropriate?
Risk Transfer Instruments

The World Bank risk transfer instruments currently providing scope for capital
market participation are risk swaps (including various derivatives) and cat
bonds. These Treasury products originated in the mid-2000s in response to
demand generated out of Latin America and the Caribbean, which was
supporting two sovereign risk aggregators. These were Mexico’s National
Disaster Fund (FONDEN) and the CCRIF, the first multicountry catastrophe
insurance pool. The FONDEN cat bond issued in 2006 was the first of its kind
employed at sovereign or subsovereign level.

Cat Bonds

The concept underlying cat bonds is not complicated. A special purpose vehicle
investing in high-quality assets (sometimes backed by a total return swap)
stands between institutions investing in catastrophe risk and insurers or
reinsurers wishing to lay off risk. Larger underwritten bond issues can gain
liquidity by being subjected to Securities and Exchange Commission rule 144A,
which facilitates trading among qualified institutions. Initially the World Bank
acted as an organizing intermediary between sovereigns and reinsurers or capital
markets with external entities, often based on offshore centers, taking on the
special purpose vehicle role. More recently, the World Bank has been prepared to
issue cat bonds (technically nonguaranteed capital notes) off its own balance

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sheet, using its extensive contact list of institutions that invest through its
Global Debt Issuance Facility (figure E.2). Bonds issued from the Treasury
issuance facility are unrated, but cat bonds typically are rated at the BB or B
level. Recently, cat bond spreads have been somewhat higher than spreads for
similarly rated corporate debt (Schyberg 2018).

To apply for coverage a country signs a service agreement with the World Bank
and these instruments therefore satisfy the MDB private capital mobilization
criteria. The main benefit offered by the World Bank’s intermediary role, aside
from expertise, is the reduction of counterparty risk (both actual and perceived),
thus providing a degree of comfort for the sovereigns seeking ex ante
catastrophe cover and investors concerned about reliable contractual execution.
Arrangement costs are covered by a fee paid to the World Bank Treasury.

Figure E.1. IBRD Catastrophe Bond Mechanism

Source: Independent Evaluation Group.

Cat bonds are multiyear instruments with annual trigger resets to adjust for
changing exposures. Investors receive the return on the collateral assets
(notional in the case of the World Bank) and a share of the premium (usually
quarterly in arrears). Assuming conservative liquidity management by Treasury,
the main risk to the World Bank is reputational: the instruments provided

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employ parametric or modeled-loss triggers to allow for quick release of

liquidity, and thus basis risk is always present, while for investors information
asymmetries can lead to illiquidity and mispricing in secondary markets. This
latter risk may be exacerbated if a triggering event is imminent or has occurred.

Cat bonds are issued on a platform that provides for a common documentation,
legal, and operational framework, with the World Bank acting as both arranger
and special purpose vehicle proxy. The marketing of these products falls to the
Financial Advisory and Banking Department of Treasury, with implementation
handled by the Capital Markets Department. The listing of Treasury deals in
annex E.1 demonstrates that hazards and shocks covered are becoming more
diverse as the nature and intensities of shocks expand and grow. The Financial
Advisory and Banking Department of Treasury expects partner countries to
initiate and renew more than the total coverage arranged to date in the next two
financial years. 7

Catastrophe Swaps
Catastrophe (cat) swaps are a form of reinsurance or hedge that is normally
renewed annually. The World Bank stands between the country (possibly via a
sovereign insurer fronting for subsovereign entities as in a recent transaction for
the Philippines), or a multicountry pool, and the ultimate risk bearers, which are
typically reinsurance group entities (figure E.3) or capital/ securities markets
operating through specialist intermediaries. Pricing is based on similar concepts
as those applying to catastrophe bonds (expected loss plus risk weights plus
expense loadings), although a different approach to risk pricing is involved 8.

7 At present International Development Association countries are not eligible to issue cat bonds
through the World Bank, but this is under review.

8 Contribution to an efficient investment frontier versus the cost of marginal capital employed –
see Annex E5.

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Again, the World Bank is remunerated through fees, and similar benefits are
provided for both sides of the transaction as under a catastrophe bond approach.

Figure E.2. IBRD Catastrophe Swap Mechanism

Source: Independent Evaluation Group.

Note: IBRD = International Bank for Reconstruction and Development.

Catastrophe Risk Pools

Insurance pools have a long history and are widely used in developed markets to
create risk portfolios that are more attractive to reinsurers and to attract greater
capital support in direct markets. They are also sometimes used in developed
and the more advanced emerging markets to provide primary disaster insurance
that the private sector will not or cannot, and to transfer this risk to
international markets or to government. Examples include flood insurance in the
United States and earthquake insurance in Turkey and New Zealand.

The mobilization role of the World Bank in initiating multicountry catastrophe

pools is well documented. For purposes of this report, criteria that have been
applied to include pools in the mobilization count include a formal request
having been received by the World Bank from the countries concerned (or from a
regional body representing these countries). Other requirements are that the
World Bank acted as country convener, provided the major inputs into the
design of the pool, actively engaged other donors and private risk transfer

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markets, and supplied and managed grants, including trust funds, to support the
initial establishment of the pool.

In the case of the CCRIF the World Bank qualifies on all counts. The genesis was
work done in Latin America and the Caribbean in the 1990s and ultimately
resulting in a policy paper that included both World Bank and private market
input (Pollner 2001). Subsequently, after heavy weather-related losses in 2004,
the Caribbean Community heads of government formally requested World Bank
assistance to improve access to catastrophe insurance coverage, leading to the
launch of the CCRIF in 2007. By pooling risks the CCRIF has cut the cost of risk
transfer by approximately 50 percent on average. The World Bank’s main roles
(aside from providing insurance expertise), involved engaging the private sector,
convening a critical number of regional countries, and encouraging donors to
support establishment costs, including the early buildup of reserves. The World
Bank contributed as a donor at both the level of the Multi Donor Trust Fund set
up to support establishment costs and to individual countries (World Bank
2012).

The design and documentation platform underlying the CCRIF has now been
applied elsewhere, including small Pacific island states, some of which have
modeled average annual losses comparable to those of the Caribbean islands
(figure E.4).The advisory work for these structures is largely carried out by the
World Bank’s Disaster Risk Financing and Insurance Program.

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Figure E.3. Modeled Average Annual Losses for Countries Most Affected by
Natural Disasters

Source: World Bank 2010; PCRAFI 2013.

How Aligned are These Instruments with World Bank Group

Development Priorities (Partner Needs)?

Natural Disasters
Evidence: Notwithstanding the major role of natural disasters in the
development agenda (10 out of 17 SDG objectives mention them) economic
growth theory has little to say about their effects. Endogenous models based on
Schumpeterian creative destruction concepts see them as being positive for
economic growth, while classical growth and Solow models see no long-term
effects. However, the growing Emergency Events Database (EM-DAT) database
produced by the Center for Research on the Epidemiology of Disasters (CRED)
(CRED and UNISDR 2018) clearly demonstrates a growing toll in terms of human
and immediate economic losses, with less developed countries
disproportionately affected in relative terms. Impacts vary by the nature and
intensity of the hazard involved, level of development and other characteristics
such geographical size, economic diversification and a range of resilience
measures. A recent comprehensive literature review (Botzen, Deschenes, and

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Sanders 2019) found that “...indirect economic impacts are generally more
severe for low-income countries and smaller, less diversified economies.” This
study also found a worrying trend: the global number of severe disasters has
trebled since the 1980s, largely because of increased exposures and
vulnerabilities.

The latest empirical panel-based studies also indicate that the short- to
medium-term impacts of natural disasters are negative and have the potential to
lead to less productive equilibria. 9 Panwar and Sen (2019) examined a panel of
102 countries over the period 1981 to 2015, including 23 Organisation for
Economic Co-Operation and Development (OECD) and 73 non-OECD countries.
Dependent variables were log differences of real Gross Domestic Product (GDP)
growth rates, gross agricultural value-added and gross non-agricultural value-
added over nonoverlapping five-year periods. Their conclusions were
categorized by the severity of the hazard and the development status of the
country: the deleterious effects of catastrophes on growth were stronger for
developing and emerging markets and generally highly negative for very severe
events under all hazard headings. Average economic impacts in non-OECD
countries were approximately twice those of OECD countries. 10 These results
largely replicate the findings of an earlier, similar World Bank study (Fomby,
Ikeda, and Loayza 2009) that examined a panel of 87 countries (25 developed, 62
emerging) over the period 1960 to 2007.

9 In some circumstances a one-time boost to growth arises from items affecting national accounts
when recovery and reconstruction funds begin to flow.

10 The developed versus emerging market dichotomy accords with data published by Moody’s
Investor Services (November 2016) showing average annual direct losses from natural disasters
over the 1980 to 2015 period as being 1.5 percent of GDP in emerging markets versus 0.3 percent in
developed economies. Both Moody’s and S&P (Williams and Wilkins 2015) have indicated that
they now take disaster risk into account when determining a country’s credit ratings.

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Studies of the longer-term economic effects of natural disasters are less

available, do not lead to generalized conclusions, and have produced
contradictory findings. Reasons include indirect economic losses (including
secondary fiscal impacts) being context sensitive and counterfactuals being
subject to the models chosen and subjective. However, there is evidence that
small island states, countries subject to repeated negative shocks, low-income
countries, and countries with poor governance and subject to conflict are slow to
recover, if ever, particularly where hydrometeorological hazards are involved.
Other studies have pointed to the difficulty some middle- and low-income
countries have had in financing reconstruction because of their limited
capacities to engage in countercyclical fiscal policy and their shallow insurance
markets (Karim and Noy 2013).

The poverty impacts of natural disasters are also underresearched; however,

there is growing evidence that even if country data do not show negative long-
term effects from natural disasters, vulnerable populations can fall into poverty
traps (Noy and duPont 2016). Available research points to poor households as
being more vulnerable due to location, lower resilience in terms of income
streams, savings, and housing, and reduced access to early warning systems,
post disaster relief services, and credit (Karim and Noy 2016; Hellegate 2017;
SAMHSA 2017).

That donor support of developing and emerging countries after natural disasters
is under pressure exacerbates the situation. The Red Cross’s 2018 World Disaster
Report highlights the extremely variable results of United Nations and Red Cross
post-disaster appeals with success ranging from 6 percent of target to more than
100 percent; in 2017 only 60 percent of UN-coordinated appeals targets were

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met (IFRC 2018). 11 At a global level, humanitarian needs have been outpacing
resources for more than a decade (figure E.5).

One consequence is that significant proportions of people in need of

humanitarian aid are not being reached or helped. Responses to three types of
crisis in particular are chronically underfunded: small localized disasters, slow-
onset disasters, and long-term complex crises.

Figure E.4. Increasing Relief Funding Shortfalls

Source: Talbot and Barder 2016.

11The Red Cross/Red Crescent are looking to issue a volcano cat bond covering 10 volcanos in four
regions. This would be supported by the governments of Germany and the United Kingdom. Other
aid organizations are showing interest in rapid-release capital market instruments.

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Unfortunately, there is no empirical research on the impacts of immediate post-

disaster relief and recovery funding on the World Bank’s twin goals. However,
the SDGs provide clear support for the role of quick-release liquidity, especially
numbers 1 (poverty reduction), 3 (good health and well-being), 8 (decent work
and economic growth), and 11 (sustainable cities and communities). Annex E.3
lists the relevant detailed SDG subobjectives.

In addition, leading expert organizations point out that disaster response plans
should incorporate financing arrangements. In Integrative Risk Management:
Advanced Disaster Recovery, the Swiss Re. Centre for Global Dialogue introduces
the concept of Advance Recovery (Swiss Re. 2010). The purpose of this approach
is to speed up and increase the effectiveness of the recovery stage; it
incorporates five elements: high-quality community-based leadership;
demonstrated government capabilities and resources; preexisting relationships
with outside organizations; ready availability of discretionary funds; and,
availability of credit. Sovereign risk transfer instruments also increase country-
level ownership, usually seen as a desirable objective in the relevant literature,
but not always achieved. 12

Hence, there is ample evidence that the answer to the primary question—is there
an emerging justification for the World Bank to provide quick-liquidity-release
mechanisms to fund post-disaster humanitarian relief and early recovery
(including restoring core government functions and repriming economic
activity)?—is in the affirmative.

However, a second question arises from the fact that risk transfer funds are
literally handed over to sovereign governments within days or weeks of an event

12 Haiti provides a worst-case example of what can go wrong when local capacity is limited and
nongovernmental organizations dominate relief and recovery efforts (World Bank 2005). After the
2010 earthquake funding arrived slowly, with little local ownership and poor coordination of
efforts. Of the $6 billion spent until mid-2016 the government was estimated to have received only
1 percent of humanitarian aid and 15 percent of short-term recovery funding (Talbot 2016).

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and normal lending processes do not apply. Any financial instruments provided
by the World Bank Group should satisfy a common set of development priorities
and relevant safeguards. In addition, they would also ideally be part of an
integrated and coordinated approach (figure E.6). 13, 14

Operationally this would mean incorporating all World Bank disaster funding
options, including Treasury’s risk transfer instruments, into relevant Country
Partnership Frameworks. Country Partnership Frameworks should already be
making explicit allowance for exposures and vulnerabilities to natural hazards,
and this requirement would ensure that Financial Advisory and Banking are able
to coordinate with country teams and relevant sectoral specialists. A further step
would be to establish an integrating mechanism involving a common database of
disaster-related country strategies and operations and fostering
communications among relevant teams within the World Bank.

13 The range of disaster funding options and how they interact was described in a recent World
Bank submission to the G20 (World Bank 2015).

14 Issues also arise with post-disaster lending. Some studies question the World Bank’s emphasis
on housing reconstruction and a lack of consultation with affected populations (Freeman 2004;
Tafti and Tomlinson 2015) and overly optimistic assumptions regarding recovery periods (World
Bank 2005; Lloyd-Jones 2006). In a broader context Lewis (1999) argues that development
programs that do not allow for vulnerability impacts can ultimately do more harm than good.

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Figure E.5. World Bank Integrated Disaster Funding Model

Source: Independent Evaluation Group.

The integration of sovereign risk transfer products into a broader World Bank
approach to disaster management would be consistent with the recently revived
UN policy discussion on the relief to development continuum catalyzed by the
publication of the SDGs. In particular, the World Bank’s engagement of local
partners at both the early recovery stage and later recovery and reconstruction
stages could help “encourage a greater development orientation of humanitarian
relief programs, and a greater focus on disaster risk reduction in development
programs” (Hinds 2015). However, as a recent United Nations Evaluation Group
working paper (UNEG 2018) has pointed out, “From an evaluation-specific
perspective, the main conclusion put forward in the paper is that a nexus lens
may prove more useful if it is used as a scoping tool to identify and analyze areas
for improved synergy and better ways of working across humanitarian and
development interface, rather than as a new paradigm or framework.”

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Caveats and Counterfactuals

The World Bank has been criticized on several grounds for its promotion of risk
transfer instruments to partner countries (Hillier 2018; Richards 2018;
Ramachandran and Masood 2019). The main grounds for criticism involve both
technical and policy issues. The technical issues largely focus on the “gamble”
involved in pure parametric and modeled loss–based coverages; this is discussed
in detail in a later section of this review. Policy issues include the following:

 A reaction to the G-7 and G-20’s InsuResilience initiative, particularly to the

allocation of a substantial proportion of the funds generated to insurance
solutions, as opposed to disaster risk reduction.

 The likelihood of long-term premium subsidies being required in some cases.

 The lack of a nexus between parametric instruments and incentives for risk
reduction.

 The small amounts released by World Bank instruments compared with total
damages and losses.

The first item is a valid issue, given the very high potential returns to investment
generated by ex ante risk reduction investments and the relatively low attention
being given to this area by the international community and national
governments (Price 2018). 15 However, the imposition of suitable safeguards
would partly insulate the World Bank from criticism in this regard.

The second objection is also valid. Subsidies can be useful in the establishment
stages of disaster risk transfer systems (and pools in particular), but their long-
term value is problematic. One obvious problem is that subsidies are reliant on a
permanent pool of donor transfers being available and are thus not guaranteed.

15 There has been a proposal to link resilience with cat bonds, but it is not clear how this would
work in practice.

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Another common objection to subsidies (exacerbated by the assumption of

recurring donor aid) is that they lead to moral hazard, with countries having
reduced incentives to build financial reserves and alternative funding
mechanisms and to engage in basic disaster risk management. However, a more
fundamental concern lies at the core of development policy: ongoing aid,
including subsidies (particularly where countries are already aid dependent),
could inhibit a fundamental rethinking of country development strategies,
possibly including population relocation and changing the composition of
economic activity (Raschky and Schwindt 2009). 16

The third objection is in part explicitly addressed by the World Bank and other
donor-supported multicountry pools in that post-disaster response capacities
have needed to be established (see CCRIF annual reports). This is also a
requirement where cat DDOs are involved. Recent research indicates that “there
appears to be little relation between speed of recovery and the exogenous factors
of size of impact, population demographics and economic factors,” but that
disaster response capacity has a significant impact on the speed and quality of
both the recovery and reconstruction stages (Platt 2017). However, it is not clear
that such safeguards are currently required where Treasury risk transfer
instruments are generated through direct negotiation.

The fourth objection is based on a misconception. Immediate post-natural

disaster humanitarian funding rarely exceeds 5 percent of total damages and
losses and is typically closer to 1 percent thereof. In addition, there are grounds
for exercising caution in the early pilot stages of parametric and modeled loss
approaches when data are being gathered and calibration is uncertain.

16 Remittances back ‘home’ by partially relocated populations already constitute a significant

proportion of post-disaster relief funding.

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Pandemics
The case for pandemic ex ante quick-release funding instruments is easiest to
establish, given the urgent need to intervene before a virus or bacterium has an
opportunity to spread and a current lack of alternatives. 17
Increasing population
concentrations and ease of movement mean that early containment is vital.
Pandemic loss distributions have very fat tails and economic losses and
mortality rates are potentially huge compared with natural disaster events.
Sidorenko and McKibbon (2006) found that even a mild influenza outbreak
would result in approximately $330 billion in economic losses. A recent paper
(Fan, Jamison, and Summers 2016) modeled the long-term economic impacts of
labor withdrawal and mortality for pandemics of various intensities. Average
annual income loss amounted to $80 billion, and mortality-related losses to
$490 billion, amounting in total to 0.7 percent of global income. Average
mortality costs ranged from 1.6 percent of GNI in lower-middle income
countries to 0.3 percent in high-income countries.

The World Health Organization (WHO) and World Bank provide the major
institutionalized sources of quick-release funding (aside from a country’s
domestic resources and limited bilateral arrangements). These are the
Contingency Fund for Emergencies (CFE) and the recently established Pandemic
Emergency Financing Facility (PEF) respectively. 18. The CFE is a liquid fund
designed to facilitate immediate release of resources by the WHO prior to the

17 The 2014 Ebola infection spread tenfold during the period it took to raise only $100 million. The
ultimate cost of response and recovery was $7 billion, compared with a requirement of only
$5 million if the World Health Organization had declared an emergency immediately the risk was
identified.

18 The World Bank also provides direct grants from other funds (the 18th Replenishment of the
International Development Association, CRW IRM, Regional Disease Survey Systems
Enhancement (REDISSE), various trust funds) and has reallocated loan funds in certain situations;
however, these tend to vary in terms of time to release and not all are available to all 77 IDA
countries.

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issuance of a donor appeal. Its biennial funding target is $100 million but has
only received total funding since 2015 of $80.7 million, with 18 national donors:
Germany and the United Kingdom have accounted for 61 percent of this total.
More than 60 withdrawals totaling more than $75 million have been made over
the funding period, ranging from $57 million (DNC) down to $40,000 (CFE
Annual Report 2018). Its effectiveness as a global resource ultimately depends
on donor country support, as is the case with natural disasters, and has in
practice been challenged by one country’s well-publicized extreme needs.
Reimbursement rates have been low or nonexistent for many smaller outbreaks
and it clearly cannot carry the rapid response funding load alone.

The World Bank PEF facility was established for IDA countries in 2016 after the
earlier 2014 West Africa Ebola breakout. It consists of an emergency funding
facility and three different insurance instruments, including swaps and a cat
(Pandemic) bond that responds to cross-border infection breakouts (finalized in
July 2017). The cash window is designed as a more flexible and responsive
facility to backstop the larger insurance window. The two major donors for the
cash window have been Germany and Australia ($61 million and $7.2 million
respectively) and a disbursement of $31.4 million has already been made for the
Ebola breakout alongside $60 million of grants and credits from IDA. PEF cash
disbursements are approved by a steering body.

The insurance window covers influenza (up to $275 million), coronavirus (up to
$95.8 million), Ebola (up to $150 million), and a range of fevers endemic to
Africa (up to $75 million). Class A of the bond ($225 million) covers the first two
infection types and Class B ($95 million) the second two. Payouts are dependent
on mortality and morbidity rates and, in the case of the bond, whether the
infection crosses a national boundary and leads to at least 20 deaths. The World
Bank, Germany, and Japan are effectively the insureds under the bond (with the
World Bank acting as custodian for the underlying assets and Germany and
Japan funding the risk premium component of debt servicing) and payments may
be made to both vulnerable countries and qualified international agencies.

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European-based specialist investors and pension funds have been the main
investors in PEF (table E.2).

Contrary to the national disasters space, the employment of subsidized

insurance instruments appears to be a worthwhile means of engaging private
capital, given the potential global consequences of pandemics both economically
and in terms of lives lost. However, the modeling of pandemics is still at an early
stage, and pricing is likely to reflect this. In addition, it is not clear that the
recognition of whether a payment has been triggered can always take all local
conditions into account. At the time of writing, for example, the major safety
and informational challenges inherent in responding to the Ebola crisis in the
eastern Congo are raising questions about the appropriate balance between
direct aid and trigger-based insurance, with attendant reputational risks for the
World Bank. In the circumstances PEF needs to be seen as a learning experience
that is providing some clear lessons, with the major challenge being the
development of triggers, possibly including multiple time-sensitive triggers
(learning from the crop insurance experience).

Table E.1. Investors in Pandemic Bonds

Source: Clarke 2019.

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Commodity Price Hedging

The World Bank has been offering commodity price hedging to borrowers since
1999, but only introduced its first stand-alone intermediated oil price hedging
product for Uruguay in 2013, structured as a call option. This was connected to
weather risk transfer (poor rainfall cutting hydro power output), but World Bank
Treasury has made it clear that it sees commodity price risk as an opportunity to
offer a new product to partner countries. To quote: “Potential candidates for
replication would include member countries whose economies are highly
exposed (as an exporter/importer) to a specific commodity or groups of
commodities, which make a country’s fiscal position and economic activity
vulnerable to international commodity price fluctuations’” (World Bank 2016).

Evidence shows that commodity price volatility is a legitimate development

issue, however the justification for a World Bank role is less clear than for
pandemics and natural disasters. Cavalcante, Mohaddes, and Raissi (2012), using
data over the period 1970 to 2007 question the resource curse hypothesis and
show that the commodity terms-of-trade growth tends to be positive for output
growth. However, this effect is more than offset by terms-of-trade volatility. The
main transmission mechanism for this effect is a lowering of the accumulation
of physical capital, with generalized method of moments methods also showing
a loss of potential human capital. In this regard Dehn (2000) found that large
negative shocks can have a negative impact on economic growth. Other
publications have pointed to the increasing volatility of commodity prices and
the consequent impact on poor agricultural producers (IISD 2008).

Page and Hewitt (2000) point out that price fluctuations that are predictable or
within normal bounds should be treated as normal business, while unexpected
shocks combined with credit constraints can disrupt fiscal planning. They
highlight the potentially dire situation of small poor countries with government
incomes highly dependent on commodity trade, but needing to intervene to
support primary producers’ consumption when prices are depressed. The
International Monetary Fund also noted this combination, pointing out that

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most countries hit hardest by falling commodity prices are “also among the
world’s poorest.” In extreme circumstances a government in a country
vulnerable to commodity price swings is likely to be faced with short-term
financial support for the poor, maintaining fiscal resilience, and possibly
supporting the financial sector (Kinda, Mlachila, and Ouedraogo 2016).

Lopez Martin et al (2017), using a stylized economy, examined the impact of

financial derivatives and commodity indexed bonds on the volatility of various
macroeconomic variables and their correlation with commodity revenues, and
found that they had a positive impact on both counts. They also consider the
trade-offs between bonds and derivatives, including the availability of longer-
term contracts with bonds versus their higher set-up costs and potentially lower
liquidity. However, in some contexts, bonds may be easier to issue
bureaucratically and politically. They discuss a potential role for international
financial institutions, but point out that existing derivative and futures markets
are well developed, and that financial innovation can face potential barriers. The
literature also contains numerous papers on alternative approaches including
income diversification and the establishment of international reserves and
sovereign wealth funds, and there appears to have been little attempt to develop
guidance for optimal combinations of instruments and approaches, as has been
done in the case of natural disasters.

The main roles the World Bank could play in hedging commodity price
fluctuations at sovereign levels (both on the supply and demand sides) are the
provision of expertise in identifying and arranging secure hedges, but perhaps
more importantly ensuring that competitive terms are achieved for partner
countries while they develop relevant human and institutional capacity. Such a
formalized role would provide an opportunity for Treasury to offer remunerated
advisory services, including mobilizing well-established and deep risk transfer
markets on behalf of partner countries.

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Catastrophe Insurance Pools

Developing and some emerging market insurance sectors are too small to act as
effective intermediaries to transfer catastrophe risk to global risk markets, either
as primary insurers or agents. Lloyds (2018) estimates that 99 percent of all
underinsurance, 19 amounting to $160 billion, is in developing and emerging
markets, with large emerging markets having the largest coverage gaps—often
because physical capital is growing faster than domestic insurance capacity.
However, developing countries have dominated in the experience of recent
average annual loss relative to national incomes (1980 to 2015 data):

1. Mongolia: 20.1 percent

2. Maldives: 18.5 percent

3. Belize: 9.3 percent

4. El Salvador: 8.5 percent

5. Solomon Islands: 8.05 percent

In these cases, government becomes the de facto catastrophe insurer of first

resort, and as shown in table E.2, can conceptually rely on a range of fiscal,
credit, and market instruments. In practice such countries typically have very
limited fiscal space, with only nascent tax bases and insurance industries and
inevitably become dependent on uncertain donor funds, grants from
international financial institutions, and possibly reallocated borrowing. The last
source has costs, because according to IEG Evaluation Brief 16 “Reallocating
resources from existing projects, another approach to emergencies, has been
found to affect the ability to attain long-term development goals and to be less
effective than specific reconstruction lending” (World Bank 2011).

19Underinsurance is defined for this purpose as the optimally insured value of physical capital
(after risk retention) not insured.

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To enhance access to risk transfer instruments, catastrophe pools can be

employed if they result in significantly more diversified and relatively
homogenous risk portfolios of reasonable size that can be modeled, although
supportive donor funding will still likely be required in the establishment stages.
This approach is especially applicable where the countries concerned are
individually not able to attract interest from the reinsurance markets because of
their small size, because of their concentrated risk, or because the local
insurance market is not developed or is undercapitalized. The small island states
of the Caribbean and Pacific, with a history of direct catastrophe-related losses
that are a multiple of their GNIs, offer the best example of this scenario (World
Bank 2012).

Turning to larger emerging markets, the benefits of sovereign pooling can be

often be obtained through aggregating disaster risk across distinct geographical
and administrative regions that are unlikely to be affected by the same hazard
event. In these cases, the World Bank involvement is likely to be at the advisory
and analytic services level and not covered by the MDB mobilization criteria,
unless World Bank risk transfer instruments are involved as part of a larger
capital mobilization, or if verifiable direct transaction advice is sought. Holzheu
and Turner (2018) have modeled expected disaster losses using Monte Carlo
simulation and find that six out of the ten large countries with the greatest
expected losses relative to GDP are IBRD partners:

6. Philippines: 1.13 percent

7. Chile: 0.48 percent

8. Mexico: 0.4 percent

9. Turkey: 0.36 percent

10. Indonesia: 0.28 percent

11. China: 0.22 percent

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To date, the World Bank has assisted four of these partner countries with risk
transfer to reinsurers and capital markets. 20

Can the Use of Risk Transfer Instruments Be Expanded by

the World Bank and Other International Financial
Institutions?
The scope for scaling up risk transfer portfolios for international financial
institutions is ultimately limited by a range of factors:

 The subset of World Bank partner countries that satisfy criteria necessary to
justify the use of intermediated risk transfer instruments;

 Their currently limited role as funding for immediate post-disaster

humanitarian and recovery efforts;

 The priorities of partner countries;

 Differing capacities to fund risk transfer instruments and to effectively

employ funds released immediately after a disaster; and

 The ongoing availability of permanent subsidies for the poorest and most
fiscally constrained countries, and whether in fact such permanent aid is
desirable, given other disaster risk management alternatives.

Based on these considerations, the current upper limit on intermediated natural

disaster risk transfer from partner countries at any one time, assuming full
coverage, is probably less than $5 billion, limiting the scope for some smaller
international financial institutions to make the investment required to enter this

20 For a more comprehensive list incorporating 28 risk measures see the World Risk Index.
https://en.wikipedia.org/wiki/List_of_countries_by_natural_disaster_risk.

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space, 21 though the World Bank’s Treasury could look at parallel arrangements.
Mobilization counts are potentially higher over time, given that these sums are
renewable, at least until a sovereign entity is able to arrange its own protections.
Pandemics possibly offer another $1 billion, based on initiatives announced to
date, although the Democratic Republic of Congo experience shows that
particular care needs to be taken in the specification of triggers for this risk. 22

There are four clear avenues for scaling up from current modest levels. These are
(i) increasing relief and recovery sums at risk based on modeling and experience
during pilot periods, (ii) the expansion of risk transfer to the full list of countries
where their use can be justified for post-catastrophe relief and recovery; (iii)
supplementing reinsurance coverage available through pools or with bonds
where reinsurance costs have become uncompetitive; and (iv) the expansion of
the application to support domestic credit creation after a disaster. A final more
problematic avenue would be the employment of risk transfer instruments at
sovereign and subsovereign levels to support later recovery efforts, and “build
better”-infrastructure.

Category B includes all World Bank partner countries where expected maximum
losses arising from infrequent catastrophes are large relative to the countries’
financial and institutional capacities, or in situations where donor support for
relief and recovery has proved to be problematic in its timeliness and
effectiveness. Expected outcomes are also a potential guide. Hellegatte (2017,
table 6.1) lists 14 partner countries with very high benefit-cost ratios arising
from post-disaster support for the disadvantaged, most of which have not
employed sovereign risk transfer instruments, but which satisfy the first two
criteria.

21 Based on a starting figure of Lloyds underinsurance estimate ($160 billion for damages only) and
assuming sums at risk of approximately 1 percent of expected maximum losses.

22 The Africa Risk Capacity is working on a pandemic product.

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Category C, a variant of Category A, has already seen Jamaica seeking to arrange

an IBRD supplementary coverage over and above reinsurance available through
the CCRIF (Artemis, May 2019). In addition, there is an expectation that some
large partner countries could eventually become peak reinsurance risks and that
capital market instruments will become attractive at that time as standard
insurance capacity becomes constrained.

Category D would involve the provision of liquidity, and possibly capital, to

some or all of a local banking sector after a catastrophe.

The fifth avenue would likely entail a considerable scaling-up of catastrophe risk
transfer purchased at current severity layers, and add significantly to the cost,
especially if higher layers involving very infrequent events were also added to
current programs. 23 In addition, there would be a danger of crowding out other
less costly ex ante funding alternatives and depressing the development of
domestic markets. In practice such expenditures would need significant donor
subsidies in some cases, and these would be difficult to justify if major efforts at
improving the resilience of the relevant countries did not accompany such
support. Notwithstanding these caveats, there may be opportunities to extend
recovery funding in some circumstances. Recurring themes in the literature are a
need to bridge the gap between the initial relief and later recovery/
reconstruction stages (Steets 2011) and the frictions created by the frequent
need to fund longer-term programs with series of short-term funding requests.
In this regard, if risk transfer were to be extended to cover later recovery efforts
a combination of modeled-loss and partial indemnity triggers could be
considered to better match payouts with losses, and to support appropriate
planning processes.

23 Catastrophe losses follow a power law against frequency.

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Conclusions and Lessons

 The World Bank appears to have been successful to date in targeting those
countries most in need of support in transferring natural disaster risk.

 The current suite of risk transfer products potentially supports those SDGs
relevant to the growth and poverty reduction agendas and hence the World
Bank’s twin objectives.

 The World Bank should actively assist countries during pilot stages to model
post-crisis relief and recovery external financing needs, calibrated according
to the severity of an event, to optimize ILS purchase.

 The ongoing deployment of IBRD or IFC balance sheets, expertise, and grant
capacity for disaster risk transfer should be dependent in part on the
capacity of the country to respond effectively after a catastrophe large
enough to trigger a parametric or modeled loss contract. Where this capacity
is limited, appropriate technical assistance should be considered, working
with development partners. This aspect places a particular responsibility on
the World Bank to apply safeguards and, ideally to monitor outputs and, if
possible, outcomes, because private sector capital providers are unlikely to
be overly concerned with how payouts are used (Vyas et al. 2019).

 Clear guidelines should exist for the World Bank’s role where active and deep
markets already exist. In particular, opportunities may exist for Treasury to
offer remunerated advisory services to IBRD partners regarding certain
categories of risk hedging.

 Formal coordination and integration of disaster-related activities at

operational and policy levels within the World Bank Group would provide a
useful link between country disaster relief and developmental programs.

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Effectiveness
How successful are the disaster risk management initiatives in advancing
priorities through mobilizing private capital and meeting partners’
expectations?

This question can be addressed under four headings: demand, timeliness of

delivery and application after an event, basis risk, and pricing.

Country Demand
Although there are clear examples of an explicit demand for ex ante catastrophe
risk transfer facilities (such as the case of Caribbean countries after the
hurricane Ivan catastrophe in 2004), the role of the World Bank to date has of
necessity been somewhat focused on supply. This reflects the relatively recent
introduction of IBRD cat bond and swap and hedging instruments, and their
unique and stand-alone nature compared with other World Bank Group financial
offerings. However, where countries or pools have taken advantage of these
instruments, they have usually renewed coverage until they are confident that
they do not need the comfort of IBRD balance sheet. 24 To some extent, demand
will be a function of the demonstration effect of those deals that have been done
to date, and the next two years will be instructive.

Timeliness and Application

Payouts after a trigger event are usually subject to a clearance from a modeling
firm, which in turn is dependent on the release of official data on the event. In
practice the timing experience with parametric and modeled loss triggers for
rapid-onset natural disasters has been good, although there have been some
exceptions (see basis risk discussion). At the time of writing, the Ebola outbreak

24 The Caribbean Catastrophe Risk Insurance Facility (CCRIF) now appears to be self-sustaining at
the subregional level.

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in the eastern Congo is highlighting the challenges that can arise if triggers are
difficult to establish and verify (particularly if moral hazard is involved).

Funds released by IBRD-intermediated parametric insurance to date have been

used to support relief, maintenance of government functions, and readiness
development in the wake of triggering events. Annex E.2 lists payouts where
World Bank instruments have been involved, with their application and time to
release.

Basis Risk
Basis risk is the primary trade-off inherent in ensuring the quick release of funds
after a major disaster. It is the possibility that there will be no clear relationship
between physical damage or economic losses incurred (or other measure such as
mortality) and the performance of the insurance instrument. This is particularly
the case for parametric measures, where the payout is purely a function of the
metrics of the hazard that has occurred. For this reason, good policy is to restrict
funds spent on parametric insurance during the pilot stage. A further
disadvantage of purely parametric instruments is that they offer no incentive for
active disaster risk management because they do not directly consider either
exposure or vulnerability. 25

To date there have been several cases where losses were significant, but no
payout or a much-reduced payout, has been triggered. These typically occur in
the early days of a program when data are being gathered and triggers are still
relatively crude; however, some also reflect limited or misspecification of
coverage. For example, the Solomon Islands did not renew with the Pacific
Catastrophe Risk Assessment and Financing Initiative after flash flooding in

25 In practice the sum insured purchased is typically some proportion of the modeled losses (which
may be a subset of total damages and losses), and possibly indirect fiscal impacts. Early sums
purchased in the CCRIF were up to 20 percent of estimated maximum loss, with a maximum of
$50 million.

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2014 did not lead to any payout despite significant losses. Similarly, a low
payment relative to losses after the May 2017 floods in Jamaica reflected the fact
that the CCRIF contract wording did not cover agricultural losses. In possibly the
most quoted case, the drought in Malawi in 2016, an African Risk Capacity policy
was designed for a type of maize different to that actually being planted by poor
farmers.

A refinement of pure parametric triggers that incorporates exposures and

vulnerabilities is modeled loss. If the modeled loss is greater than the trigger
point, a partial or full payment is made. The advantage of modeled loss is that no
loss assessment is required, as would be the case under indemnity coverage,
while some incentive to engage in resilience building is still effected. Though
payment can take an additional week or two compared with pure parametric
insurance, it is still relatively rapid compared with other financial instruments
and most donor aid. The CCRIF switched from parametric coverage to modeled
loss in the 2010 policy year, and performance relative to actual losses has
generally been acceptable.

Pricing
The theoretical basis (ignoring expense loadings) for cat bond spreads and
reinsurance pricing is the funding rate (L) on capital deployed plus expected loss
plus a risk load. The approach to the risk load required by capital providers
differs between separately collateralized (funded) and insured (so called
unfunded) risk transfer (see annex E.5). Assuming the bond funds are well
secured, the only component of cat bond pricing correlated with normal bond
spreads should be the return on secure assets. A recent study based on the full
universe of cat bonds issued to the publication date surprisingly found that
trigger type was at best of secondary importance, as was the peril (Braun 2015).
Aside from expected loss the key drivers are found to be the covered territory,
the sponsor, and the BB corporate bond spread. Covered territory reflects
portfolio diversification and quality of data, whereas the corporate bond spread
correlation possibly reflects opportunity cost. Other studies indicate that some

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investors also consider the probability of attachment (that is that a triggering

event will occur) and the probability of total loss.

A (re)insurer relies on the law of large numbers and the central limit theorem
and can accumulate concentration risk in peak risk zones leading to an
unacceptable probability of ruin. Very high-risk layers (with low attachment
probabilities, but very large coefficients of variation) can also become
problematic for reinsurers in terms of marginal capital cost. One consequence is
that cat bonds and reinsurance solutions should have risk layers and regions
respectively where they dominate: optimization of cat bond and reinsurance
blends is currently a topic of interest at both theoretical and application levels. A
fuller exposition appears in annex E.4.

Event triggers for cat bonds range from traditional indemnity (based on an
actual loss determination) through various indexes to pure parametric
determinants. Because parametric measures are objective, spreads on these cat
bonds should be less than for bonds based on other triggers. In practice only a
small minority of cat bonds issued to date have had parametric triggers with
IBRD bonds dominating this subsector. The majority of cat bonds, mostly
covering US peak risks, have been issued with indemnity triggers (figure E.7).

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Figure E.6. Distribution of Catastrophe Bonds Outstanding, by Trigger Type

Source: Artemis.

The pricing of World Bank–arranged and World Bank–intermediated cat bonds

has been generally below the market index of the ratio of coupons to expected
loss over the decade that Treasury has been active in this space (figure E.8).

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Figure E.7. Pricing of IBRD Catastrophe Bonds

Source: Artemis.
Note: ILS = insurance-linked securities.

Catastrophe risk swaps typically have reinsurers as counterparties or are placed

through an exchange or specialist broker; they are effectively fronted
reinsurance, with the World Bank taking a fee for intermediating. Catastrophe
reinsurance pricing is subject to a competitive market, but until recently was
also driven by a capital availability cycle. However, pricing after the heavy 2017
and 2018 losses indicates that the traditional capacity-based pricing cycle has
been dampened, largely because of the emergence of capital market
instruments—“We also expected one year ago, that capital investors in ILS
would be extremely shy and not reload the instruments, … On the contrary,
there is more ILS today than there was one year ago, and they did reinvest
massively in those ILS funds” (Kessler 2018). Partner country governments have
been able to take advantage of this new pricing environment by employing the
World Bank’s expertise and industry links.

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Do Bank Group Mobilization Approaches Meet Investors’

Expectations?
Key indicators under this heading are the level of demand that has been
observed and the liquidity of IBRD instruments.

Demand
ILS capital employed (including cat bonds) grew at a compound annual growth
rate of 20 percent over the 10 years 2009 to 2018, with total capital available at
the end of 2018 amounting to $93 billion, of which cat bonds accounted for
$27 billion (Willis 2019). Swiss Re. (2019) estimates that alternative capital
currently equates to approximately 4 percent of total insurance risk transfer
capacity, with reinsurance accounting for another 16 percent and domestic
direct insurers accounting for 80 percent. Total risk transfer capacity is well
above both historical actual and insured global direct losses, but traditional
reinsurance capacity can be constrained in regions with high aggregate
exposures (that is, peak risks)—see annex E.5. Almost all direct insurance
capacity is allocated to advanced economies (and the United States in
particular), leaving approximately $400 billion to deal with the tails of
(re)insurers’ loss distributions and to support developing and emerging markets’
disaster risk transfer needs.

The rapid growth of ILS has been driven partly by the institutional hunt for risk-
adjusted yield (demonstrated by superior performance during the 2008 financial
crisis) and a number of specialized funds have been set up to invest solely in this
sector. 26 The extreme losses in 2017 and heavy losses in 2018 were seen as a first
test of this market, but growth continues, although at a reduced pace, and price
spreads have risen, although not to the levels of the 2000s. A majority of World
Bank–arranged, or World Bank–intermediated bonds have been oversubscribed;

26 Artemis currently lists more than 30.

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none have been issued for less than originally offered. In addition, most have
been priced at less than originally estimated (table E.3).

Table E.2. World Bank–Arranged and World Bank–Intermediated

Catastrophe Bonds, $

Original Final Final coupon Indicated

Offer issued (risk margin) Coupon
Tranche ($, millions) ($, millions) (%) (%)
Multicat Mexico 2009 A 100 140 11.5 N/A

Multicat Mexico 2009 B 50 50 10.25 N/A

Multicat Mexico 2009 C 50 50 10.25 N/A

Multicat Mexico 2009 D 50 50 10.25 N/A

Multicat Mexico 2012 A 140 140 8.0 8.75 to 9.0

Multicat Mexico 2012 B 60 75 7.75 9.0 to 9.5

Multicat Mexico 2012 C 100 100 7.5 8.75 to 9.1

Intermediation

CCRIF 2014–1 30 30 6.3 6.3 to 6.5

Pandemic Class A 2017 111 75 225 6.9 7.25 to 8.0

Pandemic Class B 2017 112 25 95 11.5 12.25 to 13.0

Mexico 2017 FONDEN 113 120 150 4.5 5.0 to 5.5

Mexico 2017 FONDEN 114 85 100 9.3 9.9 to 10.5

Mexico 2017 FONDEN 115 85 110 5.9 6.5 to 7.1

Chile 2018 116 300 500 2.5 2.75 to 3.5

Colombia 2018 117 300 400 3.0 3.0 to 4.25

Mexico FONDEN 2018 118 140 160 2.5 3.0 to 3.75

Mexico FONDEN 2018 118 85 100 8.25 9.0 to 9.75

Philippines 123 2019 75 75 5.5 5.0 to 5.75

Philippines 124 150 150 5.65 5.5 to 6.0

Sources: Caribbean Catastrophe Risk Insurance Facility; Artemis; Treasury.

Note: CCRIF = Caribbean Catastrophe Risk Insurance Facility.

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There also appears to be a strong demand for World Bank–intermediated

catastrophe swaps, which, aside from any contextual pricing advantage, are
preferred by some countries (table E.4) because they offer scope for more flexible
annual program adjustments than cat bonds.

Reinsurer feedback points to two possible concerns. The first is that World Bank
cat bonds be used appropriately and do not crowd out reinsurers in nonpeak
lower-risk layers (see annex E.5) where they should be more competitive. The
second involves tensions arising with reinsurance brokers placing risk for some
donor-supported risk pools. The core issue here is that too many reinsurers are
being included in some relatively small programs, 27 and placement sizes are well
below economical levels.

Table E.3. World Bank Catastrophe Swap Deals

Aggregate
Cover World Bank Average
Geography Provided Reinsurance intermedia- Rate on
and Period Countries ($, Purchased tion Line
Covered (no.) millions) ($, millions) ($, millions) (%)
CCRIF

3/07–5/08 16 455 110 20 7.18

T0 5/09 16 560 132.5 30 7.17

To 5/10 16 600 132.5 30 6.64

To 5/11 16 620 108.975 18.25 9.36

To 5/12 16 625 125 30 8.00

To 5/13 16 625 120 30 8.67

To 5/14 16 620 107.5 30 8.65

Malawi Maize

27 The Africa Risk Pool has placed 32 contracts with member states since 2014 for a total premium
of $73 million.

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Aggregate
Cover World Bank Average
Geography Provided Reinsurance intermedia- Rate on
and Period Countries ($, Purchased tion Line
Covered (no.) millions) ($, millions) ($, millions) (%)
2009 1

2009 10 1

2010 11 1

PCRAFI

2013 Pilot 5 45 45 45 3.33

To 10/2014 5 67 67 67 3.28

To 10/2015 5 43 43 43 3.02

To 10/2016 5 43 43 43 5.35

To 10/2017 5 38 38 38 6.05

Uruguay 1 450
Energy Index

PEF 7/17 N/A 425

Philippines

12/17 1 206 206

12/18 1 390

Sources: Vyas et al. 2019; CCRIF.

Note: CCRIF = Caribbean Catastrophe Risk Insurance Facility; PEF = Pandemic Emergency Financing Facility.

Secondary Market Dynamics

A more liquid market for IBRD cat bonds could improve both pricing and market
depth and possibly influence the broader market to be more transparent. Cat
bonds issued under relevant Securities and Exchange Commission rules in the
United States to qualified institutions trade over the counter through broker-
dealers, but market liquidity is limited: only 7 percent of cat bonds outstanding
were traded in 2018 (Vloedman 2019). A number of these securities qualify for

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Category II treatment under IFRS 13, and fair values are partly guided by
transaction data issued by information services such as TRACE and broker-
dealers.

Pricing can become very volatile where there is the possibility that a payment
will be triggered; for example when a tropical cyclone has formed, or a pandemic
may cross a border and more frequently updated modeled net asset values are
desirable under these circumstances (Guidon and Soulsby 2008). The American
Academy of Actuaries is producing a White Paper on cat bond secondary market
valuation and expects its members to become more active on the investor side.
Treasury has the capacity to support such efforts. 28

Conclusions and Lessons

 There is a clear market demand for World Bank disaster risk products, as
evidenced by consistent oversubscription for IBRD-intermediated cat bonds
at spreads that are often less than originally forecast and at or below
prevailing market levels.

 The extent of long-term partner country demand has yet to be crystallized

and for this reason the World Bank Group’s risk transfer program will need
some time to establish itself. In the interim it should be treated as a
worthwhile initiative that deserves support. Nonetheless, careful thought
needs to be given as to which product designs, and which specific triggers
the World Bank is prepared to offer. Those triggers based on objective and
readily available metrics have tended to perform relatively well (subject to
model development and appropriate coverage specification) while the

28 The fair value is net asset value, which is theoretically the collateral balance plus outstanding
earned premium at the valuation date less the price a rational risk taker would charge to assume
the remaining risk.

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application of “soft” triggers, which are based on human judgment or which

may be hard to verify still has to be proved.

 Treasury could support the development of the cat bond market by working
with modelers, actuaries, and broker-dealers to improve market
transparency and liquidity. Regardless of IBRD’s long-term role, capital
markets are likely to become a more important component of the disaster
risk transfer space as new peak risks emerge and severe weather-related risk
frequencies increase. To the extent that IBRD balance sheet can support the
development of these markets there is likely to be a welfare benefit.

 If the World Bank is to participate as an intermediary in catastrophe excess

of loss reinsurance schedules, it should encourage reinsurance brokers to
seek terms that are competitive, but that will encourage ongoing interest
from the global reinsurance sector.

 Treasury should ensure to the extent possible that cat bonds do not crowd
out reinsurance solutions for more frequent nonpeak risks in partner
countries.

What Are the External and Internal Drivers of Results?

What are the Internal (Structure, Selectivity, New Products

and Platforms) and External Opportunities?
There are three main vectors along which the Bank Group could expand its
presence in the ILS space. These are i) becoming more active in the markets for
instruments other than intermediated cat bonds and swaps and derivatives, ii)
expanding the range of risks that are covered, and iii) the development of
intermediation vehicles through IFC.

Other Insurance-Linked Securities Instruments

Cat bonds are not the largest component of the ILS market, though they did hold
this status until the global financial crisis. Since then, collateralized reinsurance
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has grown rapidly and now occupies approximately 60 percent of the ILS market.
Other related products such as sidecars and industry loss warranties have
relatively minor market shares.

Fronted collateralized reinsurance is basically a special purpose reinsurer backed

by an investment fund offering full collateral backing for the reinsurer’s
obligations, thus reducing the role of (and possible necessity for) independent
claims paying ability ratings. 29 In other words, a fund (rather than bonds) backs
the risk. The attractions of this model are that it is typically easier to arrange
than cat bonds, which have a comparatively complex documentation and
issuance process, and that a wider range of risks can be accessed outside peak
risk regions, offering greater diversification; however, collateralized reinsurance
is issued on a single year basis, and in periods of heavy back-to-back loss years,
such as 2017 and 2018, collateralized reinsurance instruments tend to be very
capital intensive if renewals are to be offered. The reason is that capital from
earlier years is “trapped” during the period when earlier claims are assessed and
settled. Emerging thinking is that specialized investors should hold both cat
bonds, which offer some liquidity, and collateralized risk transfer exposures.
Like cat bonds, collateralized insurance contracts have the disadvantage that
they cannot offer automatic reinstatement after a major claim occurs.

Other Risks
The ILS market is expanding rapidly into risks that are on the fringe of
insurability (that is, with endogenous as opposed to purely exogenous
characteristics), but which have developmental implications. These include
collateralized reinsurance of mortgage lenders insurers; approximately 20 such
deals have been done since 2015. Other new risks being transferred to capital

29 Technically collateralized insurance in its original form is not fronted. Collateral is held in a
reinsurer-established trust fund and the cedant has a legal contract with the trustee and the
reinsurer. This structure is largely found in the US market for historical regulatory reasons.

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markets include longevity, terrorism, cyber-attack, and medical benefits claims

levels.

IFC Fund
One possible innovation would involve the establishment of a specialized fund
by IFC to provide backup collateralization of a special purpose reinsurer. This
special purpose vehicle could assume private sector catastrophe risk directly
insured by domestic underwriters, including, for example for small and medium
enterprises (World Bank 2012).

Conclusions
 The World Bank should actively monitor market developments and test new
product ideas with partner countries. This could involve an annual
conference, possibly associated with the Annual Meetings or Spring
Meetings that would also enhance the demonstration effect through
presentations by Treasury and partner countries.

 The World Bank should research those risks, such as cyber-attack, that are
likely to have developmental impacts on partner countries and seek to
provide suitable risk hedging facilities.

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Annex E.1. Relevant Tables

Table AE1.1. World Bank Treasury Deal Summary (as of June 2018)

World Bank Amount to

Role Date
Country (instrument) ($, millions)
Caribbean Catastrophe Natural Catastrophe – Intermediation 203.5
Risk Insurance Facility earthquake and hurricane (swap/bond)
(CCRIF) (annually, 2007 to 2013, 2014 for
three years)

Risk Pool for Caribbean Island

Countries

Malawi Weather and Commodity Intermediation 19

Hybrid Derivative – drought and (swap)
maize (annually, 2008 to 2011)

Mexico Natural Catastrophe – Adviser/Arranger 605

earthquake and hurricane (2009 (bond)
and 2012)

Pacific Catastrophe Risk Natural Catastrophe – Intermediation 232.5

Financing Initiative earthquake, tropical cyclone (swap)
(PCRFI) and tsunami (annually, 2012 to
2016)

Risk Pool for Pacific Island

Countries

Uruguay Weather and Commodity Intermediation 450

Hybrid Derivative – drought and (swap)
oil price (2013)

Mexico Natural Catastrophe – Intermediation 360

earthquake and hurricane (2017) (bond)

Global Pandemic (2017) Intermediation 425

Global Risk Pool targeted to (bond/swap)

IDA countries

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World Bank Amount to

Role Date
Country (instrument) ($, millions)
Philippines Natural Catastrophe – Intermediation 206
earthquake and hurricane (2017) (swap)
Risk Pool for national and 25
provinces

Pacific Alliance—Chile, Natural Catastrophe – Intermediation 1,360

Colombia, Mexico and earthquake (2018) (bond)
Peru Joint Issuance of Cat Bond
notes for four countries

Total 3,861

Source: Independent Evaluation Group.

Table AE1.2. Claims Paid Where a World Bank Instrument Was Involved

Amount
($, Time to
Event millions) Date Payment Usage Comment
Dominica 0.5 11/2007
earthquake

St Lucia 0.4 11/2007

earthquake

Turks and 6.3 8/2008 Temporary feeding

Caicos stations for displaced
people.

Haiti 7.8 1/2010 2 weeks Civil servant salaries,

earthquake provision of civilian
security.

Anguilla 4.3 8/2010 Damage repair,

upgrading early
warning systems,
setting up recovery
fund.

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Amount
($, Time to
Event millions) Date Payment Usage Comment
Barbados 8.6 10/2010 < 2 weeks Emergency repair of 50 percent
hurricane key infrastructure. preliminary
amount paid
within days

St Lucia 3.2 10/2010 < 2 weeks Restoration of basic 50 percent

hurricane services. preliminary
amount paid
within days

St Vincent 1.1 10/ < 2 weeks Acquiring restoration 50 percent

hurricane 2010 materials. preliminary
amount paid
within days

Anguilla 0.5 10/2014 <2 weeks Repair work.

rainfall

Anguilla 0.6 11/2014 <2 weeks

rainfall

St Kitts 1.1 11/2014 <2 weeks

rainfall

Barbados 1.3 11/2014 <2 weeks

rainfall

Dominica 2.4 8/2015 <2 weeks

cyclone

Tonga 1.3 1/2014 < 10 days Transport of

cyclone emergency goods and
personnel.

Vanuatu .9 3/2015 < 10 days Transport of

cyclone emergency goods and
personnel.

Nicaragua 0.5 6/2016

earthquake

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Amount
($, Time to
Event millions) Date Payment Usage Comment
Belize rainfall 0.3 8/2016

St Vincent 0.3 9/2016

rainfall

Barbados 1.8 9/2016 Road repair, recovery

cyclone, of low-lying areas.
rainfall

St Lucia 3.8 9/2016 Agricultural resilience.

cyclone

Haiti cyclone, 23.4 9/2016 Food, shelter, Funds 50 percent

rainfall medications, roof applied by
replacement, roads. November 2016

Nicaragua 1.1 11/2016

cyclone

Peru 60 5/2019 24 days Contractual

earthquake deadline was 25
days

Source: Independent Evaluation Group.

Table AE.1.3. Relevant Sustainable Development Goal Objectives

Sustainable Development
Goal Relevant Subobjective
1. Poverty 1.5 By 2030, build the resilience of the poor and those in
vulnerable situations and reduce their exposure and
vulnerability to climate-related extreme events and other
economic, social, and environmental shocks and disasters.

3. Health 3.3 By 2030, end the epidemics of AIDS, tuberculosis,

malaria, and neglected tropical diseases and combat
hepatitis, waterborne diseases and other communicable
diseases.

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Sustainable Development
Goal Relevant Subobjective
8. Work and economic growth 8.3 Promote development-oriented policies that support
productive activities, decent job creation, entrepreneurship,
creativity, and innovation, and encourage the formalization
and growth of micro-, small- and medium-sized
enterprises, including through access to financial services.

11. Cities and communities 11.5 By 2030, significantly reduce the number of deaths and
the number of people affected and substantially decrease
the direct economic losses relative to global gross
domestic product caused by disasters, including water-
related disasters, with a focus on protecting the poor and
people in vulnerable situations.

Source: Independent Evaluation Group.

Annex E.2. Mobilization Attribution of

“Unfunded” Risk Transfer
The Multilateral Development Bank/Development Finance Institution
(MDB/DFI) Reference Guide to private investment mobilization does not
reference insurance-linked securities or traditional insurance, except in the
context of credit risk transfer when MDB loans or investments are involved,
where it is referred to as unfunded risk transfer. In this latter situation, credit
risk transfer may be included as mobilization if directly related to an MDB
financing and the MDB offsets the amount of risk transferred against its
commitments.

The “unfunded” concept appears to come from a taxonomy developed by Culp

(2006) on the basis that under most insurance arrangements there is neither
separately identified collateral nor asset transfer. The “unfunded” categorization
is technically and empirically questionable in the context of private capital
mobilization for two reasons:

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 Though monoline insurers did suffer during and after the 2008 financial
crisis the insurance sector, including global reinsurers underwriting
catastrophe risk, performed much better than the rest of the financial sector
(including numerous collateralized lending arrangements).

 The global reinsurers of interest in this review are required to maintain

demanding levels of capital under European Solvency II, the Swiss
equivalent of Solvency II and the US Risk-Based Capital regime. However,
unlike the situation with individual transactions, insurers and reinsurers can
take advantage of the laws of large numbers and the central limit theorems
and do not need to cover 100 percent of each risk. For this reason, the
Reference Guide is too generous in its attribution of capital mobilized in the
case of credit insurance related to MDB lending and investment activities.

For purposes of this document a capital mobilization of 20 percent of the sum at

risk has been assumed for cat swaps and catastrophe reinsurance, based on the
following:

For CCRIF the pool-expected maximum loss, assuming a 200-year event and 16
countries, is approximately 25 percent of the aggregate expected maximum loss.
Global reinsurers tend to be much more diversified, but the diversification effect
reduces rapidly after the first 20 or so risks.

A heuristic that the marginal economic capital to underwrite catastrophe risk is

approximately five times the pure premium (Zanzani 2002).

A comparison of statutory and internal model cat risk under Solvency II by Aon
Benfield demonstrating an internal model solvency capital requirement of
approximately 20 percent of probable maximum loss for combined wind plus
surge and flooding under an optimal placement (Aon Benfield 2011, 25).

The relevant US earthquake and windstorm risk-based capital requirements

assume 100 percent of a 100-year-event loss (a relatively modest severity
assumption), but also allow for risk diversification under a square root formula.

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Annex E.3. Optimal Use of Uncollateralized

Reinsurance and Collateralized Risk Transfer
Cat bonds are investment instruments employed by sophisticated institutional
investors and their value is found in an ability to improve the risk return
characteristics of managed funds. This benefit because markets, to date, have
required cat bonds spreads slightly more than those available from similarly
rated corporate paper, while these instruments normally bring no correlation
with other investment choices and virtually no counterparty risk. Provided that
cat bonds do not form a significant proportion of assets under management or
that there is adequate diversification of exposures, cat bonds will not threaten a
fund as a whole, and spreads can be set solely according to their contribution to
an efficient frontier.

Reinsurance is insurance of primary insurers and rests on capital that is

normally substantially less than the sums at risk, thanks to the law of large
numbers and the central limit theorem. As the event return period increases
(that is, as the probability of an event becomes lower) and the coefficient of
variation of loss rises, the reinsurer needs to set aside more marginal capital
relative to a unit of coverage, and at some point will no longer be able to
underwrite the risk at an acceptable price: particularly if a peak risk is involved
and it already has a significant accumulation. Reinsurer cost of capital is to some
extent market driven, but a board’s risk appetite is also relevant and generally is
significantly higher than the market’s required spread on cat bonds, with some
exceptions.

The conceptual trade-off then becomes a lower return on a larger sum (the cat
bond collateral) versus a higher return on reinsurer marginal capital employed,
where that commitment increases as the return period increases or if a peak risk
accumulation is involved. 1 This would indicate that reinsurance should be more

1 The major global peak risks for private sector (re)insurers are US windstorm and earthquake.

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competitive with capital market instruments at lower return periods and in

nonpeak regions, but become uncompetitive at higher return periods and if
accumulations in peak risk areas already exist. Little research has been done to
date on determining the optimal blending of reinsurance and collateralized risk
transfer. Hardle and Cabrera (2010) demonstrated that such a reinsurance cat
bond blend was optimal for Mexico earthquake risk in terms of cost and
counterparty risk. More recently Trottier and Lai (2017) tested a range of risk
transfer possibilities 2 with a theoretical model allowing for counterparty risk.
This study supported the earlier Mexican empirical findings.

Figure AE3.1 is a stylized illustration of the underlying cost of capital dynamics

using reasonably realistic values. In practice numerous other factors will be
brought to bear in choosing between reinsurance and capital market risk transfer
instruments. These will include relative market pricing movements, the
availability of relevant skills and organizational capacities, information
asymmetries and moral hazard, governmental budgeting policies, and where
political support lies. However, all else being equal, the World Bank Treasury
should encourage partner countries to optimize the relative employment of a
pure reinsurance approach and collateralized risk transfer.

2 Reinsurance only, cat bond only, combinations with reinsurance at low return periods levels, cat
bonds at low return periods.

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Table AE3.1. Reinsurance versus Collateralized Risk Transfer

Source: Based on an idea originated by Alphacat senior management.

Note: PML = probable maximum loss; ROE = return on equity.

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Appendix F. Emerging Lessons from IFC’s
Green Bonds and Bond Mobilization
Approach
The green bond market began with the issuance of a climate awareness bond by
the European Investment Bank in 2007. During the first five years of the market,
all but 10 green bonds issued were by development banks. The International
Finance Corporation (IFC) issued its first green bond to private investors in 2010
in the amount of $200 million. Since then, IFC has issued on average $1.5 billion
green bonds per year with $7.8 billion in issuances from 2007–18, according to
the Climate Bond Initiative. Among development banks, IFC is ranked fourth in
total issuance since 2007, just behind the European Investment Bank
($28.7 billion), KfW Development Bank ($16.3 billion), and the World Bank
($13.3 billion). At the same time IFC is ranked seventh among all green bond
issuers.

In addition to being an active issuer of green bonds, IFC also played a prominent
role in promoting them. IFC is part of the Global Green Bond Partnership
consortium, was a founding member of the Green Bond Principles, and has
served on the Executive Committee since FY14. These consortiums publish
documents for the public to green bonds and the opportunities they provide (IFC
2019). IFC also engaged with banking regulator to help make a green financial
sector more sustainable. All these activities have resulted in reductions of
18.4 million metric tons of carbon dioxide emissions between FY14 and FY19
from IFC commitments (IFC 2019).

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Table F.1. Top 10 Green Bond Issuers, 2007–18

Year of First Total Issuance

Issuer Issue ($, millions)
Fannie Mae 2016 51,171

EIB 2007 28,702

Republic of France 2017 16,743

KfW 2014 16,336

World Bank (IBRD) 2008 13,301

Iberdrola 2014 9,952

IFC 2010 7,826

Engie 2014 7,782

SPD Bank 2016 7,589

TenneT Holdings 2015 7,007

Source: Climate Bond Initiative.

Note: EIB – European Investment Bank; IBRD = International Bank for Reconstruction and Development; IFC =
International Finance Corporation; SPD Bank = Shanghai Pudong Development Bank.

IFC also sought to increase private sector participation in addressing climate

change by mobilizing institutional investors to allocate capital toward climate
investments. To this end, IFC and Amundi, established the Amundi Planet
Emerging Green One Fund. As of 2018, Amundi had assets of €1.4 billion under
management, making it one of the largest green bond funds in the world
(Amundi 2018). Amundi clients have been successful not only in investing
capital in climate projects, but also in reducing greenhouse gas emissions. For
example, Axis Bank allocated $500.8 million as of March 2018, mostly in the
solar and wind sectors (Axis Bank 2018). These investments have resulted in the
reduction of 1 million tons of carbon dioxide emissions. Similarly, the State Bank
of India was able to raise $650 million via green bonds in 2018. Overall, the work
of IFC has resulted in the mobilization of $18.9 billion since 2005 (IFC 2019).

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Table F.2. Top 10 Green Bond Issuers: Development Banks, 2007–18

Year of First Total Issuance

Development Bank Issue ($, millions)
EIB 2007 28,702

KfW 2014 16,336

World Bank (IBRD) 2008 13,301

IFC 2010 7,826

SPD Bank 2016 7,589

Asian Development Bank 2010 5,755

Nordic Investment Bank 2010 4,120

China Development Bank 2017 3,914

African Development Bank 2010 2,498

Development Bank of 2014 2,156

Japan

Source: Climate Bond Initiative.

Note: EIB – European Investment Bank; IBRD = International Bank for Reconstruction and Development; IFC =
International Finance Corporation; SPD Bank = Shanghai Pudong Development Bank.

Given the role played by IFC as both an early adopter of the use of green bonds
and one of the most active issuers, the objective of this note is to present the
initial results of the attempts to quantify IFC’s impact on the green bond market.
More precisely, this appendix attempts to answer the following question: Is
there a relationship between IFC participation in the green bond market and
market activity (that is, the size of green bond issuances)?

The empirical strategy for this appendix follows the approach of the literature on
the determinants of bond premiums. In particular, the appendix will be
following the specifications in Kapraun and Scheins (2019); they looked at the
characteristics of bonds that traded with a green bond premium in primary and
secondary markets. In both cases, they controlled for bond characteristics such
as date of issuance, bond rating, and maturity date. Their main explanatory
variable was a dummy indicating whether a bond was a green bond and their

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and Bond Mobilization Approach

data include both conventional and green bonds. For the purposes of this
appendix, the empirical approach would modify the independent variable of
interest to whether IFC also issued green bonds in the same market as the other
green bonds, while the dependent variable will be issue size, given the
mobilization aspirations of IFC. This appendix is an exploratory attempt at
looking at IFC’s impact on green bond markets; caveats about inferring causality
are discussed after the presentation of results.

The following equation will be estimated using ordinary least squares: 1

𝑙𝑙𝑙𝑙(𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑖𝑖 ) = 𝛼𝛼 + 𝛽𝛽1 𝑤𝑤𝑤𝑤𝑤𝑤ℎ_𝐼𝐼𝐼𝐼𝐼𝐼𝑖𝑖 + 𝜽𝜽𝑿𝑿𝒊𝒊 + 𝜀𝜀𝑖𝑖 (1)

where 𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑖𝑖 is the size of the issuance, 𝑤𝑤𝑤𝑤𝑤𝑤ℎ_𝐼𝐼𝐼𝐼𝐼𝐼𝑖𝑖 is a dummy variable with a
value of 1 if the green bond was issued in the same market where IFC has also
issued a green bond and zero otherwise. The markets of issuance were adjusted
by the currency of the bond. For example, the Bloomberg sample shows that IFC
issued green bonds in domestic (6), Euro (18), and global (25) markets. The
currencies of issuance for green bonds issued in domestic markets were New
Zealand dollars (1), US dollars (4), and South African rand (1). After adjustment
IFC’s green bonds are now distributed as follows: New Zealand (1), United States
(4), South Africa (1), Euro (18), and global (25); 𝑤𝑤𝑤𝑤𝑤𝑤ℎ_𝐼𝐼𝐼𝐼𝐼𝐼𝑖𝑖 will have a value of 1
for green bonds issued in these markets. The vector 𝐗𝐗 𝒊𝒊 is a vector of control
variables that include the following: year of issuance, number of years till
maturity at issuance, yield to maturity (mid), and Moody’s ratings.

Outliers were excluded from the data using Cook’s distance critical values. In
addition, the same equation was also estimated using the robust regression
approach to check for robustness of the outlier methodology using Cook’s

1 An attempt to construct a panel based on issuers of green bonds and issue year to analyze the
trends in green bond issuance was made. However, aggregating the data this way resulted in loss of
observations. Moreover, most of the issuers have four years or less of observations and would not
provide enough variation to analyze long-term trends. A panel based on country of issuance using
the currency of issuance faced similar challenges.

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distance. The robust regression approach drops observations with Cook’s

distance > 1 and generates a weight for each observation. The iteration stops
when the maximum change between weights from one iteration to the next is
below the stated tolerance level.

The primary source of data for the analysis is Bloomberg. The data include only
active bonds (2010–18) that were tagged as “green” and were issued in emerging
and advanced economies. Overall, with assistance from the World Bank-
International Monetary Fund library, we were able to collect information on 721
green bonds. Twenty-seven countries issued green bonds, with most of the
issuances concentrated in the United States (174 issuances), supranational
entities (155), and France (134). It should also be noted that 54 percent of green
bonds in the data set were issued in international markets (Euro, global, and
Samurai); the rest were issued in domestic markets (41 percent) and private
placements (5 percent). The information in the data set and used in the analysis
comprised: (i) amount issued, (ii) original number of years to maturity, (iii) mid-
yield to maturity, and (iv) Moody’s rating. 2 The rating data were transformed
into a categorical variable with 1 as the highest rating and 17 the lowest. 3

Table F.3 presents the descriptive statistics regarding IFC’s green bond
issuances. IFC bonds on average tend to be smaller than those of other
supranational entities (such as the World Bank) or private issuers. In addition,
compared with private sector bonds, IFC bonds were shorter, but had
significantly better ratings: all IFC’s bonds were rated Aaa by Moody’s. Perhaps
this pattern suggests the pioneering role in developing the green bond market is
well suited to supranational entities, specifically development banks, because
their bond issuances tend to have better ratings.

2 Moody’s was chosen over the other available ratings variable because it had the highest number
of observations in the data set.

3 Bonds that have missing Moody’s rating or received a rating of “NR” or “WR” were coded as
missing.

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Table F.3. Descriptive Statistics

Issuance Type Observations Mean SD Min Max

All observations

Amount Issued ($, millions) 720 237.65 706.62 0.01 15,952.03

Original Maturity (no. years) 720 8.74 5.32 1.00 30.50

Yield to maturity (mid) 615 5.49 4.19 −0.51 37.83

Moody's rating 282 4.79 4.30 1.00 17.00

Observations (no.) 721

IFC Issuance

Amount Issued ($, millions) 49 90.53 236.27 0.83 1,200.00

Original Maturity (no. years) 49 7.43 4.78 1.50 30.00

Yield to maturity (mid) 47 4.84 4.15 0.32 24.67

Moody's rating 41 1.00 0.00 1.00 1.00

Observations (no.) 49

SNAT Issuance (excluding IFC)

Amount Issued ($, millions) 106 116.34 198.01 0.99 800.00

Original Maturity (no. years) 106 7.07 3.94 2.00 30.00

Yield to maturity (mid) 93 4.75 3.45 -0.25 20.44

Moody's rating 53 1.15 0.69 1.00 5.00

Observations (no.) 106

Non-SNAT Issuance

Amount Issued ($, millions) 565 273.17 786.49 0.01 15,952.03

Original Maturity (no. years) 565 9.17 5.52 1.00 30.50

Yield to maturity (mid) 475 5.69 4.31 −0.51 37.83

Moody's rating 188 6.65 4.15 1.00 17.00

Observations (no.) 566

Source: Independent Evaluation Group.

Note: IFC = International Finance Corporation; SD = standard deviation; SNAT = supranational entity.

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From equation (1), the coefficient of interest is β1 . This coefficient captures the
difference between bonds issued in the same markets where IFC had issued as
well, that is, between markets with IFC participation and markets without.
Assuming that the estimated coefficients represent causal relationships, IFC
appears to have significant “mobilization” effects on green bond markets.
Column (2) in table F.5 shows that markets with IFC participation have on
average 175 percent larger bond issuances than markets without. Table F.6
confirms this large result using the robust regression approach.

The sign of the coefficient reversed in column (3) for both tables. This appears to
be caused by the large number of observations dropped when Moody’s rating is
added in the regression. Running column (2) with bonds that have rating
observations only, and without including Moody’s rating itself, also returned a
negative coefficient. This indicates that the reversal of signs was not caused by
Moody’s rating and its correlation with the other regressors and 𝑙𝑙𝑙𝑙(𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑖𝑖 ).
However, this result does suggest that there might be an omitted variable in the
regression, or that Moody’s rating may be a bad control.

There are, however, some challenges in interpreting the results as causal from
our simple estimation. First, the definition of “green” in the Bloomberg database
may not be consistent across the different bonds. Another study identified green
bonds in Bloomberg using Climate Bond Initiative information to keep the
definition consistent (see Kapraun and Scheins 2019, 9). Second, there are
identification issues regarding the interpretation of β1 . IFC and the other
supranational entities issued majority of their green bonds in international
markets—IFC issued 88 percent of its green bonds while other supranational
entities issued 85 percent of their green bonds in either Euro or global markets.
As a result, we cannot separate IFC effect on green bond markets from the
effects of the other supranational entities’ green bonds, especially for the large
and active issuers like the European Investment Bank and the World Bank.
Finally, another identification issue is reverse causality: were bonds issued in the
international markets bigger because IFC and the other supranational entities
were active in these markets, or did IFC issue in these markets because these

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bonds would have more possible purchasers there than they would in domestic
markets?

Table F.4. Bonds Issued in Markets With versus Without IFC Participation,
Ordinary Least Squares

Dependent Variable: Log of Issued

Amount (1) (2) (3)
Dummy for market with IFC participation 1.256*** 1.012*** −0.815***

(0.155) (0.219) (0.290)

Issue year 0.0482 0.0134

(0.0604) (0.0797)

Original Maturity (no. years) 0.0420*** 0.0965***

(0.0160) (0.0153)

Yield to Maturity (mid) −0.318*** −0.424***

(0.0265) (0.0472)

Moody's rating 0.273***

(0.0287)

Constant 2.313*** −93.19 −21.77

(0.121) (122.0) (160.7)

Observations 691 584 255

Adjusted R−squared 0.048 0.243 0.318

Source: Independent Evaluation Group.

Note: Robust standard errors appear in parenthesis. IFC = International Finance Corporation.
a. Moody's rating ranges from 1 to 17, with 1 having the highest rating.
*p < 0.10 **p < 0.05 ***p < 0.01.

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Table F.5. Bonds Issued in Markets With versus Without IFC Participation,
Robust Regression Approach

Dependent Variable: Log of Issued

Amount (1) (2) (3)

Dummy for market with IFC participation 0.750*** 1.112*** −0.256

(0.232) (0.238) (0.446)

Issue year 0.110* 0.189***

(0.0662) (0.0702)

Original Maturity (no. years) 0.0482** 0.0466**

(0.0192) (0.0208)

Yield to Maturity (mid) −0.224*** −0.282***

(0.0229) (0.0435)

Moody's Rating 0.221***

(0.0320)

Constant 2.791*** −218.2 −374.9***

(0.206) (133.6) (141.5)

Observations 720 614 264

Adjusted R-squared 0.013 0.173 0.258

Source: Independent Evaluation Group.

Note: Standard errors in parenthesis. Moody's rating ranges from 1 to 17, with 1 having the highest rating.
*p < 0.10 **p < 0.05 ***p < 0.01.

References
Amundi. 2018. 2018 Annual Report. Retrieved from
https://rapportannuel.amundi.com/en/.

Axis Bank. 2017. “Green Bond Impact Report.” Retrieved from

https://www.axisbank.com/docs/default-source/default-document-
library/green-bond-impact-report-fy-2018.pdf?sfvrsn=5059b455_2.

246
 Appendix F
Emerging Lessons from IFC’s Green Bonds
and Bond Mobilization Approach

IFC (International Finance Corporation). 2019. Green Bond Impact Report Financial Report
2019. Retrieved from https://www.ifc.org/wps/wcm/connect/90e2d0c8-8290-
46a9-9e89-85335051c12a/Final+FY19+GBIR+-
+6+Sep+2019.pdf?MOD=AJPERES&CVID=mQ7oWOr.

Kapraun, J., and C. Scheins. 2019. (In)-Credibly Green: Which Bonds Trade at a Green Bond
Premium? European Commission, Brussels. Available at SSRN:
https://ssrn.com/abstract=3347337 or http://dx.doi.org/10.2139/ssrn.3347337.

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Annex F.1. Additional Regression Results

This section presents the empirical results showing differences between IFC
bonds and other issuers as suggested by the descriptive statistics (table F.3).
Given the concentration of issuances by IFC and other supranational entities in
international markets, a dummy for domestic market issuance is included in the
regression. Table FA1.1 shows regression results using ordinary least squares
and Cook’s distance critical levels to exclude outliers. Table FA1.2 shows
regression results using the robust regression approach as a robustness check.
The results confirm that IFC does indeed tend to issue smaller bonds on average
compared with the private sector issuers.

Table F.A1.1. IFC Green Bond Issuance Ordinary Least Squares Regressions

Dependent Variable:
Log of Issued Amount (1) (2) (3) (4) (5)
IFC dummy −1.515*** −1.707*** −1.885*** −2.981*** −3.507***

(0.199) (0.218) (0.297) (0.412) (0.381)

SNAT dummy (excluding IFC) −0.387* −0.768*** −0.550 −1.087***

(0.199) (0.217) (0.363) (0.303)

Issue year −0.105* −0.0200 0.138**

(0.0554) (0.0747) (0.0622)

Original maturity (no. years) 0.0117 0.0601*** 0.0257**

(0.0171) (0.0166) (0.0120)

Yield to maturity (mid) −0.326*** −0.235*** −0.105**

(0.0280) (0.0521) (0.0424)

Moody's ratinga 0.142*** 0.0601**

(0.0356) (0.0288)

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Dependent Variable:
Log of Issued Amount (1) (2) (3) (4) (5)
Domestic market dummy −3.710***

(0.473)

Constant 3.519*** 3.579*** 217.1* 45.55 −271.3**

(0.0872) (0.0971) (111.8) (150.5) (125.4)

Observations 688 679 588 249 235

Adjusted R−squared 0.013 0.023 0.235 0.467 0.682

Source: Independent Evaluation Group.

Note: Robust standard errors appear in parenthesis. IFC = International Finance Corporation; SNAT =
supranational entity; OLS = ordinary least squares.
a. Moody's rating ranges from 1 to 17, with 1 having the highest rating.
*p < 0.10 **p < 0.05 ***p < 0.01.

Table F.A1.2. IFC Green Bond Issuance Robust Regressions Approach

Dependent Variable:
Log of Issued Amount (1) (2) (3) (4) (5)
IFC dummy −1.155*** −1.204*** −1.486*** −4.816*** −4.805***

(0.371) (0.371) (0.360) (0.232) (0.230)

SNAT dummy (excluding IFC) −0.317 −0.594** −1.142*** −1.111***

(0.264) (0.278) (0.227) (0.226)

Issue year −0.0298 0.156*** 0.156***

(0.0649) (0.0419) (0.0419)

Original Maturity (no. years) 0.0263 0.0166 0.0219*

(0.0194) (0.0121) (0.0121)

Yield to Maturity (mid) −0.242*** −0.0717** −0.0616**

(0.0230) (0.0277) (0.0276)

Moody's Rating 0.0309 0.0249

(0.0229) (0.0230)

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Dependent Variable:
Log of Issued Amount (1) (2) (3) (4) (5)
Domestic market dummy −5.711***

(0.217)

Constant 3.455*** 3.509*** 64.72 −308.9*** −307.8***

(0.0968) (0.105) (130.9) (84.47) (84.56)

Observations 720 720 614 264 264

Adjusted R-squared 0.012 0.013 0.169 0.744 0.852

Source: Independent Evaluation Group.

Note: Robust standard errors appear in parenthesis. IFC = International Finance Corporation; SNAT =
supranational entity; OLS = ordinary least squares.
a. Moody's rating ranges from 1 to 17, with 1 having the highest rating.
*p < 0.10 **p < 0.05 ***p < 0.01.

Annex F.2. Additional Descriptive Tables

Table FA2.1 Country of Issuance

Issuance Amount of Issuance

Country (no.) ($, millions)
Argentina 4 910

Australia 1 750

Austria 3 1,600

Brazil 4 3,125

Cayman Islands 1 700

Chile 2 1,000

China 3 1,477

Colombia 1 66

Costa Rica 2 1,000

Estonia 1 56

France 134 51,748

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Issuance Amount of Issuance

Country (no.) ($, millions)
Germany 72 36,779

India 17 4,218

Indonesia 4 2,527

Latvia 3 165

Lithuania 3 720

Malaysia 98 979

Mauritius 6 2,950

Mexico 11 13,106

Nigeria 1 30

Peru 2 408

Poland 2 2,007

SNAT 155 16,768

Singapore 10 1,206

South Africa 5 307

United Arab Emir 1 587

United States 174 25,921

Total 720 171,111

Source: Independent Evaluation Group.

Note: One bond did not contain information on the amount of the issuance.

Table FA2.2 Currency of Issuance

Issuance Amount of Issuance

Currency (no.) (US$, millions)
AUD 16 1,690

BRL 16 247

CAD 1 10

CHF 1 126

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Issuance Amount of Issuance

Currency (no.) (US$, millions)
CNY 1 151

COP 3 241

EUR 135 82,432

GBP 3 2,225

HKD 4 178

IDR 5 37

INR 47 1,378

JPY 6 287

MXN 9 378

MYR 100 1,001

NGN 1 30

NZD 5 147

PEN 1 42

PHP 1 90

PLN 1 28

RUB 3 129

SEK 17 3,147

SGD 1 72

TRY 9 540

USD 326 75,989

ZAR 8 515

Total 720 171,111

Source: Independent Evaluation Group.

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Table FA.2.3 Market of Issuance

Amount of
Issuance Issuance
Market of Issuance (no.) (US$, millions)
Domestic 13 648

Domestic MTN 219 6,103

EURO MTN 228 56,289

Euro Non-Dollar 12 2,997

EURO Dollar 32 18,488

EURO Zone 38 31,779

Global 76 25,603

Private Placement 38 21,087

Samurai 2 227

Shogun 1 100

US Domestic 61 7,790

Total 720 171,111

Source: Independent Evaluation Group.

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Table FA.2.4 Adjusted Market of Issuance

Issuance Amount of Issuance

Market of Issuance (no.) (US$, millions)
Australia 5 1,417

Colombia 1 66

Euro 310 109,553

Global 76 25,603

India 8 419

Indonesia 2 27

Japan 2 227

Malaysia 98 979

Mexico 1 106

New Zealand 1 92

Nigeria 1 30

Private Placement 38 21,087

Shogun 1 100

Singapore 1 72

South Africa 6 373

United States 169 10,961

Total 720 171,111

Source: Independent Evaluation Group.

Note: Currency of the bond issue was used to determine the country for domestically issued green bond. All
euro issuances were combined into one category.

254
Appendix G. Effectiveness of World Bank
Group Interventions in Public-Private
Partnerships

Executive Summary
 Data from the Private Participation in Infrastructure (PPI) database show
that multilateral development banks (MDBs) in general have not been active
in projects with private sector participation, although interventions have
been increasing post-2012.

 Within MDBs, the World Bank Group contributes a significant share of total
MDB support.

 Empirical analysis suggests that MDB interventions have positive effects on

the number of projects and the amount of investment in infrastructure
projects with private sector participation. However, past MDB intervention
experiences appear to have only a statistical relationship with the number of
projects, indicating that the MDBs’ main effect is perhaps through sharing of
knowledge in identification and design of infrastructure projects.

 In contrast, Bank Group interventions appear to have a statistical

relationship with the amount invested, which may suggest that their main
effects are that they alleviate financing constraints. Past Bank Group support
did not have any relationship with the number or amount of investments.

 This note is exploratory; for a full causal interpretation of the results further
detailed analysis, especially of the empirical specification of the regression
equations, is needed.

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in Public-Private Partnerships

The Bank Group’s Public-Private Partnership

Interventions
Private sector participation in public infrastructure investments can be traced to
two primary motives: (i) profit maximization by private sector firms, and (ii) the
public sector’s concern for its capacity for the provision of public goods. Several
cross-country and country-specific studies have been conducted to investigate
the determinants of the private sector’s participation in the provision of public
goods (see Hyun, Park, and Tian 2018). These included factors such as the level
of economic development, macroeconomic stability, financial market frictions,
and the general quality of a country’s institutions. This short note presents an
exploratory econometric analysis of the Bank Group’s support for PPI projects
(2007–18). Bank Group interventions, such as loans, guarantees, and
syndication, and efforts attempt to alleviate the financial constraints faced by
both private and public parties in partnership projects. It could also be argued
that a significant knowledge transfer and accumulation of experience takes place
whenever these investments with Bank Group interventions take place; the
analysis therefore attempts to distinguish between these two channels by
examining whether there are differences in the impact of Bank Group
interventions between the scale (number and size) of investments per country
(financial friction channel) and the cumulative impacts (knowledge transfer and
experience channel).

The analysis uses the World Bank’s PPI database and builds on the analysis of
Hammami, Ruhashyankiko, and Yehou (2006) on the determinants of public-
private partnership (PPP) investments in infrastructure. The PPI database has
information on investments in infrastructure projects in low- and middle-
income countries. It is important to note that according to the PPI team most
PPIs worldwide occur in advanced economies. In addition, a large proportion of
the universe of PPI projects happen in the social infrastructure sector (such as
schools and hospitals), which are outside the scope of the database. Therefore,
the results of the analysis cannot be generalized outside the context of
developing countries or the infrastructure sector.
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PPI data from 2007–18 show that investments have remained relatively flat
throughout the period except for a spike in 2012 and the drop in 2016
(figure G.1). 1 Despite the flat investment trend, MDB support has been trending
upward since 2012: the share of the number of investments with MDB support
per year doubled from 5.5 percent in 2007 to 10.6 percent in 2018. Similarly, the
share of the number of Bank Group–supported investments to the total number
of investments per year increased from 2.2 percent in 2007 to 3.2 percent in
2018. Among MDBs, the Bank Group plays a major role, contributing on average
25 percent of all MDB investments during the period (figure G.2). Overall,
however, MDBs were not active participants in PPI; of the 4,400 projects during
the period, only 552 were supported by MDBs, and 274 of these were supported
by the Bank Group.

Figure G.1. Total Investments (in constant prices), 2007–18

300,000 25
Series1 Series2 Series3
250,000
20
Investment ($, millions)

200,000
15
150,000 Percent
10
100,000

5
50,000

- 0
1 2 3 4 5 6 7 8 9 10 11 12
Year

Sources: World Bank Private Participation in Infrastructure database, and staff calculations.
Note: WBG = World Bank Group.

1 Another possible interpretation is that there was a level shift after 2012. That is, the trend
remains flat, but at a lower level post-2012.

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Figure G.2. Investment Amount: Bank Group Support Relative to Other

Multilateral Development Banks, 2007–18

Series1 Series2

100%
90%
Investment amount (%)

80%
70%
60%
50%
40%
30%
20%
10%
0%
1 2 3 4 5 6 7 8 9 10 11 12
Year

Sources: World Bank Private Participation in Infrastructure database; and staff calculations.
Note: MDB = multilateral development bank; WBG = World Bank Group.

The empirical approach for the analysis aggregates the investment-level data in
the PPI database into country-level observations by counting and adding all
investments in a particular year per country and creating a panel database. This
method results in a large number of zeroes in both the investment count and
investment amount per country per year (711 out of 1,284 observations have
zero investments). As a result of the nature of the panel database the statistical
method used by this note will be the Poisson fixed-effects method. 2 This is not
surprising when applied to the number of investments as an independent

2 Because we are only interested in the conditional means, problems of overdispersion are not an
issue, and other approaches such as negative-binomial models or zero-inflated Poisson regressions
are not necessary.

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variable. 3 The estimated coefficients of the Poisson fixed-effects method can be

interpreted as semi-elasticities. However, this approach cannot be applied for a
strictly positive dependent variable such as the amount of investment per year. 4
Therefore, when using the investment amount as a dependent variable, the
analysis will be using the Tobit model (Tobin 1958). Tobit maximum likelihood
estimators are consistent under the assumptions of homoskedasticity and
normally distributed errors.

Below is the regression equation that will be estimated:

𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖,𝑡𝑡 = 𝛼𝛼 + 𝜷𝜷𝑴𝑴𝑴𝑴𝑴𝑴𝑖𝑖,𝑡𝑡 + 𝜸𝜸𝑴𝑴𝑴𝑴𝑴𝑴_𝒆𝒆𝒆𝒆𝒆𝒆𝑖𝑖,𝑡𝑡 + 𝜽𝜽𝑿𝑿𝒊𝒊,𝒕𝒕 + 𝜔𝜔𝑖𝑖 + 𝜏𝜏𝑡𝑡 + 𝜀𝜀𝑖𝑖,𝑡𝑡 (1)

where 𝑖𝑖𝑖𝑖𝑖𝑖𝑖𝑖,𝑡𝑡 is either the number or size of PPI investment, 𝑀𝑀𝑀𝑀𝑀𝑀𝑖𝑖,𝑡𝑡 is a vector of
dummy variables to control for MDB support and Bank Group support, 5 and
𝑴𝑴𝑴𝑴𝑴𝑴_𝒆𝒆𝒆𝒆𝒆𝒆𝑖𝑖,𝑡𝑡 is a vector of dummy variables for historical MDB intervention and
Bank Group intervention. 6 The vector 𝑿𝑿𝒊𝒊 is a vector of lagged control variables
that include the following: PPI experience, log of real gross domestic product per
capita, inflation, aid per capita, and International Country Risk Guide variables
(control of corruption, voice and accountability, regulatory quality, government
effectiveness, and political violence and stability). 𝜔𝜔𝑖𝑖 and 𝜏𝜏𝑡𝑡 are country and

3 Poisson Random Effects uses more stringent assumptions and is not often recommended as a
starting point for analysis.

4 Tobit models are also typically applied when dealing with censored dependent variables. An
example of censored data would be measuring accuracy of nicotine content on furniture surface.
Because of equipment sensitivity, censors cannot detect nicotine levels below a certain threshold
and these are recorded as 0 in the database.

5 Takes a value of 1 if a country received multilateral development bank or World Bank Group
intervention in a particular year, 0 otherwise.

6 Takes a value of 1 on the first year of multilateral development bank or World Bank Group
intervention and afterwards, 0 otherwise.

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time fixed effects. The coefficients in 𝜷𝜷 capture the contemporaneous effect of

MDB or Bank Group interventions, while coefficients in 𝜸𝜸 capture the
cumulative effect of these interventions. Tables G.1 and G.2 show the results of
the regressions with estimates from standard ordinary least squares with fixed
effects and random effects also shown for comparison. 7

Looking first at table G.1, the analysis on the count of investments shows that
relying on OLS results can be misleading without consideration of the nature of
the dependent variable. Although in some cases the significance and the sign of
the coefficients are consistent across models, in others the coefficients actually
switched signs (for example, PPP experience in models 3 and 4 versus models 1–
2, 5–6). MDBs in general have a strong relationship with the number of
investments (model 5). Moreover, MDB intervention in these investments
appears to have significant cumulative effects, separately from having previous
PPP experience. However, when splitting the MDBs into Bank Group and non-
Bank Group, the effects of MDBs appear to be concentrated in non-Bank Group
interventions. One issue regarding the regression results that needs to be
addressed with further fine-tuning of the model/specification is the negative
coefficients on GDP per capita. One possible interpretation is that richer
countries (among developing economies) tend to rely less on private sector
participation in infrastructure investment. However, this runs counter to the
results of Hayammi et al. (2006) and other studies cited by Hyun, Park, and Tian
(2018), though Hyun, Park, and Tian (2018) also found a negative relationship
between private sector participation and GDP per capita.

7 The Hausman test and the Breusch-Pagan LM test indicate that the ordinary least squares
random effects are the more appropriate estimation approach. However, Wooldridge (2009, 493)
states that random effects may not be suitable for policy analysis at the aggregate level when the
units of observation are large geographical units. In addition, fixed-effects estimates are more
consistent than random effects. Lastly, the Poisson specifications in table G.1 passed the Ramsey
RESET test for misspecification at the 0.05 significance level.

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In contrast to table G.1, table G.2 shows that both MDBs in general and the Bank
Group in particular have the same significant relationship with the amount of
PPI investments (models 5 and 6). This suggests that the Bank Group’s effect is
mainly through the financing of larger investments. Another interesting result
from table G.2 is that experience with PPPs or MDBs does not seem to be
correlated with investment amounts, which suggests that knowledge and PPP
experience in general are more correlated in the design of investment projects
than possible financing issues. GDP per capita now has the expected positive
sign and is significant in models 5 and 6, while regulatory quality also appears to
have a positive relationship with investment amounts.

The international aid variable was not included in table G.2 (models 5 and 6)
because the Tobit model would not converge when this variable was included.
Running the Poisson fixed effects on the number of investments without the
official development assistance variable produces similar results to table G.1.
The Bank Group dummy is now significant and positive, while the sign on the
coefficient of GDP per capita is now positive. This suggests that there may be
some relationship between international aid, GDP per capita, and the Bank
Group dummy that needs further investigation.

This exploratory note raises issues for future, more-in-depth research:

 Results from both the Poisson and Tobit estimates do not necessarily show
causal relationships. It is highly likely that the models presented above may
have endogeneity or omitted variable issues, which can cause the previous
estimates to be incorrect. 8 For example, the presence of regional projects or
Bank Group interventions in neighboring countries may affect both private
sector participation and Bank Group intervention in a particular country. Or,
given the Bank Group’s mission, higher participation of the private sector
may signal that its expertise and services may not be needed in that country,
which suggests a negative relationship between PPIs and Bank Group

8
The omitted variable problem may explain the switching of signs of the explanatory variables.

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in Public-Private Partnerships

intervention. These factors are not sufficiently captured in the present

formulation of the regressions. One option to address this issue is to
implement Poisson estimates using nonlinear instrumental variables
methods. One key challenge in this approach, or in any issues regarding
endogeneity, 9 is to identify a proper instrumental variable that satisfies the
exclusion restrictions. 10 Moreover, because there are more than one Bank
Group variable, there is a need for more than one instrumental variable as
well. Another option is to use the difference between the fixed-effects and
random-effects estimates as a guide for identifying the omitted variable (the
omitted factor is correlated with variables that changed signs).

 The Tobit model relies heavily on the assumptions of homoskedasticity and

normality of error terms. The Tobit model assumes that the same
mechanism affects the probability of non-zero observations and the
magnitude of the observation itself. Typically, a more flexible approach
would be to use either a two-part model or a selection model. A two-part
model assumes that the two mechanisms of nonzero observation and the
magnitude of the observation are independent and can be modeled
separately. Two-part models, however, cannot be used because the
probability of a PPI investment and the amount of the investment are
arguably not independent of each other – they are determined
simultaneously. Therefore, we cannot estimate these two mechanisms
separately. A selection model approach would be more appropriate, but the
use of this approach requires the availability of an instrument that satisfies

9 Running the regressions with lags of the main key independent variable to alleviate, to a degree,
the endogeneity issue resulted in the switching of signs in some of the key variables (such as PPP
experience compared to table G.1 model 6) or supported the results of the main tables (such as the
Bank Group dummy compared to table G.2 model 6). This further reinforces the need for a proper
identification strategy to address causality issues in the regression.

10 The instrumental variable should only affect the control variable of interest and not the
dependent variable.

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the exclusion restriction of the Heckman maximum likelihood estimator,

similar to what was mentioned in the identification issues.

 Including international aid changes the results for both the Bank Group
dummy and GDP per capita; these issues should be investigated further.

 The analysis in this note is done on the investment level. It would be

interesting to see the MDB and Bank Group effects at the project level. In
some instances, one or more other MDBs or the Bank Group provides
support after the project has already begun. Therefore, it is important to
capture this timing effect when doing the analysis at the project level.

The analysis is restricted to include only the years 2007–18. These severely
restricts the variation in the data, especially on PPP experience, not to mention
MDB and Bank Group experience. This is in addition to the consequence of using
FE approach, which removes a lot of cross-country variations.

Table G.1. Regression Results: Number of Investments

Dependent Variable: OLS FE OLS RE Poisson FE

Number of
(1) (2) (3) (4) (5) (6)
Investments
MDB dummy 2.152*** .. 2.417*** .. 0.445*** ..

(0.568) .. (0.598) .. (0.168) ..

MDB experience 0.170 .. −0.565* .. 1.083** ..

(0.393) .. (0.320) .. (0.443) ..

Bank Group dummy .. 2.011* .. 2.360** .. 0.226

.. (1.044) .. (1.040) .. (0.160)

Bank Group experience .. 1.199 .. 0.0425 .. 0.628

.. (0.947) .. (0.540) .. (0.431)

Other MDB dummy .. 4.606*** .. 4.751*** .. 0.673***

.. (1.474) .. (1.593) .. (0.125)

PPP experience 0.664 0.390 −0.0442 −0.144 18.29*** 18.29***

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Dependent Variable: OLS FE OLS RE Poisson FE

Number of
(1) (2) (3) (4) (5) (6)
Investments
(0.473) (0.472) (0.491) (0.491) (0.542) (0.538)

Lag GDP per capita −4.298 −4.555 −0.631** −0.625** −0.922 −1.866***

(3.887) (3.914) (0.290) (0.295) (0.875) (0.521)

Lag Inflation −0.008 −0.0110 0.0236 0.0194 −0.00132 −0.0107

18

(0.0117 (0.0113) (0.0195) (0.0179) (0.00870) (0.00808)

)

Lag Aid per capita −0.074 −0.222 −1.032*** −1.105*** 0.194 0.106
4

(0.330) (0.290) (0.376) (0.403) (0.119) (0.0891)

Lag Control of corruption 0.377 −0.0181 0.502 0.328 −0.284 −0.313

(3.426) (3.252) (3.225) (3.060) (0.437) (0.336)

Lag Voice and 1.368 2.048 0.853 1.342 0.543 0.783***

Accountability

(1.425) (1.425) (1.353) (1.319) (0.357) (0.291)

Lag Regulatory quality 2.216 1.713 2.235 1.725 1.196 0.895

(1.527) (1.361) (1.420) (1.172) (0.846) (0.767)

Lag Government 0.127 0.0491 0.174 0.0115 −0.274 −0.314

effectiveness

(1.675) (1.633) (1.717) (1.702) (0.506) (0.491)

Lag Political violence and −0.412 −0.239 −0.750 −0.571 −0.207 −0.172
stability

(0.593) (0.561) (0.663) (0.626) (0.213) (0.191)

Observations 1,053 1,053 1,053 1,053 1,041 1,041

Overall R−squared 0.01 0.02 0.28 0.33 .. ..

F−stat p−value 0.00 0.00 .. .. .. ..

Wald test p−value .. .. 0.00 0.00 0.00 0.00

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 Appendix G
Effectiveness of World Bank Group Interventions
in Public-Private Partnerships

Dependent Variable: OLS FE OLS RE Poisson FE

Number of
(1) (2) (3) (4) (5) (6)
Investments
Time FE Yes Yes No No Yes Yes

Region dummies No No Yes Yes No No

Clustered SE Yes Yes Yes Yes Yes Yes

Source: Independent Evaluation Group.

Note: Standard errors appear in parentheses. FE = fixed effects; GDP = gross domestic product; MDB =
multilateral development bank; OLS = ordinary least squares; PPP = public-private partnership; RE = random
effects.
*p < 0.10 **p < 0.05 ***p < 0.01.

Table G.2. Regression Results: Amount of Investments

Dependent OLS FE OLS RE Tobit

Variable:
(1) (2) (3) (4) (5) (6)
Amount of
Investments
MDB dummy 387.3 709.9*** 4.907***

(246.0) (171.2) (0.348)

MDB experience 10.50 −351.8*** 0.952

(309.4) (129.1) (0.717)

Bank Group dummy 391.1 985.1** 3.571***

(460.7) (438.4) (0.429)

Bank Group experience 558.5 −138.0 0.690

(384.0) (170.0) (0.904)

Other MDB dummy 1,059.8** 1,345.4** 4.277***

(473.7) (634.4) (0.361)

PPP experience 240.7 179.0 −93.88 −130.9 16.64 16.61

(356.7) (364.2) (110.6) (104.5) (514.6) (538.4)

Lag GDP per capita −2480.9 −2551.7 −124.7 −123.5 0.198* 0.220**

(3,370.6) (3,427.9) (79.52) (76.14) (0.105) (0.107)

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Effectiveness of World Bank Group Interventions
in Public-Private Partnerships

Dependent OLS FE OLS RE Tobit

Variable:
(1) (2) (3) (4) (5) (6)
Amount of
Investments
Lag Inflation −2.941 −3.542 6.253 4.624 0.00188 −0.00785

(5.064) (5.163) (8.299) (7.828) (0.0187) (0.0189)

Lag Aid per capita 177.0 141.5 −422.1** −445.2** .. ..

(234.1) (214.6) (179.3) (188.9) .. ..

Lag Control of 582.9 479.7 620.9 644.4 −0.976 −1.189

corruption

(2,233.1) (2,185.1) (1,604.4) (1,501.3) (0.740) (0.739)

Lag Voice and 31.05 187.8 321.7 453.9 −0.0697 −0.0635

Accountability

(888.2) (828.7) (591.6) (562.5) (0.498) (0.505)

Lag Regulatory quality 1,850.0** 1,736.4* 1,094.3** 853.6* 1.687** 1.561**

(912.7) (899.3) (547.4) (452.6) (0.703) (0.707)

Lag Government 311.7 296.5 −68.15 −150.1 0.919 0.884

effectiveness

(1,144.3) (1,146.5) (1,111.2) (1,133.3) (0.816) (0.815)

Lag Political violence −100.4 −51.14 −250.8 −170.3 −0.851** −0.689**

and stability

(240.6) (238.5) (213.1) (195.4) (0.339) (0.344)

Observations 1,053 1,053 1,053 1,053 1,105 1,105

Overall R−squared 0.001 0.003 0.200 0.237 .. ..

F−stat p−value 0.00 0.00 .. .. .. ..

Wald test p−value .. .. 0.00 0.00 0.00 0.00

Time FE Yes Yes No No No No

Region dummies No No Yes Yes Yes Yes

Clustered SE Yes Yes Yes Yes No No

Source: Independent Evaluation Group.

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Effectiveness of World Bank Group Interventions
in Public-Private Partnerships

Note: Standard errors appear in parentheses. FE = fixed effects; GDP = gross domestic product; MDB =
multilateral development bank; OLS = ordinary least squares; PPP = public-private partnership; RE = random
effects.
*p < 0.10 **p < 0.05 ***p < 0.01.

References
Hammami, M., Ruhashyankiko, J.-F., & Yehoue, E. 2006. “Determinants of Public-
Private Partnerships in Infrastructure.” IMF Working Paper No. 06/99,
International Monetary Fund, Washington, DC.

Hyun, S., D. Park, and S. Tian. 2018. “Determinants of Public–Private Partnerships in

Infrastructure in Asia: Implications for Capital Market Development.” Asian
Development Working Paper Series 552, Asian Development Bank, Manila.

Tobin, J. 1958. “Estimation of Relationships for Limited Dependent Variables.”

Econometrica 26 (1): 24–36.

267
Appendix H. IFC Support via the
Distressed Assets Recovery Program
This section provides a summary of Independent Evaluation Group evaluations
of International Finance Corporation (IFC) support to clients via the Distressed
Assets Recovery Program (DARP) and its relevance and effectiveness as an
approach to mobilizing private capital in the financial sector.

Increasingly, high levels of nonperforming loans (NPLs) in emerging economies

are limiting the ability and appetite of financial institutions to extend new
credit. Consequently, across emerging markets, access to financing is
significantly reduced, the stability of the financial systems of these economies is
threatened, and their economic growth or recovery is severely hindered. In this
context, robust markets for distressed assets are essential for recycling these
large amounts of nonproductive assets and allowing economies to restore
financial stability and enable economic growth.

Distressed assets cover a multitude of sectors, borrower types, and lending

products. They also cover a wide range of problem loans ranging from those with
recent payment defaults (90 days+) to those for which contractual payments
involve arrears measured in yearly multiples. Recent delinquencies offer less
upside than do highly aged and commensurately riskier claims. Appropriate
organizational, procedural, legal, and technological arrangements for each of
these segments of distressed assets can vary widely. For example, at one end of
the spectrum, delinquent credit card and consumer loans, handled in bulk, often
require either master servicer arrangements or alternatively telephone call
centers where each account executive may be responsible for managing scores of
accounts.

At the other end of the spectrum, distressed corporate borrowers, ranging from
larger small and medium enterprises to major international companies, require
teams of highly experienced workout specialists who may deal with no more
than a few highly active accounts at a time.

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Assets Recovery Program

Many stakeholders from both the private and public sectors need to be involved
to create sound distressed asset markets. Given the magnitude of the NPL
problem and given the need for significant capital and expertise, private sector
participation is crucial. IFC’s role in supporting recovery of such loans is
managed through DARP. Since 2009, DARP has $5 billion, with $1.4 billion from
IFC’s resources and $3.6 billion in resources mobilized from investors.

A vital component of DARP was the close collaboration with the former Finance,
Competitiveness, and Innovation Global Practice (GP) of the World Bank Group.
DARP provides valuable and practical feedback regarding the key elements
required or lacking in a country’s insolvency.

The former Finance, Competitiveness, and Innovation GP provided advisory

work on banking resolution, asset classification, provisioning rules, and
collateral valuation, as well as legal and regulatory work on corporate and
personal insolvency, foreclosure, debt resolution, and creation of public and
private asset management companies, which are entities established to manage
and enhance recoveries of distressed assets removed from the banking system.
The Finance, Competitiveness, and Innovation GP also arranged training for
court officials and for banking industry executives, supervisors, and bankruptcy
administrators, much of this categorized as catalytic activities.

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IFC Support via the Distressed
Assets Recovery Program

Figure H.1. IFC’s Distressed Asset Recovery Program Partners

Source: International Finance Corporation.

Relevance
For IFC, distressed assets represent a new asset class with the prospect of certain
advantages for IFC:

 Countercyclicality with respect to traditional lending and, to some extent,

equity investing, is an attractive feature.

 For institutions that are highly experienced, well-organized, and well-

managed, the asset class offers the potential for high returns.

 For development finance institutions and multilateral development banks

like IFC, the asset class also offers a focus of “credit repair,” which
potentially contributes to “access to finance” and “financial inclusion”
objectives, a feature that can be persuasive with troubled borrowers and
member governments.

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Assets Recovery Program

 DARP companies consequently employ collection methods that avoid many

of the harsher methods and practices applied by traditional money lenders
and less reputable servicers.

Additionally, however, effective decision making regarding several important

issues is key to success in this business:

 Thorough and appropriate risk identification involves legal (including chain

of title), counterparty, operational, and real asset liquidity risk, in addition
to the usual financial risks (interest-rate, credit, price volatility, and so on).

 Despite frequent reference to distressed asset markets, in many cases price

discovery in connection with distressed asset portfolios takes place under
conditions more like those of a bazaar (negotiations between prospective
buyer and seller without immediate outside influence) rather than as the
consequence of any market “tatonnement” or even the familiar clearing
functions of stock or commodity exchanges.

 Market segmentation and distressed asset diversification involve trade-

offs—for example, whether to diversify across several borrower types
(consumer credit, homeowner and commercial mortgages, microfinance,
distressed corporates, and so on) within the home country or expand
internationally; with the former, taking on more market segments involves
trading off changes in organizational, procedural, and information
technology arrangements as against understanding and mastering different
insolvency and legal regimes and practices in other countries, even while
remaining with the same few borrower types.

 Appropriate financial leverage is determined by knowing the costs and risk

associated with your portfolio and being able to control them effectively:
greater control allows higher financial leverage (though the tendency is
often to overreach).

 For DARP companies, corporate strategy calls for ascertaining whether to

operate strictly as servicers (in which case, revenue is strictly fee-based,

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Assets Recovery Program

some portion of which may be performance-related), as investors in

portfolios (revenue determined as “carry”), or as some combination of the
two.

 Appropriate funding instruments are determined with reference to the

characteristics of the particular distressed asset portfolio under
management; for example, conventional self-amortizing senior debt has in
certain instances been found to be inappropriate, given the cash flow
patterns involved, while the more flexible debt becomes, the higher the
equity-like hurdle rate likely to be required (diluting the advantage of
financial leverage).

 Given that a few large firms specializing in distressed assets operate

successfully internationally, the theory of contestable markets suggests that
DARP companies need to ascertain whether and how international
expansion in this asset class offers economies of scale and scope and, at
minimum, how vulnerable they may be to encroachment at home from
international operators.

IFC has demonstrated the relevance of its mobilization efforts for this asset
class. It has not only drawn on its network of client banks to provide steady deal
flow of NPLs; it has developed a significant network of investors as well that cut
across the typical institutional types found in other asset classes (private equity
investors, hedge funds, contractual savings institutions, universal banking
institutions, niche specialists, and so on). Moreover, this asset class does not
raise the issue of substitution or encroachment into markets for IFC’s other
products. Though IFC has had reasonably good success with special purpose
vehicles within the countries where DARP operates, it continues to explore new
investment vehicle modalities, including an international fund with the
potential to access international economies of scale and scope and the prospect
of extending markets for NPLs across international borders.

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IFC Support via the Distressed
Assets Recovery Program

Effectiveness
Mobilization for DARP has been successful to date (given the US dollar amounts
involved). The important issue is the extent to which future mobilization efforts
will depend on results and their associated demonstration effect. This is not only
the case for portfolio investors, but for strategic investors (those that might
make an offer to acquire one or more DARP companies) as well.

DARP has proven to be an effective tool for efficiently mobilizing significant

amounts of capital for the acquisition and resolution of distressed assets in
emerging markets. As such, the overall level of DARP mobilization has reached
almost twice IFC’s investment for its own account. The mobilization approach
adopted for DARP draws on (i) international distressed assets investors (typically
private equity funds, industry funds, sovereign wealth funds, and commercial
investors); (ii) domestic niche investors; and (iii) domestic and international
financial institutions.

 The Latin American DARP investments are the oldest (Colombia, Brazil, and
Peru, with a new operation being prepared in Mexico; DARP operations in
Asia, Central Europe, and South Africa are either recent investments or
under preparation) and have shown sound returns, though not without some
retrenchment. Because these are portfolios with significant opacity, it is not
entirely clear whether recent shortfalls in profitability and rates of return
have been the consequence of misjudgments regarding initial pricing,
strategy missteps, inability to adequately control costs and risks relative to
the financial leverage employed, unforeseen macroeconomic or sectoral
developments, or some combination thereof. It is recommended that the
study focus on the main determinants of recent performance in these
companies and the portfolios they are managing.

An important feature of DARP companies and their portfolios has been the use
of financial leverage. Although the companies themselves do not have
exceptionally high gearing ratios (either as servicers or on a consolidated basis),
the investment vehicles in which some of their portfolios are held are highly
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IFC Support via the Distressed
Assets Recovery Program

leveraged. Given this feature, the study should examine the extent to which
recent softening in profitability and rates of return has implications for their
capital structure. Pricing of portfolios, pricing of services, observable statistical
variation of costs and crystallized risk, as well as tax and other factors that
impinge on investor returns should be carefully examined.

 Covinoc, the Colombian company, has expanded its operations with IFC into
Peru. However, although the initial results are recent, it appears that some
factors in Peru not present in Colombia (such as lack of availability of foreign
exchange hedging instruments in Peru that have been available in Colombia,
differences in insolvency practices, and so on) have been responsible for
results falling short of expectations. The study should examine whether
these represent normal “growing pains” or are missteps in either strategy or
structuring. The Covinoc experience has also helped IFC recognize the
importance of designing funding instruments for portfolios to better match
the anticipated cash flow profiles of those portfolios.

Despite the progress achieved, much remains to be done, especially in the

current environment where the NPL stock in emerging markets is on the rise. In
addition to collaborating with the World Bank to develop solid legal and
regulatory frameworks and working with some of the largest banks across
emerging markets to encourage them to dispose of their NPL portfolios, DARP
needs to engage with many of the leading international distressed asset
investors to facilitate their entry into markets. In scaling up DARP initiatives for
increased private capital mobilization, the development of a project pipeline
again and the volatility of financial sector portfolios in client countries are
significant challenges.

274
Appendix I. Frontier Analysis of World
Bank Group Approaches to Private Capital
Mobilization
This appendix presents Independent Evaluation Group analyses of private
capital flows at the country level using nonparametric methods, data
envelopment analysis. This section further assesses the relevance of the World
Bank Group’s interventions to mobilize private capital interventions in client
countries and posits the potential of client countries to attract more capital
flows.

Outline

Summary ......................................................................................................................................................................................... 276

General Results .......................................................................................................................................................................................... 276

Results on Targeting of the Bank Group’s Mobilization Efforts ......................................................................... 281

Implications for Private Finance Mobilization Efforts................................................................................................. 282

Methodology ............................................................................................................................................................................... 284

Data Envelopment Analysis ............................................................................................................................................................ 285

Composite Measure of Domestic Investment Environment ............................................................................... 286

Data and Variables .................................................................................................................................................................................. 289

Empirical Results ...................................................................................................................................................................................... 295

References .................................................................................................................................................................................... 330

Annex I.1. Structured Literature Review .................................................................................................................333
Data Coverage and Handling of Missing Values........................................................................................................... 334

Robustness Checks ................................................................................................................................................................................ 335

Annex I.2. Additional Tables and Figures ............................................................................................................. 338

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Appendix I
Frontier Analysis of World Bank Group
Approaches to Private Capital Mobilization

Summary
This paper assesses the effect of the Bank Group’s efforts to mobilize capital on
countries’ performance in attracting private capital. Data envelopment analysis
(DEA) is used to estimate the empirical production possibility frontier for private
capital flows and to rate countries’ performance relative to other countries
facing a similar domestic investment environment. 1 The obtained results are
then used to assesses how the Bank Group’s efforts at mobilizing private finance
are distributed across countries with certain needs and characteristics, including
countries that are performing relatively well despite low absolute levels of
capital flows and countries that are still some distance away from the estimated
frontier.

General Results
Among the 115 Bank Group client countries included in our sample, most are
currently achieving between 50 percent and 80 percent of their potential levels
of private capital flows (considering foreign direct investment [FDI], portfolio
equity, and private sector borrowing). On average, private capital flows are at
61 percent of the estimated potential among these countries for 2015–18. The
estimated DEA efficiency scores underlying these results range between 0.39
(Mongolia) and 1 (Republic of Yemen, South Africa, and the Netherlands—the
countries on the frontier).

1 Data envelopment analysis (DEA) is a nonparametric method for estimating production

possibility frontiers based on linear programming, which is used to rate countries’ performance
relative to that of other countries facing similar conditions. We provide some methodological
background (for a more detailed introduction to DEA we refer to Coelli et al. 2005): DEA has been
applied in a wide range of fields, including public sector efficiency (Afonso et al. 2005 2013; Gupta
and Verhoeven 2001), health and education (Clements 2002; Herrera and Pang 2005), agriculture
(Latruffe et al. 2004), and regional economic integration (Naeher 2015; Naeher and Narayanan
2019).

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Approaches to Private Capital Mobilization

Most regions show positive trends in attracting private capital flows (relative to
gross domestic product [GDP]) as well as in their domestic investment
environment and associated DEA scores. According to our results, Sub-Saharan
Africa experienced the strongest increase in DEA scores between 2007 and 2018,
indicating that countries in this region are catching up with the frontier. The
only regions with decreases in DEA scores over this time period are East Asia and
Pacific and Europe and Central Asia. However, for these two regions the
decreases arise mainly from improvements in domestic conditions coupled with
comparably weak increases in private capital flows.

Increases in the performance of individual countries may be driven by distinct

factors, including improvements in countries’ ability to attract private capital
and changes in their domestic investment environments. Our analysis allows us
to track countries’ performance over time and separately examine the roles of
different factors. Table I.1 provides an overview of the main results focusing on
the five countries with the strongest increases and declines in DEA efficiency
scores between 2007 and 2018 in each income group, respectively, as well as the
case study countries (marked in bold).

Among low-income countries (LICs), the economies with the largest increases in
DEA scores over time are the Republic of Yemen (0.46), Mozambique (0.36),
Chad (0.34), and Nepal (0.28). Except in the Republic of Yemen, we find that
these increases are mainly owing to increases in private capital flows (relative to
GDP) rather than changes in the quality of domestic conditions. The two LICs
with the largest declines in DEA scores are Liberia (−0.22) and Madagascar
(−0.20). As shown in table J.1, columns (2) to (5), these two countries
experienced significant decreases in their relative performance in attracting
private capital (as a percentage of GDP), especially for FDI.

Among lower-middle-income countries (LMICs), Angola (0.45) and the

Democratic Republic of Congo (0.28) have the largest increases in DEA scores.
Although both countries experienced improvements in attracting private capital
flows, the strong increase in the Angola’s DEA score was also partially driven by

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Approaches to Private Capital Mobilization

a decline in our proxy measure of the domestic investment environment. The

LMICs with the largest reductions in DEA scores are Mongolia (−0.51), Pakistan
(−0.29), the Solomon Islands (−0.26), Myanmar (−0.22), and Vietnam (−0.19).
Except in Mongolia and the Solomon Islands, these reductions seem to be driven
by improvements in the domestic environment rather than declines in private
capital flows. The other case study countries Bangladesh, Zambia, and Kenya
show relatively constant performance over time in DEA scores and slight
increases in both aggregate private capital flows (driven mainly by FDI) and the
domestic investment environment.

Among upper-middle-income countries (UMICs), the countries with the largest

increases in DEA scores are Gabon (0.27), Paraguay (0.15), Algeria (0.15), China
(0.14), and Mexico (0.13). In all these countries, the increases seem to be mainly
driven by improvements in the measure of private capital flows. The UMICs with
the largest reductions in DEA scores are Montenegro (−0.34), Lebanon (−0.24),
St. Lucia (−0.21), Bulgaria (−0.20), and Jordan (−0.17). These five countries
experienced relatively strong declines in their relative performance in attracting
private capital (as a percentage of GDP). According to the results in table I.1,
columns (3) to (5), these declines were mainly owing to lower relative
performance on FDI in Montenegro, St. Lucia, and Bulgaria, whereas in Lebanon
and Jordan the declines were mainly driven by portfolio equity.

Table I.1. Overview of Changes in Key Indicators from 2007 to 2018

Private Capital Flows

Agg- FDI Portfolio Private Domestic
DEA regat Equity Sector Environ-
Income
Score e Borrowing ment
Category and
Country (1) (2) (3) (4) (5) (6)
Low-income

Yemen, Rep. 0.46 0.01 0.08 −0.02 0.02 −0.12

Mozambique 0.36 0.25 0.69 −0.03 −0.09 0.03

Chad 0.34 0.16 0.28 0.00 −0.03 −0.01

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Private Capital Flows

Agg- FDI Portfolio Private Domestic
DEA regat Equity Sector Environ-
Income
Score e Borrowing ment
Category and
Country (1) (2) (3) (4) (5) (6)
Nepal 0.28 0.21 0.24 0.00 −0.18 0.06

Congo, Dem. Rep. 0.27 0.19 0.02 0.54 −0.01 0.05

Rwanda −0.03 0.08 0.23 −0.04 −0.05 0.09

Niger −0.07 0.03 0.07 0.00 −0.03 0.06

Guinea −0.08 0.12 0.34 −0.03 −0.04 0.14

Madagascar −0.20 −0.04 −0.11 −0.03 −0.02 0.06

Liberia −0.22 −0.11 −0.3 −0.02 −0.05 0.02

7

Lower-middle
income

Angola 0.45 0.09 0.27 −0.02 −0.04 −0.09

Congo, Rep. 0.28 0.17 0.33 0.05 −0.12 0.00

Uzbekistan 0.17 0.12 0.12 0.00 0.00 0.05

Cameroon 0.17 0.08 0.24 −0.03 −0.03 0.00

Sri Lanka 0.17 0.18 0.22 0.21 −0.10 0.10

Bangladesh 0.00 0.10 0.23 −0.01 −0.08 0.09

Zambia 0.02 0.03 0.11 −0.04 −0.03 0.02

Kenya 0.05 0.08 0.23 −0.03 −0.06 0.07

Vietnam −0.19 −0.03 0.11 −0.42 −0.21 0.08

Myanmar −0.22 0.12 0.32 −0.07 −0.10 0.13

Solomon Islands −0.26 −0.07 −0.2 0.00 −0.06 0.07

7

Pakistan −0.29 0.02 0.17 −0.07 0.04 0.12

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Private Capital Flows

Agg- FDI Portfolio Private Domestic
DEA regat Equity Sector Environ-
Income
Score e Borrowing ment
Category and
Country (1) (2) (3) (4) (5) (6)
Mongolia −0.51 −0.31 −0.6 −0.44 −0.11 0.06
0

Upper-middle
income

Gabon 0.27 0.13 0.31 0.05 −0.02 −0.02

Paraguay 0.15 0.14 0.23 0.00 −0.18 0.06

Algeria 0.15 0.10 0.19 0.05 −0.06 0.02

China 0.14 0.13 0.15 −0.06 −0.31 0.02

Mexico 0.13 0.14 0.23 0.10 −0.08 0.08

Jordan −0.17 −0.09 −0.0 −0.22 0.00 0.00

6

Bulgaria −0.20 −0.10 −0.2 −0.02 0.04 0.07

4

St. Lucia −0.21 −0.11 −0.11 0.00 0.10 0.04

Lebanon −0.24 −0.15 −0.1 −0.53 −0.21 0.01

3

Montenegro −0.34 −0.16 −0.4 0.05 0.13 0.08

0

High income

Netherlands 0.35 0.35 0.00 1.00 −0.06 0.05

Finland 0.25 0.24 0.21 0.38 −0.12 0.04

United Arab 0.16 0.16 0.21 0.00 −0.10 0.08

Emirates

Canada 0.14 0.16 0.16 0.32 0.00 0.05

Italy 0.10 0.11 0.23 0.08 −0.04 0.05

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Approaches to Private Capital Mobilization

Private Capital Flows

Agg- FDI Portfolio Private Domestic
DEA regat Equity Sector Environ-
Income
Score e Borrowing ment
Category and
Country (1) (2) (3) (4) (5) (6)
Argentina 0.09 0.07 0.20 0.00 −0.02 0.00

United Kingdom −0.13 −0.07 0.20 −0.20 0.21 0.03

Ireland −0.14 −0.08 0.31 0.00 0.56 0.01

Switzerland −0.15 −0.09 0.35 −0.80 −0.17 0.04

Belgium −0.30 −0.22 −0.7 0.07 −0.05 0.04

7

Seychelles −0.33 −0.10 −0.2 −0.05 −0.03 0.13

7

Source: Independent Evaluation Group.

Note: All values indicate changes over time calculated as differences between the average value of the
most recent time period (2015–18) and that of the first period considered (2007–10). Colored arrows
correspond to increases in data envelopment analysis efficiency scores greater than 0.1 (green), changes
between −0.1 and 0.1 (yellow), and declines stronger than −0.1 (red). Case study countries are marked in bold.

Results on Targeting of the Bank Group’s Mobilization

Efforts
Overall, we are unable to identify a systematic relationship between the Bank
Group’s efforts to mobilize private finance and countries’ performance in
attracting private capital flows as captured by the DEA efficiency scores. This
suggests that the targeting of the considered Bank Group efforts was not driven
by considerations about countries track records in attracting private capital
relative to their domestic environment.

A similar conclusion arises when looking at the distribution of the Bank Group’s
mobilization efforts across countries with different absolute levels of attracted
private capital, that is, independent of their domestic environment, and for
alternative targeting indicators. At most, there might be some suggestive

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Approaches to Private Capital Mobilization

evidence that efforts tend to be less pervasive in countries that are already
achieving relatively high levels of private capital flows (UMICs such as China,
Lebanon, South Africa, and Thailand) as well as in those countries with the
lowest performance in attracting private capital (mostly LICs).

When comparing the Bank Group’s efforts at mobilizing private finance with
total official development assistance (ODA) flows we find that the two are very
differently distributed across countries, but neither appears to be strategically
allocated with respect to countries’ performance in attracting private capital.
This holds both for achieved absolute levels of private capital flows (relative to
GDP) and for countries’ performance in attracting private capital relative to their
domestic environment as measured by the DEA scores.

Implications for Private Finance Mobilization Efforts

The analysis shows that there is not only large variation in countries’ ability to
attract private capital (relative to GDP) within income groups but also a
considerable overlap across income groups. This holds even though overall,
private capital flows tend to be positively linked to income levels. For example,
some of the LICs and LMICs achieve values that are comparable to those of the
average high-income country (HIC), while some HICs feature values that are
more like those of the average LMIC.

We find that countries with large untapped mobilization potential are spread
across all income groups and regions of the world, and average DEA scores are
relatively similar across income groups and regions. This suggests that, if
strategic priorities were to be given in the future to countries relative to their
performance in attracting private capital or to their domestic investment
environment, these priorities would not necessarily end up disproportionately
benefiting countries belonging to a particular income group or geographical
region.

Strong variation also exists in the quantitative roles that different types of
private capital flows play in different income groups. Private sector borrowing,

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especially, appears to play an important role among HICs and some UMICs but
seems almost nonexistent in many LICs, whereas LICs and LMICs often achieve
similarly high values of portfolio equity (as a percentage of GDP) compared with
countries in other income groups. The measure of FDI varies strongly even
among countries of the same income group. These results underline the
importance of tailoring programs to countries’ individual characteristics and
targeting mobilization efforts at specific types of private capital flows.

Most of our analysis focuses on identifying general patterns in the relationship

between countries’ performance in attracting private capital, their domestic
environment, and distribution of the Bank Group’s efforts, our data and results
can be disaggregated to yield insights about which types of private capital flows
and which domestic factors (for example, market-related factors, human capital,
infrastructure, or institutions) are particularly strong or weak in certain
countries. Though beyond the scope of this paper, these insights may readily be
used to evaluate the relevance of individual Bank Group projects and country
strategies, for example, by assessing the achievements of these efforts in
addressing the most binding constraints for attracting more capital flows in each
country and to inform decisions about the types of interventions that future
programs should prioritize in each country.

All our results are subject to limitations. Most importantly, the study relies
exclusively on descriptive and nonparametric methods which do not generally
allow for a causal interpretation of the identified relationships. Rather, the
analysis provides some general insights on empirical patterns of private capital
flows to developing countries and their association with Bank Group efforts.
Moreover, the assessment is based on current conditions and does not yield any
forecasts of potential levels of capital flows under possible scenarios of future
changes in political or economic conditions.

There are several related questions in the context of private capital mobilization
that go beyond the scope of this study and may be subject to further research.
Most importantly, it has been argued that most of the money spent on the world’

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poor is raised domestically by governments in developing countries rather than

through mobilization of international capital inflows (Banerjee and Duflo 2011).
To incorporate this view, our current analysis includes a domestic indicator of
private sector borrowing as one of the three considered types of private capital
flows. However, this can certainly only serve as a first step; a more detailed
analysis on the (potentially distinct) patterns of domestic resource mobilization
and underlying factors is left for future research.

The remainder of the paper is structured as follows. Section II provides a brief

introduction to DEA and explains how the method is used to estimate countries’
performance in attracting private capital flows relative to domestic conditions.
Section III describes the variables and data sources involved in the analysis.
Section IV presents the empirical results and discusses their implications.

Methodology
The analysis is conducted in three steps. First, we identify the magnitudes and
patterns of private capital flows in developing countries, focusing on FDI,
portfolio equity investment, and domestic credit to the private sector (private
sector borrowing). In a second step, we DEA to assess countries’ performance in
attracting private capital relative to the domestic resources and constraints they
face, that is, their domestic investment environment. Third, by comparing the
obtained results with Bank Group efforts aimed at mobilizing private finance we
derive insights on how its efforts are distributed across countries with certain
needs and characteristics, for example, countries that are performing relatively
well despite low absolute levels of capital flows and countries that are still away
from the estimated frontier. We can then assess the Bank Group’s achievements
in targeting mobilization efforts at countries with bigger needs or larger
untapped potential.

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Data Envelopment Analysis

DEA is a nonparametric method for estimating production possibility frontiers.
It can be used to measure relative efficiency rates across sets of comparable
units of observation. In its simplest form, DEA assumes the existence of a
convex production possibility set and estimates the frontier as the maximal
attainable level of output for a given input level. Efficiency of an observed
input–output combination is measured as the distance to the estimated frontier.
Units that produce more output with the same amount of input (or units that
need less input for the same amount of output) are considered more efficient
than others. The obtained efficiency scores are normalized to range between 0
and 1, where units located on the frontier are assigned the maximum value of 1. 2

In the context of private capital mobilization, DEA can be used to assess

countries’ achievements in attracting private capital relative to the quality of
their domestic investment environment. For this purpose, DEA first calculates
the empirical production possibility frontier for private capital flows, which is
then used to rate the performance of each country relative to the frontier.
Overall, this provides an estimate of the capital flows each country should be
able to achieve based on what countries with similar characteristics and enabling
factors are achieving. The underlying assumption is that countries that feature
similar domestic conditions should in principle be able to attract similar levels of
private capital.

The efficiency scores obtained from DEA can be interpreted as follows. Scores
close to 1 indicate that a country is attracting relatively large amounts of private
capital given its domestic environment, that is, the country is “efficient” in
attracting private capital. Efficiency scores well below 1 indicate inefficiency or
untapped potential. For example, an efficiency score of 0.5 indicates that a
country is currently only generating half of the private capital flows that it

2 DEA has been applied in a wide range of fields (see references listed in previous note). For a more
detailed introduction to DEA, we refer to Coelli et al. (2005).

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should theoretically be able to, based on its performance relative to the

estimated frontier. In line with the obtained efficiency scores, untapped capital
mobilization potential is defined as the distance between a country’s current
level of private capital flows and the theoretically possible level as captured by
the frontier.

The estimates obtained from DEA are based on currently available resources and
conditions, not on potential future developments. Our analysis does not seek to
forecast capital flows under possible scenarios of future changes in political or
economic conditions. Instead, the analysis compares levels of private capital
flows across countries at a given time and identifies those countries that,
relative to others with similar domestic conditions, are currently performing
below the level at which they should potentially be able. Furthermore, the
obtained estimates relate only to the considered measures of private capital
flows and do not provide direct implications for potential welfare gains or
growth effects of increased capital flows.

Composite Measure of Domestic Investment Environment

In the economic literature, the factors determining private capital flows across
countries are usually divided into external “push” factors and domestic “pull”
factors (Calvo, Leiderman, and Reinhart 1993; Fernandez-Arias; Ahmed and
Zlate 2014; Hannan 2018). 3 Push factors are supply-side factors that affect the
supply of global liquidity and investors’ willingness to increase exposure to
higher-risk investments. For example, push factors include variables like global
risk aversion, global commodity prices, and interest rates in the United States or
other advanced economies (Reinhart, Reinhart, and Trebsch 2016; IMF 2016).
Pull factors are domestic characteristics that attract foreign investors to a
particular country, such as local macroeconomic fundamentals, regulations,

3 This distinction is based on the portfolio balance approach, according to which capital flows are
driven by expected returns, perceived risk, and risk preferences across countries (Ahmed and Zlate
2014; Hannan 2017).

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governance, and market imperfections (Ghosh et al. 2014; Fernandez-Arias and

Montiel 1996; EBRD 2018).

Since our analysis is concerned with comparing individual countries with each
other rather than explaining developments in the overall size of global capital
flows, we focus on domestic (pull) factors. Several empirical variables have been
identified in the literature as being important in this context. Although we seek
to account for all relevant factors, it would go beyond the scope of this study to
analyze each separately. We therefore construct a composite measure of pull
factors, which we use as a proxy measure of the domestic investment
environment in each country.

In aggregating information about different indicators into a single composite

measure we apply standard normalization and weighting methods that are also
used in the construction of other well-known composite indexes, such as the
World Bank’s Doing Business Index and the United Nations Human
Development Index. The following provides a detailed description of the
methodology underlying the construction of our measure, which is in line with
the guidelines about the construction of composite indexes laid out by the
Organisation for Economic Co-Operation and Development (OECD 2008).

The selection of variables included in our composite measure is based on a

structured literature review. The underlying methodology is described in
appendix A. According to the results of the structured literature review, we
construct our measure to capture seven aspects, or dimensions, of the domestic
investment environment: 4

i. Market-related factors (for example, market size and growth potential)

4
The considered dimensions are broadly in line with the classifications used in other policy-
related studies on private capital flows conducted by the World Bank (2011, 2015, 2018; Fay et al.
2018) and the IMF (Hannan 2018).

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ii. Institutional and regulatory quality

iii. Openness

iv. Economic and political stability

v. Infrastructure development

vi. Financial development

vii. Natural and human resources

Each of the seven dimensions comprises two empirical indicators. For example,
dimension II (institutional and regulatory quality) is composed of subindicators
II.a (political regime type) and II.b (business regulation environment). To
facilitate aggregation into one composite measure, the data for all indicators are
normalized such that higher values indicate more favorable conditions, and all
variables feature a comparable range of values. There are several possible
methods for rescaling, each featuring its own set of advantages. We apply
standard min-max rescaling, which ensures that all variables range between 0
and 1. 5 For country 𝑖𝑖 in the overall sample 𝑁𝑁, indicator 𝐼𝐼 is normalized using the
formula
𝐼𝐼𝑖𝑖 −min𝑖𝑖∈𝑁𝑁 (𝐼𝐼𝑖𝑖 )
𝐼𝐼∗𝑖𝑖 = (2)
max𝑖𝑖∈𝑁𝑁 (𝐼𝐼𝑖𝑖 )−min𝑖𝑖∈𝑁𝑁 (𝐼𝐼𝑖𝑖 )

This normalization method is very sensitive to outliers, so we winsorize all

variables at the 98 percent level before applying min-max rescaling. This
effectively caps the two most extreme values in each variable and ensures that
the aggregated values are not driven by a few outliers.

Overall, the construction of the composite measure involves two steps of

aggregation. First, within each dimension two indicators are combined into one
measure for that dimension. Second, the seven dimensions are aggregated into

5 The same method is used in the construction of other well-known composite indexes, such as the
World Bank’s Doing Business Index and the United Nations Human Development Index.

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the final measure. At both levels of aggregation, an equal weighting scheme is

applied to combine the respective subindicators. This facilitates the
interpretation of the results and is in line with many other studies that construct
composite indexes, including both popular indexes such as the Human
Development Index and others constructed specifically for use in DEA (Afonso,
Schuknecht, and Tanzi,2005; Herrera and Pang 2005).

Because each dimension enters the composite measure with equal weight, the
resulting scores of the final measure can be interpreted as the average
performance of a given country along the considered dimensions of the domestic
environment. The same applies to each of the seven dimensions individually
across the two respective subindicators. Alternative weighting and aggregation
schemes, including principal component analysis, are explored as part of the
robustness tests in appendix C.

Data and Variables

Table I.2 provides a complete list of the variables and respective data sources
used in the analysis. Panel A specifies the three types of capital flows used as
output variables in the DEA: FDI, portfolio equity investment, and domestic
credit to the private sector (private sector borrowing). Panel B specifies the
variables used to measure the Bank Group’s efforts at mobilizing private finance
in developing countries. Panel C lists the variables used in the construction of
the composite measure of the domestic investment environment.

The sample consists of 135 countries. It includes 115 Bank Group client
countries, comprising 26 LICs, 37 LMICs, 39 UMICs, and 13 high-income
countries, as well as an additional 20 nonclient HICs as benchmark group. For
most countries, data on the variables listed in table J.1 are available annually for
2007 to 2017/18. To limit the role of temporary fluctuations and measurement
error, we work with four-year averages for all variables, taking the mean values
for all available years within the periods 2007–10, 2011–14, and 2015–18,
respectively (for ease of exposition, all tables and figures refer to these time
periods, even if the available data are only available for a subset of years).
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Additional measures to address issues resulting from missing data are reported
in appendix B.

Because it would be very cumbersome to work separately with all three types of
private capital flows listed in table I.2, panel a, most of the analysis uses a single
measure that we construct by aggregating the values for FDI, portfolio equity,
and private sector borrowing using the same methodology as for the composite
measure of the domestic environment (normalization via min-max rescaling and
aggregation based on equal weights). This also greatly facilitates the
computation and interpretation of DEA as it reduces the number of output
variables to one. The resulting values for aggregate private capital flows across
countries in the period 2015–18 are depicted in figure I.1 (exact numerical
values are reported in appendix E). These values should be thought of as a
(normalized) proxy composite measure of magnitudes of private capital flows
(relative to GDP) in each country.

As shown in table I.2, panel b, we use two variables to measure the Bank Group’s
efforts at mobilizing private capital in developing countries: the Bank Group’s
own commitment allocated to projects aimed at mobilizing private capital, and
the amount of private finance mobilized by the associated Bank Group projects.
In addition to absolute magnitudes of Bank Group commitment and mobilized
finance we also work with a measure of the relative importance of a country in
the Bank Group’s private finance mobilization portfolio, that is, Bank Group
commitment (percent of ODA), which we construct as the fraction of Bank Group
commitment over a country’s total net ODA inflows (countries with negative net
ODA inflows are excluded from the respective tables and figures).

Table I.2, panel c, lists the 14 empirical indicators that are used in the
construction of our measure of the domestic investment environment. Many
other factors affect private capital flows, including supply-side (“push”) factors
of international capital flows such as global risk preferences and commodity
prices; however, our analysis is concerned with exploring differences across
countries rather than developments in global capital flows over time, so we focus

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on domestic conditions in the host countries (pull factors). Overall, the

constructed composite measure should be thought of as a proxy of each
country’s broader enabling environment for private capital mobilization.

Dimension I (market-related factors) in panel c comprises two indicators

capturing market size and capital returns, and growth potential. In line with a
common approach in the literature (Edwards 1990; Asiedu 2002), we use the
inverse of per capita GDP as a proxy for market size and capital return. This
approach assumes that the marginal product of capital is equal to the return on
capital, which implies that, all else being equal, investment in countries with
higher per capita incomes will tend to yield a lower return, and therefore real
GDP per capita should be inversely related to foreign investment. In addition,
the inverse relationship may also reflect a perception that investment risk rises
as per capita GDP declines, and thus investors tend to require higher returns to
offset the perceived greater risk.

The values of our measure of the domestic environment for the period 2015–18
are graphically depicted in figure I.2, and exact numerical values are reported in
appendix E. According to this measure, the countries with the most favorable
environments for attracting private capital are Switzerland (0.72), the
Netherlands (0.71), and Ireland (0.70), followed by the United Kingdom (0.69)
and Japan (0.69). The countries with the weakest environments in the period
2015–18 are the Republic of Yemen (0.21), Angola (0.26), the Central African
Republic (0.29), and Haiti (0.30).

Unsurprisingly, the measure of the domestic environment tends to improve with

higher income levels. Simple averages across income groups for the period
2015–18 are LICs (0.39), LMIC (0.43), UMICs (0.47), and HICs (0.55). For Bank
Group regions, average values are South Asia (0.41), Sub-Saharan Africa (0.41),
Middle East and North Africa (0.43), East Asia and Pacific (0.46), Latin America
and the Caribbean (0.47), Europe and Central Asia (0.50).

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Table I.2. List of Variables and Data Sources

Description and
Indicator Subindicator Available Years Source
a. Private Capital Flows (DEA outputs)

Foreign n.a. Foreign direct investment, net World Bank, WDI

direct inflows (% of GDP); 2007–17
investment

Portfolio n.a. Portfolio equity, net inflows World Bank, WDI

equity (% of GDP); 2007–17

Private n.a. Domestic credit to private World Bank, WDI

sector sector
borrowing (% of GDP); 2007–17

b. Mobilization efforts

ODA Net ODA received ($, millions); World Bank, WDI

2007–17

Bank Group n.a. Bank Group own commitment World Bank,

commitment ($, millions), including World internal data
Bank direct guarantees, World
Bank indirect, IFC portfolio, and
MIGA portfolio; 2007–18

Bank Group– Private finance mobilized by World Bank,

mobilized Bank Group ($, millions); 2007– internal data
finance 18

c. Domestic Environment (DEA inputs)

I. Market- I.a Market size and Inverse of real GDP per capita World Bank
related capital return (constant 2010 $); 2007–17
factors
I.b Growth potential GDP growth (annual %); 2007– World Bank
17

II. Institutional II.a Political regime Combined polity score, scale Center for
and type from −10 (strongly autocratic) Systemic Peace,
regulatory to 10 (strongly democratic); Polity IV Project
quality 2007–17

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Description and
Indicator Subindicator Available Years Source
II.b Business Ease of doing business score, World Bank,
regulation scale from 0 (worst) to 100 Doing Business
environment (best) regulatory performance;
2010–18

III. Openness III.a Trade openness Sum of exports and imports of World Bank, WDI
goods and services (% of GDP);
2007–17

III.b Market openness Index of economic freedom, Heritage

average score for trade, Foundation, Index
investment, and financial of Economic
freedom, scale from 0 (lowest) Freedom
to 100 (highest) degree of
freedom; 20–2018

IV. Economic IV.a Inflation Inverse of the inflation rate IMF, International
and political (annual %); 2007–17 Financial Statistics
stability

IV.b Political stability Political stability and absence World Bank,

of violence, estimated score, Worldwide
scale from −2.5 (lowest) to 2.5 Governance
(highest) stability; 2007–17 Indicators

V. Infra- V.a Logistics Logistics Performance Index, World Bank,

structure overall score; 2007, 2010, 2012, Logistics
development 2014, 2016, 2018 Performance
Index

V.b ICT Fixed broadband subscriptions World Bank, WDI

(per 100 people); 2007–17

VI. Financial VI.a Financial depth Liquid liabilities (% of GDP); IMF, International
development 2007–16 Financial Statistics

VI.b Banking Inverse of the 5-bank asset World Bank (citing

competition concentration; 2007–16 Bankscope,
Bureau van Dijk)

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Description and
Indicator Subindicator Available Years Source
VII. Natural VII.a Natural Total natural resources rents (% World Bank, WDI
and human resources of GDP); 2007–16
resources
VII.b Skilled workforce Secondary school enrollment World Bank, WDI
(% net); 2007–17

Source: Independent Evaluation Group.

Note:. DEA = Data envelopment analysis, ICT = Information and communications technology, IFC =
International Finance Corporation; IMF = International Monetary Fund; MIGA = Multilateral Investment
Guarantee Agency; ODA = Official development assistance; WDI = World Development Indicators.

Figure I.1. Private Capital Flows (Aggregate), 2015–18

Note: Depicted values are based on an aggregate measure of private capital flows comprising foreign direct
investment, portfolio equity, and private sector borrowing. Variables and data sources are described in
table I.2. DEA = data envelopment analysis.

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Figure I.2. Domestic Investment Environment (Composite Index), 2015–18

Note: Depicted values are based on a composite measure of the domestic investment environment
constructed based on 14 empirical indicators covering seven dimensions: market-related factors, institutional
and regulatory quality, openness, economic and political stability, infrastructure development, financial
development, and natural and human resources. Variables and data sources are described in table I.2. DEA =
data envelopment analysis.

Empirical Results

Patterns of Private Capital Flows

Figure I.3 shows our normalized measure of private capital flows when
disaggregated into the three individual components FDI, portfolio equity, and
private sector borrowing. Among LICs, Liberia (0.52) and Mozambique (0.50) feature
the highest levels of private capital flows relative to GDP, which is mainly due to
their large FDI inflows (as a percentage of GDP). Afghanistan (0.25) and Yemen
(0.25) have comparable magnitudes of FDI and portfolio equity to most other
countries, but very little private sector borrowing. The Democratic Republic of
Congo (0.17) has relatively high FDI, but very little portfolio equity and private
sector borrowing (all relative to GDP). Note that for Nepal, the Central African
Republic, and Chad no data on portfolio equity is available.

Among LMICs, Vietnam (0.57) and Mongolia (0.49) feature the highest levels of
private capital flows relative to GDP, with Vietnam having by far the strongest

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private sector borrowing among all LMICs. Angola (0.26) and Cameroon (0.27) have
the lowest levels of private capital flows (for Djibouti, Honduras, and Uzbekistan
some data are missing, see appendix B). Among UMICs, South Africa (0.64) and
Mauritius (0.58) achieve the highest values, and Iraq (0.26) and Algeria (0.28) have
the lowest results (data for Turkmenistan are missing). While South Africa, China,
and Thailand feature very high levels of private sector borrowing, Montenegro
performs exceptionally well on FDI (as a percentage of GDP, respectively). The
highest values of aggregate private capital flows in the sample are achieved by HICs,
namely Ireland (0.79), the Netherlands (0.76), and Singapore (0.70).

As shown in figure I.3, there is not only large variation in countries’ ability to attract
private capital (relative to GDP) within income groups but also a considerable
overlap across income groups. This holds despite the (unsurprising) finding that,
overall, private capital flows tend to be positively linked to income levels. For
example, some of the higher-performing LICs and LMICs achieve values that are
comparable to those of the average HIC, and some of the lower-performing HICs
(such as Poland, Uruguay, and Argentina) feature values that are not very different
from those of the average LMIC.

The quantitative roles of different types of private capital flows vary considerably
across income groups. This applies especially to private sector borrowing, which
plays an important role among HICs and some of the UMICs but seems almost
nonexistent in many LICs (see figure I.3). This result is in line with the average
values reported in table I.3, which imply that the role of private sector borrowing is
more than three times larger in UMICs and HICs than in LICs. Nevertheless, LICs
and LMICs often achieve similarly high values of portfolio equity (as a percentage of
GDP) than countries in other income groups.

The average role of FDI in total private capital flows is very similar across income
groups but varies strongly between countries within the same income groups. As
summarized in table I.3, our normalized measure of FDI inflows ranges between 0.27
(LMICs) and 0.30 (HICs), which is much less than the range of private sector
borrowing. Figure I.3 shows that there is strong variation across countries within the

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same income groups; this suggests that programs for helping countries mobilize
private capital may need to be targeted at different types of private capital flows,
even among countries within the same income groups.

Table I.3. Types of Private Capital Flows by Country Income Group

Average 2007–18 Change Over Time

Portfol Private Private
io Sector Portfolio Sector
Income Group FDI Equity Borrowing FDI Equity Borrowing
Low income 0.28 0.59 0.08 0.07 0.01 0.01

Lower-middle 0.27 0.62 0.19 0.05 −0.02 0.02

income

Upper-middle 0.28 0.63 0.27 0.04 −0.02 0.02

income

High income 0.30 0.64 0.29 0.02 −0.01 0.01

Average 0.28 0.63 0.27 0.05 −0.01 0.02

Note: Changes over time are calculated as differences between the average value of the most recent time
period (2015–18) and that of the first period considered (2007–10). Colored numbers indicate increases larger
than 0.5 (green) and declines (red). The underlying sample consists of 115 World Bank Group client countries
and 20 benchmark advanced economies. FDI = foreign direct investment.

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Figure I.3. Disaggregated Private Capital Flows

a. Private capital flows, LICs (2007–18) b. Private capital flows, LMICs (2007–18)

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Figure I.3. (Cont.). Disaggregated Private Capital Flows

c. Private capital flows, UMICs (2007–18) d. Private capital flows, HICs (2007–18)

Source: Independent Evaluation Group.

Frontier Analysis
The frontier analysis investigates how private capital flows are related to factors
in the host economy, that is, the domestic investment environment. The latter is
operationalized by a composite measure of relevant pull factors which
aggregates information from 14 empirical indicators that have been identified in
the economic literature (based a structured literature review) as important

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determinants of private capital flows. Recall that the estimated frontier specifies
the potential level of private capital flows as a function of the domestic
environment. The obtained frontier is used to rate achieved levels of capital
flows relative to countries’ empirical potential. We can then identify those
countries that, relative to other countries facing similar domestic conditions, are
currently achieving relatively high capital flows, and those countries that are
apparently falling short of their potential.

As a first illustration, figure I.4 plots aggregate private capital flows over our
composite measure of the domestic investment environment for the period
2015–18 and shows the resulting production possibility frontier (dotted line).
For the considered sample of 135 countries, the frontier turns out to be
determined by three countries. At the lower end of the domestic environment,
the frontier is defined by the Republic of Yemen, which during this period
featured by far the weakest domestic environment among the considered
countries. In the middle of the sample, the frontier is defined by South Africa,
which outperforms many countries with similar values for the domestic
environment. At the upper end, the frontier is defined by the Netherlands, which
features both the highest level of private capital flows and one of the strongest
domestic environments.

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Figure I.4. Estimated Frontier, 2015–18

Source: Independent Evaluation Group.

Note: The dotted line represents the production possibility frontier for attracting private capital flows, quantified
as an aggregate measure (data envelopment analysis output variable) of foreign direct investment inflows,
portfolio equity inflows, and private sector borrowing ranging from 0 to 1. Exact values of the underlying data
envelopment analysis input and output variables for each country are reported in appendix E. HICs = high-
income countries; LICs = low-income countries; LMICs = lower-middle-income countries; UMICs = upper-middle-
income countries.

Most of the included countries feature DEA efficiency scores between 0.5 and
0.8, suggesting that these countries are currently achieving about 50 percent to
80 percent of their potential levels of private capital flows. 6 The estimates of

6 Note that these estimates are based exclusively on currently available resources and prevailing
conditions, and generally do not allow for interpretations of how close countries are to their
potential levels of private capital flows if economic or political conditions improve in the future.
Also, the obtained results should be interpreted as lower bounds, because for countries located on

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countries’ performance relative to the frontier (DEA efficiency scores), and

underlying input and output variables are reported in appendix E. Recall that
DEA scores close to one indicate that a country is attracting relatively large
amounts of private capital (as a percentage of GDP), given its domestic
environment whereas smaller scores indicate inefficiencies in attracting private
capital. For 2015–18, the estimated DEA scores range between 0.39 (Mongolia)
to 1 (the countries located on the frontier).

The case study countries Argentina (0.47), Kenya (0.51), Mongolia (0.39), and
Zambia (0.52) feature DEA scores at the lower ends of the ranges of values
estimated among the countries in their respective income groups, indicating
potential inefficiencies in attracting private capital flows. Bangladesh (0.63) and
Jordan (0.66) are achieving considerably higher scores which place them above
the median in the overall sample of 135 countries. Nevertheless, according to
the estimated frontier, these two countries still feature untapped potential for
increasing private capital flows, given currently available resources and
conditions.

Splitting the data into three time periods of four years each, we can track
countries’ performance over time by calculating the frontier separately for each
of the three and comparing countries’ efficiency scores across time. It is
important to note that the analysis is designed to track countries’ relative
performance within the sample, that is, in comparison to the performance of
other countries in the same time period, rather than countries’ absolute
performance. This means that the absolute values of the DEA input and output
variables cannot be directly compared across time (for example, private capital
flows of x in one period may be different in absolute magnitude to capital flows
of x in another period). Instead, similar levels of capital flows in two periods

the frontier untapped potential is assumed to be zero by definition, even though there may still be
scope for further enhancement (there are simply no other countries in the sample that can serve as
benchmarks).

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indicate that the relative performance of the country within the sample
remained about the same.

This approach has the important advantage that it controls for general time
effects, that is, for events that affect all countries simultaneously. For example,
suppose country A has private capital flows of 0.4 in the first period and 0.5 in
the second period. It might be the case that the absolute size of capital flows in
country A actually declined from the first to the second period. This might be the
case if a global shock (such as the financial crisis) negatively affected capital
flows in all countries, but country A managed to do relatively better than other
countries. In this case, country A would have improved its performance relative
to other countries, despite the decline in capital flows in absolute terms, and
thus features a larger value in the second period than in the first period (of
course, it might also be the case that capital flows in country A increased in
absolute terms and did so more strongly than in other countries).−

Figure I.5 shows the resulting frontier associated with each of the three
considered time periods. For ease of exposition, the results are reported by
income group. Each chart includes the frontier (dotted line) obtained from the
full sample for the corresponding time period as well as the 20 benchmark
countries (marked in gray). In addition, appendix J.3 reports the corresponding
changes in the DEA scores for each country between the first time period (2007–
10) and the third period (2015–18) as well as the underlying changes in private
capital flows (DEA output variable) and our measure of the domestic investment
environment (DEA input variable).

Among LICs, the countries with the largest increases in DEA scores over time are
the Republic of Yemen (0.46), Mozambique (0.36), Chad (0.34), Nepal (0.28), and
the Democratic Republic of Congo (0.27). Increases in the DEA scores can be
driven by two different factors: increases in private capital flows or a worsening

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of the domestic investment environment. 7 A good example of the latter case is

the Republic of Yemen, where capital flows remained about the same (as
indicated by the orange bar in the figures in appendix J.3), but the quality of the
domestic environment (blue bar) decreased sharply. Together, these effects
suggest that despite a significant decline in its domestic environment the
Republic of Yemen managed to keep capital flows at a similar level, and
consequently its DEA scores increased. This case seems to be an exception. For
all other LICs with increases in DEA scores, these increases are owing to
improvements in private capital flows rather than to decreases in the domestic
environment.

The LICs with the largest declines in DEA scores over time are Liberia (−0.22),
Madagascar (−0.20), Guinea (−0.08), and Niger (−0.07). While Liberia and
Madagascar experienced decreases in the private capital flows measure, Guinea
and Niger feature increases both in capital flows and in their domestic
environments, with the latter factor apparently dominating and being
responsible for the decrease in efficiency scores.

Among LMICs, Angola (0.45) and the Democratic Republic of Congo (0.28) show
by far the largest increases in DEA scores over time. Though both countries
experienced positive changes in the measure of capital flows, the strong increase
in Angola’s DEA score was also partially driven by a decline in the domestic
environment. The LMICs with the largest reductions in DEA scores are Mongolia
(−0.51), Pakistan (−0.29), the Solomon Islands (−0.26), Myanmar (−0.22), and
Vietnam (−0.19). Except for Mongolia, these reductions seem to be driven by
improvements in the domestic environment rather than declines in private
capital flows. The other case study countries, Bangladesh, Zambia, and Kenya
show a relatively constant performance over time in DEA scores and slight

7 Furthermore, changes in the DEA scores of a given country may be based on changes in the
frontier itself because of the performance of other countries.

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increases in both aggregate private capital flows (driven mainly by FDI) and the
domestic investment environment.

Among UMICs, the countries with the largest increases in DEA scores are Gabon
(0.27), Paraguay (0.15), Algeria (0.15), China (0.14), and Mexico (0.13). In all
these countries, the increases seem to be mainly driven by improvements in the
measure of private capital flows. The UMICs with the largest reductions in DEA
scores are Montenegro (−0.34), Lebanon (−0.24), St. Lucia (−0.21), Bulgaria
(−0.20), and Jordan (−0.17). These four countries all show relatively strong
declines in their performance on attracting private capital flows (relative to
GDP). According to the results in table I.2, columns (3) to (5), these declines
were mainly owing to lower relative performance on FDI in the case of
Montenegro, St. Lucia, and Bulgaria, whereas in Lebanon and Jordan they were
mainly driven by portfolio equity.

Figure I.5. Estimated Frontier over Time, by Country Income Group

a. Low-income countries, 2007–10

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b. Low-income countries, 2011–14

c. Low-income countries, 2015–18

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d. Lower-middle-income countries, 2007–10

e. Lower-middle-income countries, 2011–14

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f. Lower-middle-income countries, 2015–18

g. Upper-middle-income countries, 2007–10

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h. Upper-middle-income countries, 2011–14

i. Upper-middle-income countries, 2015–18

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j. High-income countries, 2007–10

k. High-income countries, 2011–14

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l. High-income countries, 2015–18

Source: Independent Evaluation Group.

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Table I.4. Regional and Global Averages

2007–10 2011–14 2015–18

Pri- Dom DEA Pri- Dom DEA Pri- Dom- DEA
vate estic Score vate estic Score vate estic Score
Capi- Envir Capi- Envir Capi- Env.
Region tal on. tal on. tal
East Asia 0.40 0.41 0.72 0.42 0.43 0.69 0.43 0.46 0.65
and Pacific

Europe 0.38 0.44 0.61 0.37 0.47 0.56 0.40 0.50 0.58
and
Central
Asia

Latin 0.33 0.43 0.55 0.37 0.44 0.57 0.40 0.47 0.59
America
and the
Caribbean

Middle 0.33 0.42 0.56 0.33 0.41 0.58 0.37 0.43 0.62
East and
North
Africa

South Asia 0.27 0.36 0.57 0.33 0.38 0.62 0.35 0.41 0.60

Sub- 0.29 0.37 0.55 0.35 0.38 0.66 0.37 0.41 0.63
Saharan
Africa

Average 0.33 0.40 0.58 0.36 0.42 0.61 0.39 0.45 0.61

Source: Independent Evaluation Group.

Note: The underlying sample consists of 115 World Bank Group client countries (benchmark countries are
not included).

Overall, average levels of private capital flows are at 61 percent of the estimated
potential among the 115 considered Bank Group client countries and
magnitudes of untapped potential for private capital mobilization are very
similar across geographical regions. Table I.4 reports simple averages of the
main results for geographical regions. For the most recent period, 20–18, the

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regions with the highest levels of private capital flows are East Asia and Pacific
(0.43), Latin America and the Caribbean (0.40), and Europe and Central Asia
(0.40). South Asia (0.35) shows the lowest value. On our measure of the domestic
investment environment, Europe and Central Asia (0.50) and Latin America and
the Caribbean (0.47) perform best, and South Asia (0.41) and Sub-Saharan Africa
(41) have the lowest values. The DEA scores are very similar across regions,
ranging only from 0.58 to 0.65, which suggests that all regions feature similar
magnitudes of untapped potential for private capital mobilization.

When changes across regions over time are examined, most regions show
positive trends in attracting private capital flows (relative to GDP) as well as in
their domestic investment environment and associated DEA scores. According to
our results, Sub-Saharan Africa experienced the strongest increases in DEA
scores between 2007 and 2018, indicating that some countries in this region are
catching up with the frontier. The East Asia and Pacific and Europe and Central
Asia regions experienced the strongest improvements in domestic environment
between 2007 and 2018. At the same time, private capital flows increased only
marginally. As a result, the DEA scores for these two regions declined. For all
other regions, measures of capital flows and domestic environment as well as
DEA scores show positive trends.

Appendix C presents the results of several robustness tests: the obtained results
are generally robust to moderate changes in the aggregation methods underlying
the construction of the composite indexes, including different weighting
schemes and exclusion of potential outliers. Nevertheless, we highlight that all
quantitative results should be interpreted with caution; data quality for the used
indicators is limited, and the used variables provide only rough measures of
capital flows and enabling domestic factors, and the precision of quantitative
results for individual countries is thus very limited. We therefore suggest that
the results should be treated as providing some basic insights about the patterns
and underlying factors of private capital flows but cannot replace the insights of
detailed country case studies or more rigorous econometric analysis.

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Targeting of Bank Group Efforts

We now use the results from the frontier analysis to assess the targeting of the
Bank Group’s efforts in mobilizing private finance. Figure I.6 illustrates the
geographical distribution of the Bank Group’s efforts for private finance in terms
of absolute amounts of Bank Group own commitment over 2007–18. Exact
numerical values for each country are reported in appendix E. This appendix also
reports Bank Group commitment as a percentage of ODA, which we interpret as
a measure of the relative importance of a country in the Bank Group’s private
finance mobilization portfolio.

According to these values, Mozambique (15.6 percent) and Senegal

(12.8 percent) are the two countries in the group of LICs most strongly targeted
by the Bank Group’s efforts at mobilizing private finance. Among LMICs,
Indonesia (75 percent) and Mongolia (72 percent) receive exceptionally high
support from the Bank Group, and, among UMICs, Brazil (103 percent), Mexico
(69 percent), and Azerbaijan (66 percent). Some of the UMICs and HICs feature
very high values on this measure simply because the received amounts of ODA
are very small.

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Figure I.6. World Bank Group Commitment for Private Finance, 2007–18

Note: Depicted values represent Bank Group own commitment for mobilizing private finance, including the
World Bank’s direct guarantees, the World Bank’s indirect guarantees, the International Finance
Corporation’s portfolio, and the Multilateral Investment Guarantee Agency portfolio. Variables and data
sources are described in table I.2.

How does the targeting of Bank Group efforts for mobilizing private finance
relate to countries’ performance in attracting private capital? To answer this
question, figure I.7 shows Bank Group own commitment for mobilizing private
finance as a percentage of ODA (right axis) and sets it in relation to private
capital flows (left axis).

Among LICs, Bank Group efforts appear to be positively associated with higher
capital flows, because most of the countries with relatively high Bank Group
commitment appear at the left-hand side of the graph featuring higher levels of
private capital flows. Among LMICs, there seems to be no systematic
relationship between Bank Group efforts and capital flows; countries featuring
higher Bank Group commitment are relatively evenly distributed across levels of
private capital flows. Among UMICs, the countries enjoying the highest levels of

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private capital flows appear to be less targeted by Bank Group mobilization

efforts (including South Africa, China, Lebanon, and Thailand).

Overall, there does not appear to be a strong relationship between the targeting
of Bank Group efforts at mobilizing private finance and the levels of private
capital flows that countries attracted. At most, figure I.7 might indicate that
Bank Group mobilization efforts tend to be less pervasive in countries that are
already achieving relatively high levels of private capital flows (UMICs such as
South Africa, China, Lebanon, and Thailand) and in the countries with the
lowest performance on attracting private capital (many LICs, including Mali,
Malawi, Afghanistan, and Nepal).

A similar conclusion can be reached when looking at Bank Group own

commitment for mobilizing private finance as a percentage of total private
capital flows (instead of as a percentage of ODA). The results are shown in
figure I.8. Again, it appears to be difficult to identify a systematic relationship
between this alternative indicator of the targeting strategy of the Bank Group’s
mobilization efforts and the levels of private capital flows that countries attract.

There also seems to be no systematic relationship between the targeting of Bank

Group and our DEA-based measure of countries’ performance in attracting
private capital relative to their domestic environment. Figure I.9 illustrates the
relationship between Bank Group mobilization efforts as percentage of ODA
(right axis) and the estimated DEA efficiency scores (left axis). Based on the four
panels covering different income groups, we are unable to identify a systematic
relationship between the targeting of the Bank Group’s mobilization efforts and
the DEA-based measure of countries’ performance in attracting private capital.
This applies both overall and within given income groups. 8

8 Simple correlation coefficients between Bank Group mobilization efforts (as a percentage of
official development assistance) and the DEA scores support this interpretation of the results in
figure I.8 because the correlation coefficients tend to be small (−0.10 for the whole sample and

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Bank Group efforts aimed at mobilizing private finance are very differently
distributed across countries than total ODA inflows, but neither of the two flows
appears to be strategically allocated with respect to countries’ performance in
attracting private capital. As shown in figure I.8 panels b, d, f, and h and
figure I.10 panels b, d, f, and h, this holds both for achieved absolute levels of
private capital flows (relative to GDP) and for countries’ performance in
attracting private capital relative to their domestic environment (as measured by
the DEA scores).

Figure I.7. Targeting of World Bank Group Commitment—Private Capital

Flows, by Percent of ODA

a. Low-income countries

between −0.23 and 0.22 for individual income groups) and are never significant at a 10 percent
significance level.

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b. Lower-middle income countries

c. Upper-middle-income countries

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d. High-income countries

Note: ODA = official development assistance.

Figure I.8. Targeting of World Bank Group Commitment and ODA—Private

Capital Flows, by Percent of Total Flows

a. Bank Group commitment in low-income countries

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b. ODA in low-income countries

c. Bank Group commitment in lower-middle-income countries

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d. ODA in lower-middle-income countries

e. Bank Group commitment in upper-middle-income countries

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f. ODA in upper-middle-income countries

g. Bank Group commitment in high-income countries

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h. ODA in high-income countries

Source: Independent Evaluation Group.

Note: ODA = official development assistance.

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Figure I.9. Targeting of World Bank Group Commitment—DEA Efficiency

Scores, by Percent of ODA

a. Low-income countries

b. Lower-middle income countries

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c. Upper-middle-income countries

b. High-income countries

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a. Bank Group commitment in low-income countries

b. ODA in low-income countries (% of total flows)

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b. Bank Group commitment in lower-middle-income countries (% of total flows)

c. ODA in lower-middle-income countries (% of total flows)

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d. Bank Group commitment in upper-middle-income countries (% of total flows)

e. ODA in upper-middle-income countries (% of total flows)

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f. Bank Group commitment in high-income countries (% of total flows)

g. ODA in high-income countries (% of total flows)

Source: Independent Evaluation Group.

Note: ODA = official development assistance.

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References
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Fernandez-Arias, E., and P. Montiel. 1996. “The Surge in Capital Inflows to Developing
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Herrera, S., and G. Pang. 2005. “Efficiency of Public Spending in Developing Countries:
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Latruffe, L., K. Balcombe, S. Davidova, and K. Zawalinska. 2004. “Determinants of

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———. 2015. Investment Climate Reforms: An Independent Evaluation of World Bank Group
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Annex I.1. Structured Literature Review

The frontier analysis investigates how private capital flows (data envelopment
analysis [DEA] outputs) are related to domestic factors in the host economies
(DEA inputs). The latter is operationalized by a composite measure of relevant
pull factors, which aggregates information about empirical variables that have
been identified in the economic literature as important determinants of private
capital flows. The selection of variables included in the composite measure is
based on a structured literature review using the following methodology:

Two independent keyword searches are performed using Google Scholar and
Web of Science with the following parameters:

 Keywords: "determinants capital flows developing countries"

 Time span: since 2000

 Additional settings: only articles (no patents, and so on); only economics
database (World of Science)

 Sorting of results: by relevance (Google Scholar); by times cited (World of

Science)

The first 20 articles from both searches are reviewed in detail and further
considered if they provide information about:

 Foreign direct investment or portfolio flows (for example, not remittances)

 Empirical determinants (not purely theoretical)

 Domestic (“pull”) factors in the host country (not foreign “push” factors)

The variables used in the construction of the composite measure are selected
based on the most common indicators among the remaining articles (Table 1,
listed alphabetically by author) as well as data availability for the considered
time period and sample of countries. In addition, we make sure to account for a

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set of recent policy-related studies (Table 3), which may otherwise remain
unconsidered (because they are not regarded as academic articles and thus not
included in the two databases used for the structured literature review).

Data Coverage and Handling of Missing Values

To minimize potential biases from missing data, some attempts were made to
impute missing values. The analysis is affected by two types of data
unavailability: missing values for individual years of country observations and
complete absence of some economies in the original data sets. To address the
first issue, we augment the data with information from other years, that is, we
impute missing values for a given time period with the corresponding values
from the previous or later time period if available. Other than this procedure, no
additional imputations for missing values are performed.

Because all our variables are based on widely used empirical indicators and data
sources, most of the included economies in the analysis have information for all
variables. Exceptions are reported in table JA.1 Regarding our measure of
aggregate private capital flows, data on portfolio equity are unavailable for 10
countries, and 2 of these countries also have missing information on domestic
credit. In these cases, our measure of aggregate private capital flows is
constructed based only on those types of private capital flows for which data is
available for a given country. The same applies to the two cases where data on
dimension V (infrastructure) and dimension VI (financial development) are
missing.

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Table IA1.1. Missing Information

Domestic Investment
Environment
Portfolio Domestic
Country FDI Equity Credit I II III IV V VI VII
Central African X
Republic

Chad X

Djibouti X

Honduras X

Kosovo X

Nepal X

Saudi Arabia X

St. Lucia X

Turkmenistan X X X

United Arab Emirates X

Uzbekistan X X

Source: Independent Evaluation Group.

Note: “X” indicates that data on the variable are missing for a given country. FDI = foreign direct investment.

Robustness Checks
The construction of composite measures of private capital flows and domestic
investment environment involves several decisions about the applied
aggregation methodology which may affect our results. This annex explores the
robustness of our findings to alternative specifications and different weighting
schemes.

Our measure of private capital flows (DEA output variable) aggregates

information on three types of capital flows: foreign direct investment, portfolio
equity, and private sector borrowing. For the baseline measure used in the
analysis each of these variables carries equal weight. We test the robustness of
our results to three alternative weighting schemes, where each scheme assigns

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double weight to one type of capital flow (this approach mirrors the robustness
checks with respect to weighting in Afonso, Shuknecht, and Tanzi 2005). For
example, one alternative specification assigns a weight of 1/2 to foreign direct
investment, while the indicators for the other two capital flows are assigned a
weight of 1/4 each. The other two alternative specifications assign a weight of
1/2 to portfolio equity and to private sector borrowing, and 1/4 to the other two
types of capital, respectively.

To assess the similarity of the resulting outcomes with our baseline

specification, we calculate two sets of correlation coefficients. The first set
consists of standard Pearson correlation coefficients for continuous variables.
These are used to test the similarity between the resulting values under
alternative weighting schemes with those of the baseline measure. Second, we
calculate Spearman correlation coefficients which measure the similarity
between discrete rankings. The Spearman correlation coefficient ranges inside
the interval [−1,1] and takes the value 1 if the two rankings are identical,
whereas values smaller than 1 indicate less agreement (a value of 0 indicates
that the rankings are completely independent, and a value of −1 indicates that
one ranking is the reverse of the other). These are used to assess the similarity
between the resulting rankings of countries rather than the associated absolute
values.

In total, we calculate 18 correlation coefficients: 2 coefficients for each of the

three weighting specifications in each of the three time periods. In all these
cases, the correlation between our baseline measure and a given alternative
specification is never below 90 percent and is always significant at the 1 percent
significance level. This suggests that our main results are robust against
moderate changes in the underlying weighting scheme for our measure of
private capital flows.

Our measure of the domestic investment environment (DEA input variable)

aggregates information on 14 indicators spanning seven dimensions. With so
many variables involved, it is unlikely that alternative weighting schemes that

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assign double weights on one indicator or dimension will have a relevant effect
on the final outcome. Instead, we test the robustness of the results to alternative
specifications that drop one of the dimensions entirely. For this purpose, we
construct seven alternative composite indexes for each of the three time periods,
in each case dropping one of the seven dimensions included in the baseline
measure. In addition, we construct another alternative measure, where the
weights for each dimension are based on the results of a principal components
analysis. In total, we construct 24 alternative specifications across the three time
periods, leading to 48 correlation coefficients.

The Pearson correlation coefficients between our baseline measure of the

domestic environment and any given alternative specification is never below
90 percent and is always significant at the 1 percent significance level. The same
holds for the Spearman correlation coefficients when the rankings of countries
resulting from the alternative specifications are compared with the ranking
associated with our baseline measure. This suggests that our results are not
driven by a single variable or dimension in the constructed composite measure
of the domestic investment environment.

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Annex I.2. Additional Tables and Figures

Figure IA2.1. World Bank Group Commitment, by Type

a. Low-income countries b. Lower-middle-income countries

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c. Upper-middle-income countries b. High-income countries

Source: Independent Evaluation Group.

Note: HIC = high-income country; IFC = International Finance Corporation; MIGA = Multilateral Investment
Guarantee Agency; UMIC = upper-middle-income country; WBG = World Bank Group.

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Figure IA2.2.

a. Low-income countries b. Lower-middle-income countries

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c. Upper-middle-income countries b. High-income countries

Source: Independent Evaluation Group.

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Figure I.10.

a. Low-income countries

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b. Lower-middle-income countries

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c. Upper-middle-income countries

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d. High-income countries

Source: Independent Evaluation Group.

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Table IA2.1. Data

2007–10 2011–14 2015–18 2007–18

Private Dom DEA Private Dom. DEA Private Dom. DEA Private Dom DEA Bank Bank
Capital . Env. Score Capital Env. Score Capital Env. Scor Capital . Env. Score Group Group
e Com. Com.
Country ($, (% of
Income mil.) ODA)

Low-income

Afghanistan 0.22 0.31 0.52 0.25 0.31 0.65 0.27 0.32 0.63 0.25 0.31 0.60 316 0.6

Benin 0.24 0.38 0.45 0.32 0.40 0.55 0.35 0.45 0.54 0.30 0.41 0.51 9 0.1

Burkina Faso 0.22 0.35 0.46 0.26 0.36 0.51 0.36 0.45 0.54 0.28 0.39 0.51 119 1.1

Burundi 0.24 0.33 0.53 0.30 0.33 0.69 0.33 0.34 0.67 0.29 0.34 0.63 15 0.3

Central African 0.08 0.25 0.26 0.10 0.22 1.00 0.16 0.29 0.40 0.11 0.26 0.55 38 1.1
Rep.

Chad 0.04 0.35 0.09 0.08 0.33 0.18 0.20 0.33 0.42 0.11 0.34 0.23 51 1.0

Congo, Dem. 0.10 0.39 0.19 0.10 0.41 0.16 0.30 0.45 0.46 0.17 0.42 0.27 360 1.3
Rep.

Ethiopia 0.23 0.31 0.56 0.30 0.29 0.83 0.37 0.33 0.81 0.30 0.31 0.73 104 0.3

Guinea 0.25 0.27 0.69 0.31 0.31 0.80 0.36 0.41 0.61 0.31 0.33 0.70 135 3.2

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Private Dom DEA Private Dom. DEA Private Dom. DEA Private Dom DEA Bank Bank
Capital . Env. Score Capital Env. Score Capital Env. Scor Capital . Env. Score Group Group
e Com. Com.
Country ($, (% of
Income mil.) ODA)

Guinea-Bissau 0.23 0.35 0.48 0.28 0.36 0.56 0.31 0.45 0.48 0.28 0.39 0.51 27 2.1

Haiti 0.23 0.28 0.65 0.29 0.28 0.92 0.35 0.30 0.85 0.29 0.28 0.81 58 0.4

Liberia 0.54 0.43 0.88 0.58 0.45 0.85 0.43 0.45 0.66 0.52 0.44 0.80 142 1.6

Madagascar 0.36 0.35 0.75 0.33 0.36 0.64 0.32 0.41 0.55 0.34 0.37 0.65 308 4.9

Malawi 0.24 0.39 0.43 0.34 0.34 0.73 0.35 0.38 0.63 0.31 0.37 0.60 35 0.3

Mali 0.26 0.38 0.49 0.30 0.34 0.65 0.36 0.42 0.59 0.31 0.38 0.58 43 0.4

Mozambique 0.32 0.39 0.58 0.59 0.42 0.94 0.58 0.42 0.94 0.50 0.41 0.82 3,105 15.6

Nepal 0.14 0.40 0.24 0.22 0.41 0.36 0.35 0.46 0.52 0.23 0.42 0.37 3 0.0

Niger 0.32 0.35 0.66 0.40 0.38 0.72 0.35 0.41 0.59 0.36 0.38 0.66 191 2.4

Rwanda 0.26 0.32 0.60 0.33 0.35 0.68 0.34 0.41 0.56 0.31 0.36 0.62 313 2.9

Senegal 0.26 0.37 0.51 0.33 0.39 0.59 0.39 0.43 0.61 0.33 0.40 0.57 1,266 12.8

Sierra Leone 0.27 0.36 0.55 0.42 0.41 0.68 0.38 0.40 0.67 0.36 0.39 0.63 326 5.6

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Private Dom DEA Private Dom. DEA Private Dom. DEA Private Dom DEA Bank Bank
Capital . Env. Score Capital Env. Score Capital Env. Scor Capital . Env. Score Group Group
e Com. Com.
Country ($, (% of
Income mil.) ODA)

Tajikistan 0.29 0.31 0.68 0.30 0.32 0.72 0.34 0.35 0.70 0.31 0.33 0.70 12 0.3

Tanzania 0.27 0.36 0.53 0.31 0.36 0.61 0.32 0.43 0.51 0.30 0.39 0.55 63 0.2

Togo 0.27 0.35 0.55 0.38 0.41 0.62 0.36 0.47 0.54 0.34 0.41 0.57 189 6.3

Uganda 0.28 0.37 0.54 0.33 0.35 0.68 0.32 0.41 0.55 0.31 0.38 0.59 1,016 5.7

Yemen, Rep. 0.24 0.33 0.54 0.24 0.28 0.75 0.25 0.21 1.00 0.25 0.27 0.76 55 0.5

Average 0.25 0.35 0.52 0.31 0.35 0.66 0.34 0.39 0.62 0.30 0.36 0.60 319 2.7

Lower-middle
income

Angola 0.22 0.35 0.45 0.23 0.33 0.54 0.31 0.26 0.90 0.26 0.31 0.63 867 31.5

Bangladesh 0.27 0.31 0.63 0.35 0.39 0.63 0.37 0.41 0.63 0.33 0.37 0.63 1,373 6.1

Bhutan 0.31 0.42 0.50 0.34 0.39 0.61 0.35 0.44 0.56 0.34 0.42 0.56 10 0.8

Bolivia 0.30 0.40 0.51 0.37 0.42 0.59 0.40 0.44 0.63 0.36 0.42 0.58 126 1.7

Cambodia 0.36 0.38 0.67 0.45 0.44 0.67 0.54 0.48 0.78 0.45 0.43 0.71 519 6.6

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Private Dom DEA Private Dom. DEA Private Dom. DEA Private Dom DEA Bank Bank
Capital . Env. Score Capital Env. Score Capital Env. Scor Capital . Env. Score Group Group
e Com. Com.
Country ($, (% of
Income mil.) ODA)

Cameroon 0.23 0.32 0.52 0.28 0.32 0.70 0.31 0.32 0.69 0.27 0.32 0.64 710 8.4

Congo, Rep. 0.39 0.42 0.64 0.35 0.41 0.58 0.55 0.41 0.92 0.43 0.41 0.71 6 0.2

Côte d'Ivoire 0.24 0.32 0.57 0.29 0.37 0.56 0.32 0.42 0.53 0.29 0.37 0.55 2,619 22.6

Djibouti 0.35 0.40 0.61 0.31 0.40 0.54 0.34 0.43 0.54 0.33 0.41 0.57 451 29.7

Egypt, Arab 0.30 0.39 0.55 0.29 0.37 0.55 0.35 0.37 0.66 0.32 0.38 0.59 1,745 9.4
Rep.

El Salvador 0.33 0.43 0.54 0.35 0.46 0.51 0.38 0.46 0.56 0.35 0.45 0.54 154 7.9

Georgia 0.41 0.44 0.66 0.43 0.50 0.60 0.50 0.53 0.68 0.45 0.49 0.65 983 15.5

Ghana 0.38 0.41 0.66 0.39 0.47 0.57 0.45 0.48 0.65 0.41 0.45 0.63 3,397 22.5

Honduras 0.25 0.42 0.40 0.30 0.43 0.45 0.37 0.45 0.56 0.30 0.43 0.47 701 12.6

India 0.39 0.45 0.61 0.41 0.44 0.61 0.39 0.48 0.57 0.39 0.46 0.59 4,568 17.6

Indonesia 0.28 0.43 0.46 0.34 0.45 0.50 0.35 0.48 0.51 0.32 0.45 0.49 3,109 74.5

Kenya 0.25 0.38 0.47 0.37 0.41 0.62 0.33 0.44 0.51 0.32 0.41 0.53 1,296 5.6

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Private Dom DEA Private Dom. DEA Private Dom. DEA Private Dom DEA Bank Bank
Capital . Env. Score Capital Env. Score Capital Env. Scor Capital . Env. Score Group Group
e Com. Com.
Country ($, (% of
Income mil.) ODA)

Kosovo 0.37 0.42 0.61 0.36 0.40 0.62 0.38 0.45 0.58 0.37 0.42 0.61 492 11.1

Kyrgyz 0.30 0.40 0.52 0.34 0.43 0.52 0.39 0.50 0.55 0.34 0.45 0.53 14 0.3
Republic

Mauritania 0.30 0.37 0.58 0.45 0.36 0.91 0.40 0.39 0.71 0.39 0.37 0.73 578 16.5

Moldova 0.37 0.46 0.58 0.36 0.48 0.52 0.35 0.49 0.50 0.36 0.47 0.53 104 2.9

Mongolia 0.60 0.48 0.90 0.59 0.50 0.83 0.29 0.54 0.39 0.49 0.51 0.71 2,766 71.6

Morocco 0.34 0.40 0.60 0.41 0.43 0.63 0.41 0.45 0.63 0.39 0.42 0.62 199 1.3

Myanmar 0.25 0.21 1.00 0.29 0.27 1.00 0.37 0.34 0.78 0.30 0.27 0.93 1,155 10.3

Nicaragua 0.34 0.37 0.66 0.38 0.41 0.63 0.44 0.43 0.70 0.38 0.40 0.66 295 4.8

Nigeria 0.31 0.34 0.66 0.35 0.32 0.83 0.31 0.31 0.73 0.32 0.32 0.74 4,712 20.6

Pakistan 0.28 0.26 0.84 0.29 0.32 0.68 0.30 0.38 0.55 0.29 0.32 0.69 2,229 7.8

Papua New 0.25 0.42 0.42 0.28 0.39 0.48 0.31 0.40 0.53 0.28 0.41 0.48 72 1.4
Guinea

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2007–10 2011–14 2015–18 2007–18

Private Dom DEA Private Dom. DEA Private Dom. DEA Private Dom DEA Bank Bank
Capital . Env. Score Capital Env. Score Capital Env. Scor Capital . Env. Score Group Group
e Com. Com.
Country ($, (% of
Income mil.) ODA)

Philippines 0.27 0.42 0.45 0.35 0.45 0.52 0.38 0.47 0.55 0.33 0.45 0.51 984 31.2

Solomon 0.44 0.38 0.81 0.33 0.41 0.54 0.37 0.45 0.55 0.38 0.41 0.63 34 1.4
Islands

Sri Lanka 0.19 0.34 0.41 0.33 0.40 0.58 0.37 0.44 0.58 0.30 0.39 0.52 259 4.9

Tunisia 0.35 0.40 0.62 0.42 0.41 0.70 0.45 0.41 0.75 0.41 0.41 0.69 680 10.5

Ukraine 0.42 0.38 0.78 0.43 0.44 0.64 0.39 0.41 0.66 0.42 0.41 0.69 2,725 28.4

Uzbekistan 0.12 0.35 0.25 0.15 0.35 0.33 0.25 0.40 0.43 0.17 0.37 0.33 320 9.7

Vietnam 0.61 0.42 1.00 0.54 0.44 0.80 0.58 0.50 0.81 0.57 0.45 0.87 1,639 4.9

West Bank and 0.28 0.39 0.52 0.32 0.34 0.71 0.33 0.38 0.61 0.31 0.37 0.61 502 2.1
Gaza

Zambia 0.31 0.42 0.50 0.33 0.44 0.50 0.34 0.45 0.52 0.33 0.44 0.51 297 2.8

Average 0.32 0.39 0.60 0.36 0.41 0.62 0.38 0.43 0.62 0.35 0.41 0.61 1,153 14.0

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Private Dom DEA Private Dom. DEA Private Dom. DEA Private Dom DEA Bank Bank
Capital . Env. Score Capital Env. Score Capital Env. Scor Capital . Env. Score Group Group
e Com. Com.
Country ($, (% of
Income mil.) ODA)

Upper-middle
income

Albania 0.38 0.47 0.57 0.42 0.49 0.59 0.42 0.51 0.58 0.40 0.49 0.58 1,139 37.6

Algeria 0.24 0.36 0.47 0.28 0.35 0.58 0.34 0.38 0.62 0.28 0.36 0.56 4 0.2

Armenia 0.33 0.43 0.53 0.37 0.49 0.52 0.38 0.51 0.53 0.36 0.48 0.53 118 3.4

Azerbaijan 0.33 0.43 0.55 0.35 0.43 0.54 0.41 0.43 0.66 0.36 0.43 0.58 1,113 65.6

Belarus 0.30 0.36 0.58 0.33 0.37 0.63 0.34 0.44 0.53 0.32 0.39 0.58 274 44.3

Bosnia and 0.35 0.37 0.67 0.37 0.41 0.60 0.39 0.47 0.58 0.37 0.42 0.62 682 13.4
Herzegovina

Botswana 0.28 0.41 0.48 0.34 0.43 0.52 0.36 0.46 0.54 0.33 0.43 0.51 255 13.5

Brazil 0.39 0.44 0.62 0.43 0.43 0.64 0.46 0.45 0.70 0.43 0.44 0.65 7,003 103.1

Bulgaria 0.51 0.53 0.72 0.40 0.57 0.53 0.41 0.59 0.52 0.44 0.56 0.59 137 0.0

China 0.47 0.45 0.75 0.56 0.44 0.83 0.60 0.47 0.89 0.55 0.45 0.82 3,532 0.0

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Approaches to Private Capital Mobilization

2007–10 2011–14 2015–18 2007–18

Private Dom DEA Private Dom. DEA Private Dom. DEA Private Dom DEA Bank Bank
Capital . Env. Score Capital Env. Score Capital Env. Scor Capital . Env. Score Group Group
e Com. Com.
Country ($, (% of
Income mil.) ODA)

Colombia 0.32 0.38 0.60 0.43 0.44 0.64 0.41 0.46 0.60 0.39 0.43 0.61 4,217 40.8

Costa Rica 0.36 0.45 0.57 0.41 0.46 0.59 0.44 0.51 0.61 0.40 0.47 0.59 176 24.1

Dominican 0.29 0.40 0.50 0.33 0.42 0.52 0.36 0.45 0.54 0.32 0.42 0.52 182 10.0
Republic

Ecuador 0.24 0.40 0.43 0.30 0.43 0.46 0.33 0.44 0.51 0.29 0.42 0.47 336 16.2

Gabon 0.27 0.39 0.49 0.30 0.42 0.47 0.40 0.37 0.76 0.32 0.39 0.57 63 7.9

Guatemala 0.27 0.38 0.49 0.31 0.40 0.52 0.35 0.42 0.59 0.31 0.40 0.53 336 8.5

Guyana 0.36 0.42 0.59 0.39 0.45 0.57 0.39 0.49 0.56 0.38 0.46 0.57 140 11.7

Iraq 0.21 0.36 0.43 0.28 0.37 0.53 0.28 0.42 0.45 0.26 0.38 0.47 571 1.6

Jamaica 0.31 0.37 0.60 0.35 0.42 0.56 0.44 0.47 0.64 0.37 0.42 0.60 122 17.4

Jordan 0.54 0.47 0.83 0.46 0.44 0.69 0.45 0.47 0.66 0.48 0.46 0.73 1,874 11.1

Kazakhstan 0.41 0.42 0.68 0.36 0.44 0.54 0.39 0.47 0.58 0.39 0.44 0.60 564 33.5

Lebanon 0.61 0.52 0.87 0.49 0.49 0.70 0.46 0.53 0.63 0.52 0.52 0.73 763 8.9

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Private Dom DEA Private Dom. DEA Private Dom. DEA Private Dom DEA Bank Bank
Capital . Env. Score Capital Env. Score Capital Env. Scor Capital . Env. Score Group Group
e Com. Com.
Country ($, (% of
Income mil.) ODA)

Libya 0.26 0.40 0.46 0.28 0.40 0.49 0.34 0.44 0.52 0.29 0.41 0.49 10 0.5

Macedonia, 0.35 0.44 0.57 0.36 0.44 0.54 0.40 0.49 0.56 0.37 0.46 0.56 504 26.3
FYR

Maldives 0.38 0.34 0.80 0.42 0.36 0.83 0.43 0.38 0.80 0.41 0.36 0.81 34 7.5

Mauritius 0.52 0.55 0.72 0.60 0.57 0.78 0.63 0.60 0.79 0.58 0.58 0.76 0 0.0

Mexico 0.27 0.43 0.43 0.32 0.47 0.46 0.40 0.51 0.56 0.33 0.47 0.49 3,705 69.3

Montenegro 0.66 0.47 1.00 0.48 0.50 0.67 0.50 0.55 0.66 0.54 0.51 0.78 172 16.9

Namibia 0.38 0.41 0.65 0.40 0.42 0.64 0.45 0.44 0.71 0.41 0.42 0.67 38 1.5

Paraguay 0.26 0.43 0.42 0.33 0.45 0.49 0.40 0.49 0.57 0.33 0.46 0.49 141 12.4

Peru 0.31 0.46 0.48 0.34 0.46 0.50 0.35 0.49 0.50 0.33 0.47 0.49 1,456 46.9

Romania 0.32 0.48 0.48 0.35 0.51 0.48 0.34 0.56 0.45 0.34 0.52 0.47 365 0.0

Russian 0.32 0.40 0.56 0.33 0.42 0.52 0.37 0.44 0.56 0.34 0.42 0.55 4,180 0.0
Federation

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Private Dom DEA Private Dom. DEA Private Dom. DEA Private Dom DEA Bank Bank
Capital . Env. Score Capital Env. Score Capital Env. Scor Capital . Env. Score Group Group
e Com. Com.
Country ($, (% of
Income mil.) ODA)

Serbia 0.39 0.46 0.61 0.39 0.49 0.55 0.41 0.55 0.54 0.40 0.50 0.57 2,711 31.7

South Africa 0.57 0.44 0.93 0.67 0.44 1.00 0.67 0.46 1.00 0.64 0.44 0.98 2,415 20.0

St. Lucia 0.52 0.48 0.79 0.42 0.49 0.59 0.42 0.52 0.57 0.45 0.50 0.65 35 14.6

Thailand 0.48 0.50 0.71 0.51 0.52 0.70 0.53 0.52 0.73 0.51 0.51 0.71 139 0.0

Turkey 0.31 0.44 0.49 0.39 0.49 0.55 0.42 0.46 0.62 0.37 0.46 0.55 7,666 32.6

Turkmenistan 0.51 0.45 0.80 0.38 0.40 0.65 0.45 0.37 0.85 0.45 0.41 0.77 14 4.3

Average 0.37 0.43 0.61 0.39 0.45 0.60 0.42 0.47 0.62 0.39 0.45 0.61 1,210 19.4

High income

Argentina 0.25 0.45 0.39 0.29 0.43 0.44 0.32 0.46 0.47 0.28 0.45 0.43 5,084 730.8

Chile 0.51 0.55 0.70 0.67 0.56 0.88 0.55 0.59 0.71 0.58 0.57 0.76 984 78.0

Croatia 0.40 0.51 0.57 0.41 0.54 0.55 0.41 0.59 0.52 0.40 0.55 0.55 1,832 296.9

Hungary 0.51 0.56 0.69 0.40 0.60 0.51 0.49 0.63 0.59 0.47 0.60 0.60 1,280 0.0

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2007–10 2011–14 2015–18 2007–18

Private Dom DEA Private Dom. DEA Private Dom. DEA Private Dom DEA Bank Bank
Capital . Env. Score Capital Env. Score Capital Env. Scor Capital . Env. Score Group Group
e Com. Com.
Country ($, (% of
Income mil.) ODA)

Latvia 0.41 0.51 0.59 0.42 0.58 0.54 0.41 0.60 0.52 0.41 0.56 0.55 169 0.0

Oman 0.38 0.47 0.58 0.42 0.49 0.60 0.46 0.53 0.63 0.42 0.50 0.60 192 48.9

Panama 0.45 0.55 0.62 0.50 0.55 0.66 0.54 0.56 0.70 0.49 0.55 0.66 987 677.9

Poland 0.35 0.57 0.47 0.41 0.60 0.52 0.41 0.63 0.50 0.39 0.60 0.50 36 0.0

Saudi Arabia 0.24 0.45 0.37 0.18 0.48 0.26 0.29 0.47 0.43 0.24 0.47 0.35 360 0.0

Seychelles 0.50 0.40 0.89 0.51 0.46 0.75 0.40 0.52 0.55 0.47 0.46 0.73 5 2.5

Trinidad and 0.33 0.43 0.54 0.27 0.45 0.40 0.33 0.47 0.49 0.31 0.45 0.48 15 40.4
Tobago

United Arab 0.24 0.51 0.34 0.27 0.56 0.35 0.39 0.59 0.50 0.30 0.55 0.40 192 0.0
Emirates

Uruguay 0.31 0.46 0.47 0.35 0.47 0.51 0.33 0.50 0.46 0.33 0.48 0.48 1,320 353.5

Average 0.38 0.49 0.56 0.39 0.52 0.54 0.41 0.55 0.54 0.39 0.52 0.55 958 171.5

Benchmark

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Approaches to Private Capital Mobilization

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Private Dom DEA Private Dom. DEA Private Dom. DEA Private Dom DEA Bank Bank
Capital . Env. Score Capital Env. Score Capital Env. Scor Capital . Env. Score Group Group
e Com. Com.
Country ($, (% of
Income mil.) ODA)

Australia 0.58 0.63 0.74 0.58 0.62 0.72 0.65 0.64 0.79 0.60 0.63 0.75

Austria 0.41 0.56 0.56 0.46 0.56 0.61 0.45 0.60 0.56 0.44 0.57 0.58

Belgium 0.63 0.64 0.79 0.46 0.65 0.55 0.42 0.68 0.48 0.50 0.66 0.61

Canada 0.47 0.64 0.59 0.56 0.66 0.67 0.63 0.68 0.73 0.55 0.66 0.66

Denmark 0.63 0.64 0.79 0.68 0.64 0.83 0.67 0.67 0.79 0.66 0.65 0.80

Finland 0.41 0.61 0.52 0.52 0.61 0.65 0.64 0.65 0.77 0.52 0.62 0.65

France 0.40 0.59 0.53 0.50 0.61 0.63 0.51 0.64 0.62 0.47 0.61 0.59

Germany 0.40 0.56 0.55 0.43 0.57 0.56 0.44 0.60 0.55 0.42 0.58 0.55

Ireland 0.84 0.69 1.00 0.78 0.69 0.92 0.76 0.70 0.86 0.79 0.69 0.93

Italy 0.36 0.56 0.48 0.49 0.57 0.65 0.47 0.61 0.59 0.44 0.58 0.57

Japan 0.50 0.65 0.61 0.65 0.66 0.78 0.59 0.69 0.68 0.58 0.66 0.69

Netherlands 0.54 0.66 0.65 0.84 0.68 1.00 0.89 0.71 1.00 0.76 0.68 0.88

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Private Dom DEA Private Dom. DEA Private Dom. DEA Private Dom DEA Bank Bank
Capital . Env. Score Capital Env. Score Capital Env. Scor Capital . Env. Score Group Group
e Com. Com.
Country ($, (% of
Income mil.) ODA)

New Zealand 0.48 0.60 0.62 0.58 0.62 0.72 0.58 0.66 0.69 0.55 0.63 0.68

Norway 0.49 0.61 0.63 0.55 0.62 0.68 0.59 0.64 0.72 0.54 0.62 0.68

Qatar 0.37 0.49 0.54 0.33 0.50 0.47 0.45 0.50 0.63 0.38 0.50 0.54

Singapore 0.68 0.65 0.84 0.63 0.66 0.76 0.79 0.68 0.92 0.70 0.66 0.84

Sweden 0.50 0.62 0.63 0.55 0.63 0.68 0.56 0.66 0.67 0.54 0.64 0.66

Switzerland 0.62 0.68 0.74 0.67 0.69 0.80 0.52 0.72 0.59 0.60 0.70 0.71

United 0.64 0.66 0.79 0.63 0.67 0.75 0.57 0.69 0.66 0.61 0.67 0.73
Kingdom

United States 0.63 0.62 0.80 0.64 0.63 0.80 0.61 0.64 0.73 0.63 0.63 0.78

Average 0.53 0.62 0.67 0.58 0.63 0.71 0.59 0.65 0.70 0.56 0.63 0.69

Source: Independent Evaluation Group.

Note: DEA = data envelopment analysis; ODA = official development assistance; Bank Group = World Bank Group.

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Appendix J. Synthesis of World Bank
Group Country Cases
This appendix presents the findings and conclusions of the 12 country case
studies. It focuses on the World Bank Group’s support for private capital
mobilization over the evaluation period (FY08–18) with particular attention to
the relevance, effectiveness, areas of improvement, and opportunities for scaling
up mobilization efforts across client countries.

Background
All 11 case study countries had different growth trajectories over the evaluation
period. Most experienced considerable growth and sought to achieve fiscal
consolidation as a way to promote investor confidence; others achieved minimal
growth. In Albania, the government implemented ambitious policy measures
toward fiscal consolidation, which was critical in rebuilding investor confidence.
The corporate income tax increased from 10 percent to 15 percent while taxes on
small businesses were abolished.

Some countries—Ghana, Lebanon, and Nigeria—shared similar stories with high

debt to Gross Domestic Product (GDP) ratios, which had the potential to deter
investors. The Ghana case highlighted that during recent years the chronic fiscal
deficits and currency depreciation led to increasing debt and higher inflation.
Lebanon also suffered from different vulnerabilities, such as twin deficits (fiscal
and current account), high dollarization of the economy, and a large banking
system. To finance its budget deficits, the government has issued multiple
Eurobonds, which contributed to elevated public debt levels.

Private Capital Flows

Private capital flows are highly dependent on country inputs such as investment
climate, governance, and debt service. For example; countries like Mongolia and
Albania attracted substantial foreign direct investment (FDI). Outside of mining,
the International Finance Corporation (IFC) mobilized over $300 million into

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Synthesis of World Bank Group Country Cases

Mongolia’s banking sector from 2012 to 2017. FDI in Albania is three times the
average of middle-income countries at approximately 9 percent of GDP since
2008; however, its diversity remains limited. Countries like Jordan and Ghana
suffered from diminished private investment over the past decade. FDI inflows
went from an annual average of $2.7 billion (equal to 15.5 percent of GDP)
between 2006 and 2009 (all-time high of 23.5 percent in 2006) to $1.71 billion
between 2010 and 2017 (5.22 percent), demonstrating an overall decline over the
evaluation period. Domestic credit to the private sector in Jordan (as a
percentage of GDP) had remained over 90 percent for 2006 and 2007, but saw a
significant decrease to a little over 80 percent in 2008. Ghana’s FDI has been
declining in recent years despite interventions by the government to improve
the macro environment and create a business enabling environment. FDI peaked
in 2008 as a percentage of GDP at 9.52 percent and declined sharply in 2013 to
5.10 percent of GDP and has averaged 5.84 percent in subsequent years. The
overall weight of the formal private sector in Ghana’s economy remains low in
terms of investment—and FDI inflows are largely directed to capital-intensive
jobs-poor sectors. Gross private capital formation is significantly lower than in
Ghana’s structural peers, lower-middle-income countries, and aspirational
peers.

Zambia showed mixed results with private capital flows high and declining
overtime. The case study highlighted that FDI inflows have been historically
higher than the Sub-Saharan Africa average, but have consistently declined
since 2015. Generally, Zambia has been characterized by one of the most open
FDI regimes in Africa, and its Doing Business ranking is rather high (65.08 in
2019. 1 However, its current macroeconomic conditions appear to have shaken
investor confidence. FDI inflows were characterized by spikes and falls in the
past 12 years, but have considerably contracted since 2015, from 7.5 percent of
GDP to 1.5 percent of GDP in 2018, falling below the Sub-Saharan Africa average

1 A combined score for Ease of Doing Business. Scale from 0 (worst) to 100 (best) regulatory
performance.

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Synthesis of World Bank Group Country Cases

for the first time. Foreign firms repatriated earnings, while new investments
remained subdued due to the uncertain macroeconomic outlook (IMF 2019).

Mobilization Priorities and Programs in

Country Strategies
Each of the case study countries had two or three Country Partnership
Frameworks (CPFs), Country Partnership Strategies (CPSs) or country assistance
strategies (CASs) during the evaluation period; all of these addressed
mobilization issues, albeit indirectly. Mobilization efforts were not
mainstreamed in the objectives and pillars of strategy documents, but they were
captured as part of activities under the various objectives.

Relevance
Clients (government and corporate) acknowledged that World Bank Group
objectives and pillars highlighted in the CPS and CAS were mostly aligned with
their priorities. Though private capital mobilization efforts were not clearly
outlined in the CPS and CAS, they were embedded in activities undertaken under
the various objectives and pillars. Notable catalytic activities undertaken by the
Bank Group to boost mobilization efforts included helping some countries to
create an enabling business and investment climate to attract private investors.
Findings from Albania indicated that although the mobilization of private
capital is not consistently or extensively discussed in relevant strategy
documents, mobilization instruments are used strategically to respond to the
government’s requests and country’s needs, given existing macroeconomic
constraints. In addition, the Bank Group’s interventions are sequenced to
address upstream business environment constraints.

Private capital mobilization through Maximizing Finance for Development has

been part of the Bank Group’s country and sector strategy in countries for the
past 10 years, yet the sectors of focus continued to change every cycle, resulting
in sporadic outputs and outcomes for this programmatic approach. For example;

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Synthesis of World Bank Group Country Cases

Mongolia’s case study indicated that the Bank Group’s role in mobilizing private
capital was highly relevant and the results were satisfactory. The Oyu Tolgoi
mine has added tremendous economic value throughout Mongolia, and the Bank
Group’s private capital mobilization interventions show positive demonstration
effects. The World Bank’s analytical and advisory work with the National
Development Agency is highly relevant in mobilizing private capital for
Mongolia. The World Bank’s work is widely disseminated and well publicized in
the Mongolian press, and the views of staff are frequently sought and quoted in
the media. The Investment Reform Map report for Mongolia was developed as
part of an IFC Investment Policy and Agricultural Improvement Program
advisory project. It was prepared in close collaboration with the Cabinet
Secretariat and the National Development Agency. It has shaped the
government’s core investment plan, the $30 billion MNT Public Investment
Program published by the National Development Agency, with the input from
members of parliament and the industry ministries. This program seeks
investment outside of the state budget and is eager to raise private capital for its
projects.

Three of the case studies also indicated that the commitment and support of the
government were highly relevant in reaching the mobilization goals.

 For example: the Argentina case study indicated that the preparedness of the
government of Argentina to benefit from the Bank Group’s support was the
most important factor behind the success Argentina’s mobilization of private
capital under the Bank Group’s Maximizing Finance for Development. The
preparedness included, but was not limited to (i) the readiness of the
Renewable Energy Sub-Secretariat, both in its leadership and its top team
structure; and (ii) its willingness to meet the return requirements of
investors, which the case study terms as the seven-year rule.

 In Albania, mobilization of private capital was relevant under the first pillar
of the strategy. Specifically, to maintain macroeconomic stability and
improve the business environment, International Bank of Reconstruction
and Development (IBRD) lending was to contribute to increased export

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 Appendix J
Synthesis of World Bank Group Country Cases

competitiveness and attract FDI through the Business Environment

Enhancement and Institutional Reform Project (FY06). This project—in
conjunction with development policy loans—would support measures
associated with financial sector development, to be compatible with the
European Union’s legal and institutional frameworks. IFC identified the
promotion of external competitiveness as its priority with the goal and
supporting local export–oriented and import-substitution companies.
Though the Multilateral Investment Guarantee Agency (MIGA) had not
begun operations in Albania, it sought opportunities to invest in the
agribusiness, manufacturing, and tourism sectors; these were identified
based on their potential to attract increasing FDI inflows.

Effectiveness
The Bank Group’s efforts in championing the Maximizing Finance for
Development agenda and its private capital mobilization efforts show mixed
results – demonstration and replication effects at the intervention level did not
translate to country level effects even in systemic, large projects in
infrastructure or the financial sectors. When long-term investment decisions are
being made, the Bank Group’s additionality for investors was reported as risk
mitigating (navigating uncertain and contradictory regulatory regime) and
return seeking (high returns on investments and the preferred creditor status).

The Bank Group’s convening power and collaborative effort were seen as
effective among stakeholders for driving the private capital mobilization agenda.
Evidence from the CAS suggested that the Bank Group’s efforts to mobilize
private capital have crowded in some financing support from development
partners like the Inter-American Development Bank, but there is a lot of
untapped potential for private capital mobilization from other partners and
international financial institutions, especially in case of renewable energy
projects. Currently a coordination among these institutions is weak, and the
Bank Group should take the lead to leverage synergies and build on each other’s
comparative advantage.

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Appendix J
Synthesis of World Bank Group Country Cases

 Mongolia showed positive results from Bank Group intervention and

demonstrated itself as a proving ground for Bank Group innovation in Phase
1 of the mining intervention. The Bank Group country team’s view on Oyu
Tolgoi is that it is a learning environment. On one hand, a single project on
Oyu Tolgoi has enabled a climate where capital can be mobilized from
domestic sources and where new downstream sectors can also attract capital.
On the other, exports from Oyu Tolgoi generated demands for expansion
into infrastructure projects to strengthen Mongolia’s geographical position
as an economic corridor. Local currency financing gaps increasingly is an
opportunity for the Bank Group, as echoed by teams in Mongolia and across
Asia. Furthermore, IFC’s innovative Green Bond financing with XAC Bank is
a testimony that the Bank Group can leverage capital markets to mobilize
new forms of capital.

World Bank Treasury support for private capital mobilization showed

demonstration effects across various countries, especially with insurance-linked
securities and catastrophe bonds. For example; in terms of demonstration
effects, the Bank Group played a major role in promoting disaster and risk
financing and insurance activities in Mexico, which led to similar projects being
implemented in other countries. Working in close partnership with government
institutions, the World Bank was successful in supporting integration of disaster
risk within Mexico’s broader fiscal risk management strategy through MultiCat
bonds. The project, first implemented in 2009, overachieved its objective,
leading to the issuance of the second bond in 2017 and to demonstration effects
in other countries prone to disaster risk. IFC’s efforts in Mexico also had
demonstration effects at the market level, by strengthening investor confidence
in the newly opened up sectors.

 Similarly, Jordan’s transport sector witnessed a significant scale-up of

support owing to the success of initial private capital mobilization by the
Bank Group in a landmark transport project, the Queen Alia International
Airport. Through IFC’s various roles in the deal, the project was able to raise
$160 million through IFC’s syndication loan, $100 million through parallel

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Synthesis of World Bank Group Country Cases

financing from the Islamic Development Bank, and $304 million through
internal equity. The subsequent scale-up in 2013 was a result of IFC’s
syndicated loan of $160 million, the Islamic Development Bank’s
$100 million loan, and a total equity contribution of $485.3 million, resulting
in almost doubling of the commercial capital.

Areas of Improvement
A theme which is emphasized in most of the CPS documents is the need for
internal cooperation within the Bank Group to maximize finance for
development and promote private capital mobilization efforts. The case studies
highlighted the need to improve coordination, both internally and externally.
While the Bank Group tries to leverage synergies among its institutions to
achieve common development objectives. The Ghana case study highlighted that
more attention should be given to improved coordination between World Bank
and IFC programs, in critical sectors where there are natural complementarities.
In the first instance, efforts should be made to build on recent coordination in
the energy sector (for example, the Sankofa operation) to jointly develop a
program that better supports Ghana’s energy objectives through identifying
opportunities for coordinated action on sectoral policy and appropriate private
sector development efforts. Similarly, synergies should be exploited in the
agriculture sector, especially in sustainable agricultural technologies and
support for cultivation of nontraditional crops and agricultural exports.

The World Bank should continue catalytic activities including helping countries
create a strong macro environment to attract private capital, based on
stakeholder interviews. At the country level, developing solutions to crowd-in
domestic investors along with international investors will be instrumental in
mobilizing private capital for development. Increased attention to governance
and investment climate reforms to various sectors are essential for the next
stage of most country’s economic development. Areas of improvement that the
Bank Group can explore include developing solutions to bring onboard
commercial capital and domestic investors. Increased capital market

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Synthesis of World Bank Group Country Cases

development activities and supporting local private equity funds could help
address the low access to capital.

The World Bank should help client countries to develop a pipeline of bankable
projects, which will attract investors. Considering that investors have confidence
in the World Bank’s ability to maximize finance for development and provide
risk-mitigating support to navigate investments in various countries.

 The investment climate in Jordan is somewhat conducive to capitalizing on

investment opportunities, but there is a lack of consistency across sectors,
and uncertainty surrounds regulatory landscape and tax regime. This
inconsistency is also reflected in Bank Group operations, where despite the
identified priorities of the government of Jordan, uncertainty prevails and
there is no clear pipeline of projects to be implemented in the long-term
(even though the government has a pipeline of infrastructure projects,
developed after the London Investment Conference). As discussed before,
this inconsistency was also reflected in the Bank Group’s support to Jordan
during the period of the FY 12–15 CPF, given the evolving regional context.
Additionally, the banking sector is the most heavily taxed sector and suffers
from unpredictable changes in tax rates, which is an obstacle to the
promotion of longer-term financing models and have to prioritize short-
term consumer lending. The energy and water sectors enjoy sovereign
guarantees of fiscal responsibility from the government in case of single-
buyer state-owned off-takers, which make the sectors more attractive to
investors.

 In Bangladesh it was found that natural gas accounts for more than
60 percent of power generation, and its depleting supply is a risk identified
as a key inhibiting factor in the scale-up of power generation projects. This
presents opportunities for the Bank Group to explore and develop a pipeline
of projects in alternative power generation to reduce the country’s reliance
on natural gas. As of 2016, about 39 percent of Summit Corporation
Limited’s power plants ran on gas, and given the gas shortage in Bangladesh,
Summit Corporation Limited had been actively seeking to diversify its power

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Synthesis of World Bank Group Country Cases

generation portfolio into dual-fuel technology (which can operate on gas in

addition to heavy fuel oil) and heavy fuel oil engine plants. Further, the
government of Bangladesh is also working actively to augment gas supply via
the import of liquefied natural gas (LNG), for which onshore and offshore
terminals are being planned; and Summit is in an advantageous position to
get LNG allocation, given that it would play a key role in Petrobangla's
supply of LNG through its Floating Storage Regasification Unit LNG terminal
service. 2 IFC has started its engagement with Summit Group for its LNG
business line and has played a vital role in the overall partnership of Summit
with other LNG services groups, including United States–based Excelerate
Energy.

 In Zambia, all stakeholders engaged indicated that the Bank Group should
leverage its track record in developing a pipeline of bankable projects, which
would also attract more private investments.

Other important lessons drawn from reviewing CPS documents across various
countries include the importance of government and stakeholder ownership in
achieving CPS objectives. Many projects achieving a successful rating had
government ownership as a key element. Another factor is mapping the results
framework to measurable outcomes in CPS; Multi-Donor Budget Support has
been critical; sector operations need to incorporate multisectoral approaches;
regional projects need to be closely aligned; integrating Bank Group engagement
requires further effort; and decentralization of World Bank capacity is critical to
client needs.

 The Zambia case study indicated that to address the issues of access to credit
for midmarket companies, IFC could leverage its global expertise to support
Zambia-based private equity funds. This would allow for addressing the
funding gap, for catalyzing funds to strategic sectors, and for establishing

2 “Detailed Client Supervision, Summit Power International.” IFC, October 2019.

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Appendix J
Synthesis of World Bank Group Country Cases

partnerships with fund managers for possible co-investments. 3 Finally, the

country needs assistance in developing a pipeline of bankable projects.

On the downside, the Maximizing Finance for Development approach has not
clarified a role for the public sector while private sector capital is mobilized. The
Argentina case study indicates that the public sector’s role was central in
Argentina’s success. Furthermore, based on the Argentina Electricity Sector, the
public sector’s ole needs support beyond pricing and subsidies policy issues and
project support that IBRD has provided for more than 20 years. It needs support
to address issues at the sector level for (i) project pipeline development; (ii)
evaluation of risks; and (iii) coordination/regulation.

Scale Up
To scale up mobilization efforts in client countries the Bank Group should aim to
provide more technical assistance and analytical support for client countries.
This can be done in the areas of helping clients to create an enabling business
environment and improving macroeconomic conditions, which are necessary
steps to attract private capital. For example; Jordan’s ongoing challenges in
attracting FDI could diminish with Bank Group catalytic activities in areas of
investment climate and capital markets that can lead to private capital
mobilization. Again, macroeconomic challenges, like a high debt-GDP ratio
(almost 94 percent) for Jordan are not only indicative of slow economic growth
but also serve as deterrents for international investors. The World Bank’s
catalytic work through Treasury solutions (for example, debt management) and
development policy loans can act as potential risk mitigation solution in the
approach to mobilization.

Further collaboration between the Bank Group and other stakeholders and
development partners is essential in scaling up mobilization efforts. The Mexico
case study indicated that the Bank Group prioritized internal synergies and

3 In line with IFC’s strategy for investing in private equity funds.

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Synthesis of World Bank Group Country Cases

collaboration with other international financial institutions, notably with the

Inter-American Development Bank. However, the absence of proper evaluations
limits the extent to which internal collaboration can be regarded as successful.
Given the existing constraints to the amount of financing the Bank Group can
provide to an upper-middle-income country like Mexico, leveraging internal
synergies to crowd-in private capital is essential. Mexico could be a good
example where IBRD and IFC worked together, such as on drafting CPS, on
developing a common private sector strategy, and on providing advisory services
for public-private partnerships. However, given the absence of robust
evaluations, it is unclear to what extent it is possible to judge such
collaborations as exemplary. IFC was also successful in leveraging cofinancing
with development partners. Notably, it implemented nine projects with a
parallel loan component in FY08–19 in partnership with the Inter-American
Development Bank.

 In Zambia, the Bank Group’s catalytic work can drive additional mobilization
and provide opportunities for scaling up mobilization activities. The Bank
Group could provide continued assistance to Zambia by helping stabilize the
country’s macroeconomic environment, which would allow for unlocking
private sector investments. The country also needs strong liquidity and
capital market development activities. Finally, developing a pipeline of
bankable projects would also attract more private investments. Also, the
Bank Group could develop solutions to bring commercial capital on board
and domestic investors, particularly institutional investors. Pension funds
and insurance companies with long-term liabilities would be best placed to
invest in infrastructure projects. Moreover, the domestic private sector
suffers from low access to credit, which constrains its ability to contribute to
development projects and attract FDI. To address the issues of access to
credit for Zambian mid-market companies, IFC could inject funding into
Zambia-based private equity funds, which would serve as intermediaries.

 In Jordan, the Bank Group’s private capital mobilization efforts in energy

and transport were successful, as evidenced by demonstration effects and

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Synthesis of World Bank Group Country Cases

replication effects through the Tafila Wind Power Project, the country’s first
wind power plant. Initially providing $69 million of its own investment, IFC
was able to mobilize $60 million through its B loan to build the 117
megawatt (MW) plant. However, following Tafila, the government launched
the wider renewable program across the sector, focusing first on solar
photovoltaics. With IFC in the role of mandated lead arranger, not only did
the government receive a record number of proposals, they were also priced
with some of the most globally competitive tariffs then offered, ranging from
6 to 7 US cents per kilowatt-hour. The program subsequently saw the
successful financing program for eight solar projects, totaling over 150 MW
in production capacity, an unprecedented success in the renewable energy
sector in Jordan.

There exist many opportunities for the World Bank to scale up private capital
mobilization in the area of helping client countries achieve fiscal consolidation
and ensure debt sustainability. In recent years, the chronic fiscal deficits and
currency depreciation led to increasing debt and higher inflation in countries
like Ghana, Mozambique, and Zambia.

 Ghana possesses great potential for private capital mobilization to support

its development agenda as long as government ensures debt sustainability
and improves the macro environment. Ghana has the advantage of being a
preferred investment destination in West Africa. It will be useful for the
Bank Group to scale up its catalytic activities including creating an enabling
investment climate and business environment in Ghana.

 In Mozambique, increasing debt stock, lower investment, falling exports,

and decreasing confidence are key drivers of the slowdown in growth. The
country faced successive downgrades by credit ratings agencies as debt levels
increased, which have weakened investor confidence. 4 FDI recorded a

4 Mozambique’s rating was downgraded several times by Fitch, Moody’s, and S&P to CC, Caa3, and
CC, respectively, during 2016. The outlook on ratings by Moody’s and S&P remains negative.

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Synthesis of World Bank Group Country Cases

20 percent annual decline by end-2016. This decrease comes as a result of a

slowdown in investment in real estate, construction, and financial services.
These constraints present an opportunity for the World Bank to assist the
government with debt management interventions.

 Zambia’s challenging macroeconomic environment represents a major

constraint to attracting international private capital. The country is at high
risk of debt distress because of fiscal deficits caused by expensive external
borrowing, the depreciating kwacha, and declining copper prices (World
Bank 2019; IIF 2019). Creditworthiness of government agencies has been a
matter of concern to potential investors. The private sector fears that the
government may not be able to pay its debts. This fact poses major
impediments to attracting private investments and realizing public-private
partnerships in Zambia. In particular, Zambia’s state-owned utility company
ZESCO’s financial position and operational performance, and payment
arrears, currently hinder the new investments needed to bolster generating
capacity. The World Bank’s intervention and support in terms of providing
risk-mitigating guarantees and helping the country achieve fiscal
consolidation in this area has the potential to change the narrative and
provide comfort to investors.

Another important area for the World Bank to scale up private capital
mobilization is developing new and innovative products as in the case of
Mongolia and Bangladesh. Development partners recognize the World Bank’s
convening power and its ability to lead the private capital mobilization agenda
through its instruments and analytical and advisory services. This provides an
opportunity for the World Bank to explore and introduce new and innovative
products, which can be replicated by other development partners.

 Mongolia is demonstrating itself as a proving ground for Ban Group

innovation. The Bank Group country team’s view on Oyu Tolgoi is that it is a
learning environment. On one hand, a single project on Oyu Tolgoi has
enabled a climate where capital can be mobilized from domestic capital
sources and where capital can be mobilized into new downstream sectors.

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Synthesis of World Bank Group Country Cases

On the other, exports from Oyu Tolgoi generated demands for expansion
into infrastructure projects to strengthen Mongolia’s geographical position
as an economic corridor. Local currency financing gaps increasingly are an
opportunity for the Bank Group, as echoed by teams in Mongolia and across
Asia. Furthermore, IFC’s innovative Green Bond financing with XAC Bank is
a testimony that the Bank Group can leverage capital markets to mobilize
new forms of capital.

 In Bangladesh, MIGA mobilized more than $166 million for the power sector,
supporting projects generating over 1,200 MW of electricity, while IFC’s
mobilization support for the power sector resulted in over $754 million in debt
and equity mobilization. The most significant success story of the Bank
Group’s private capital mobilization engagement in Bangladesh is IFC’s client
Summit Group. IFC’s investment in the Group resulted in mobilization of
$113.5 million for the Bibiyana II project, including mobilization through a
development finance institution’s joint venture company, EMA Power. There
was evidence of positive demonstration effect from the Bank Group’s
engagement with Summit, which provided many lessons for the joint
IFC/MIGA project of Sirajgunj 414 MW dual fuel (gas and high-speed diesel)–
fired combined cycle power plant Unit 4 in Sirajganj. MIGA mobilized
$68.9 million through Breach of Contract cover for Sembcorp Utilities’ equity
and shareholder loan investments in the project in the amount of
$82.8 million for up to 20 years. Further, MIGA provided cover against the
risks of Expropriation, Transfer Restriction and inconvertibility, Breach of
Contract, and War and Civil Disturbance for Clifford Capital’s nonshareholder
loan investment in the amount of up to $180.0 million for 14 years.

Congruence within the 12 country cases is presented in table J.1.

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Synthesis of World Bank Group Country Cases

Table J.1. Congruence in Private Capital Mobilization Country Case Studies

Demonstratio Given the

n Effects/ Constraints Constraints Not Constraints,
Primary MFD / Follow-on Addressed Addressed or What Can
Sector/s with Upstream/ Mobilization by Current on Bank Group
Mobilization Type of Catalyzation / Upstream Private Capital Can Do
Country Region Activities Engagementa Linkb Catalyzationc Work Mobilizationd Differently?e

Albania ECA Power sector, Systematic DPL/PBG, Limited IBRD Contract Urgency in
macro reforms, support in power advisory guarantee enforcement and pipeline of
highways, de-risked regulatory capacity. projects,
financial sector investors in Capacity to develop Parallel
distribution projects and assess Investment
company. and manage fiscal Climate

Later IBRD costs. reforms

PBG
provided
Macro stability
further
(levels of public
support on
debt).
power sector
enabling
framework.

DPLs and
advisory
have

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Appendix J
Synthesis of World Bank Group Country Cases

Demonstratio Given the

n Effects/ Constraints Constraints Not Constraints,
Primary MFD / Follow-on Addressed Addressed or What Can
Sector/s with Upstream/ Mobilization by Current on Bank Group
Mobilization Type of Catalyzation / Upstream Private Capital Can Do
Country Region Activities Engagementa Linkb Catalyzationc Work Mobilizationd Differently?e
targeted
broader
investment
climate
reforms.

Argentina LAC Infrastructure – Joint Bank Group Policy Macroeconomi Operationaliz Macroeconomic Treasury
Energy support to two notes/dialogue c and ation of reforms Advisory, In
large programs: regulatory FODER, Sector investments CPF cycles,
PPP Advisory, reforms bidding (transmission avoid constant
World Bank impacting process for network), rotating sectors
guarantee, financial renewable
IFC/MIGA closure of energy
downstream existing deals

Banglade SAR Multisector Opportunistic Liquidity Programmatic

sh approach constraints, approach for
Competition among PPPs,
MDBs, G2G Innovative
initiatives

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Synthesis of World Bank Group Country Cases

Demonstratio Given the

n Effects/ Constraints Constraints Not Constraints,
Primary MFD / Follow-on Addressed Addressed or What Can
Sector/s with Upstream/ Mobilization by Current on Bank Group
Mobilization Type of Catalyzation / Upstream Private Capital Can Do
Country Region Activities Engagementa Linkb Catalyzationc Work Mobilizationd Differently?e
finance, and
Partnerships

Ghana AFR Multisector, Systematic DPL, policy None yet Sector Debt sustainability, Advisory,
focus on advice, and so enabling sector policy Partnerships
energy on. reforms reforms

Jordan MENA Infrastructure – Sustained sector Financial Several energy Financial Financial sector and Treasury
Energy program with viability projects spun sector capital market Advisory,
mobilization in funding, off (wind to development development South-South
infra over 10+ Energy and solar), mobilization,
years Water sector Transport Investor
focus sector orientation
developed around pipeline
of projects

Lebanon MENA Financial Opportunistic Policy dialogue Ongoing Financial Broad governance Selected pilot
Sector (IFC), approach and market dialogue in sector crisis challenges, transactions
Urban development many sectors focus corruption
transport, (need to check for example,
on DPLs) energy

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Appendix J
Synthesis of World Bank Group Country Cases

Demonstratio Given the

n Effects/ Constraints Constraints Not Constraints,
Primary MFD / Follow-on Addressed Addressed or What Can
Sector/s with Upstream/ Mobilization by Current on Bank Group
Mobilization Type of Catalyzation / Upstream Private Capital Can Do
Country Region Activities Engagementa Linkb Catalyzationc Work Mobilizationd Differently?e
Private sector
(World Bank)

Mexico LAC Financial Multisector Dialogue to Urgency in

Sector and develop pipeline of
Disaster Risk innovative projects
Management solutions

Mongolia EAP Infrastructure— Opportunistic – DPLs, technical Phase 2 of Oyu Mining tax Governance, Prioritize
Mining large scale assistance Tolgoi pending policy, investment climate Governance
mining supporting licensing and Reform
improvement alignment agenda
in governance with EITI

Public info
on EIAs
(above all
World Bank)

Investment
reform map
(IFC)

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Synthesis of World Bank Group Country Cases

Demonstratio Given the

n Effects/ Constraints Constraints Not Constraints,
Primary MFD / Follow-on Addressed Addressed or What Can
Sector/s with Upstream/ Mobilization by Current on Bank Group
Mobilization Type of Catalyzation / Upstream Private Capital Can Do
Country Region Activities Engagementa Linkb Catalyzationc Work Mobilizationd Differently?e

Mozambi AFR Multisector, Specific projects Upstream No evidence of Project Sector reforms, Opportunistic
que major project in rather than dialogue by follow-ons focused governance, debt support,
transport sectoral World Bank, rather than sustainability Regional
approach IFC (including sectoral projects
advisory) approach

Nigeria AFR Multisector Specific projects No evidence of Project Governance, debt Opportunistic
rather than follow-ons focused sustainability support,
sectoral rather than Urgency in
approach sectoral pipeline of
approach projects (local
and regional)

Panama LAC Infrastructure – Large projects Limited, has Metro–new None None Opportunistic
Energy and (for example, included infra financed support for
Transport Metro line 1), dialogue on by bilateral or investment
renewable PPP reforms, MDBs opportunities
energy power Potential in
transmission other areas
(infra)

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Synthesis of World Bank Group Country Cases

Demonstratio Given the

n Effects/ Constraints Constraints Not Constraints,
Primary MFD / Follow-on Addressed Addressed or What Can
Sector/s with Upstream/ Mobilization by Current on Bank Group
Mobilization Type of Catalyzation / Upstream Private Capital Can Do
Country Region Activities Engagementa Linkb Catalyzationc Work Mobilizationd Differently?e

Zambia AFR Infrastructure— Scaling solar Yes, two None Focus on capital Prioritize
Energy projects market reform agenda
development, Debt and avoid
sustainability and frequent
Governance rotation of
sectors in CPFs

Source: Independent Evaluation Group field missions and desk reviews.

Note: CPF = Country Partnership Framework; DPL = development policy loan; MFD = Maximizing Finance for Development; MDB = multilateral development bank; PPP =
public-private partnership. AFR = Sub-Saharan Africa; EAP = East Asia and Pacific; ECA = Europe and Central Asia; LAC = Latin America and Caribbean; MENA = Middle
East and North Africa.
a. For example, Joint, programmatic, opportunistic.
b. For example, policy dialogue, DPLs, loans, mobilization projects in area.
c. For example, Bank Group, MDBs, or other.
d. For example, macro, cross-cutting institutional for example, corruption, sector.
e. Feedback from stakeholders.

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Synthesis of World Bank Group Country Cases

Lessons Learned
Regarding the performance of the Bank Group, the Zambia Solar Project
highlighted that it was able to successfully leverage synergies working as one
team, but its high level of bureaucracy was noted as a disadvantage. It was noted
that IFC had a well-staffed team that provided consistent support to the client
and bidders. The World Bank and IFC also made sure that parties stick to the
plan, and the team was able to negotiate with the government to escalate the
issues if needed, which was important for the project to go through. Another
important aspect to highlight is that IFC and the World Bank worked as a single
team on this project, which can be regarded as success in terms of synergies
among respective institutions. However, the rather high level of bureaucracy on
the part of the Bank Group was noted as a disadvantage, as in a politically
volatile context like that of Zambia, time is of crucial importance.

More attention should be given to improved coordination between Bank and IFC
programs, in critical sectors where there are natural complementarities. In the
first instance, efforts should be made to build on recent coordination in the
energy sector (such as the Sankofa operation) to jointly develop a program that
better supports Ghana’s energy objectives through identifying opportunities for
coordinated action on sectoral policy and appropriate private sector
development efforts. Similarly, synergies should be exploited in the agriculture
sector, especially with respect to sustainable agricultural technologies, support
for cultivation of nontraditional crops and agricultural exports.

Other important lessons drawn from reviewing CPS documents include the
importance of government and stakeholder ownership in achieving CPS
objectives. Many projects achieving a successful rating had government
ownership as a key element. Another factor is mapping the results frame to
measurable outcomes in CPS; Multi-Donor Budget Support has been critical;
sector operations need to incorporate multisectoral approaches; regional
projects need to be closely aligned; integrating Bank Group engagement requires

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Synthesis of World Bank Group Country Cases

further effort; and decentralization of World Bank capacity is critical to client

needs.

Portfolio and Instruments

The Bank Group employed a range of instruments to support private capital
mobilization activities of client countries. This included debt, equity, syndicated
loans and parallel loans from IFC, and guarantees and technical assistance from
IBRD while MIGA provided guarantees.

In Albania, the Bank Group private capital mobilization interventions were

clearly designed to help the country address its fiscal deficit and manage the
effects of the Euro crisis. The IBRD guarantees were specifically targeted at
addressing public financial management—including interventions focused on
the power and electricity sector, which has historically placed a significant
amount of pressure on the country’s fiscal deficit. Energy sector work was
complemented by IFC advisory and investment interventions, which supported
private investments in hydropower plants. One MIGA guarantee also supported
the high-pressure processing sector while all others were structured to provide
relief on capital adequacy requirements in the financial sector—which would
allow for Albanian subsidiaries to continue lending productively, minimizing the
impact of regulatory reforms on borrowers.

The Bank Group’s support in Argentina came from various sources, such as: (i)
IFC support for front-end legal work that was necessary to run the auctions and
their investments in the crucial Round 1, which created “traction” for the
program; (ii) the newly designed World Bank (IBRD) Guarantee (as distinct from
the old-style partial risk guarantees) along with MIGA Guarantee, which was
particularly valuable to foreign equity investors; and (iii) World Bank-processing
of a sector operation. All these were necessary and complemented each other,
but none was enough by itself.

The World Bank supported private capital mobilization through two projects in
Jordan. The direct mobilization project was called Amman East Power Plant

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Synthesis of World Bank Group Country Cases

(P094306), implemented by the Energy and Extractives Global Practice; the

indirect mobilization project was called Jordan Innovative Startups Fund
(P161905), implemented the by Finance, Competitiveness and Innovation Global
Practice. The IBRD commitment for the Amman East power project was
$45 million, while the innovative startups project’s commitment from IBRD was
$50 million, with an additional $48 million mobilized indirectly through Jordan’s
private sector.

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Appendix K. Country-Led Reforms and
Approaches to Private Capital
Mobilization
This section examines linkages among the World Bank Group activities that
address the enabling environment at the sector or broader level and its efforts to
mobilize private capital. These points of link include the sequencing of
engagements, upstream interventions, and observed demonstration and
replication effects. The note draws on several recent Independent Evaluation
Group (IEG) evaluations in related areas, on a set of country case studies
undertaken for this evaluation, and on timelines for mobilization drawn from
other cases.

From many of the cases reviewed there is evidence that reforms to the enabling
environment benefited mobilization efforts. This includes advisory and
investment lending in the sector, and development policy operations, which
address sector and economy-level reforms. There is some evidence from other
IEG evaluations that reforms that address both sector and macro constraints are
more successful.

Opportunities to mobilize private capital also arise in unregulated or lightly

regulated environments and in the absence of extensive upstream reform efforts
by the Bank Group. As these arise, it is necessary to be able to respond flexibly
and quickly.

Several of the cases also point to the need for continued engagement on the
enabling environment, including after mobilization, because some critical
constraints were not addressed, or because some factors deteriorated. Adverse
macroeconomic trends can affect the contractual and regulatory arrangements
underpinning some mobilization approaches, and, more generally, sector
frameworks can deteriorate over time. Where there has been substantial
mobilization a sustained engagement might be needed to focus on the enabling
environment.

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to Private Capital Mobilization

The cases also show that Bank Group collaboration can facilitate mobilization,
though this takes different forms. Some mobilization has taken place through
joint projects among Bank Group institutions. In other cases, complementary
activities have helped mobilization. The constraints on Bank Group
collaboration have been relatively well diagnosed—in earlier IEG evaluations, for
example—and are yet to be fully addressed.

There is some evidence that efforts of the Bank Group, and other multilateral
development banks (MDBs) to mobilize private capital can lead to further private
sector investments without the support of the MDBs themselves; the scale of
these investments depends on the country context.

Evaluative data on joint Bank Group approaches at the sector level in each
country can be strengthened. Many project-level evaluations do not comment
substantively on upstream efforts or on Bank Group collaboration more
generally outside of joint projects.

Catalytic Activities and Mobilization

Project-level evaluations have very little commentary or analysis of activities
undertaken upstream to address the enabling environment, though the quality
of policies and institutions and their impact on the project are often covered. For
this evaluation, we have reviewed activities that are intended to have a catalytic
effect on the enabling environment as manifested in the country case studies
that were developed for this evaluation. In addition, we have reviewed several
case studies developed to illustrate the application of the cascade. Finally, we
have also reviewed relevant IEG evaluations of Bank Group work on the enabling
environment, including “Creating Markets” to Leverage the Private Sector for
Sustainable Development and Growth—An Evaluation of the World Bank Group’s
Experience and Maximizing the Impact of Development Policy Financing in IDA
Countries—A Stocktaking of Success Factors and Risks.

A review of the country cases provides a generalizable finding that typically

upstream activities have facilitated mobilization. These vary, however,
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to Private Capital Mobilization

depending on the circumstances. In some cases, the catalytic efforts were

focused on strengthening sector-enabling frameworks:

 In Jordan, upstream interventions shaped the creation of markets and a

strengthening of the financial situation of the utility, including a technical
assistance engagement to develop the wind power market, and prior actions
on power tariffs in development policy loans: there has been sustained
mobilization by the World Bank in the energy sector, including renewables.
Development policy operations (DPOs) also focused on macro and public
sector management issues.

 In Ghana, sector-enabling reforms were covered by prior actions for DPOs,

which focused on financial sustainability, and a sustained engagement at the
sector level. DPOs also helped introduce Extractive Industries Transparency
Initiative (EITI) standards into the industry

 In Mongolia, World Bank DPOs focused at the mining sector level on

introducing EITI standards, improving mining tax policy, and improving
public disclosure of environmental impact assessments.

In some cases, the timeline for the development of markets and the role of
extensive Bank Group efforts to develop the enabling environment can be
visualized. Figures L.1 and L.2 depict the timelines for several Bank Group
efforts to mobilize private investment:

 In Cameroon, parallel public investments and a DPO provided the enabling

environment for the Nachtigal hydroelectric power plant; earlier reforms,
including the passage of a revised electricity law, helped spur private
investment and mobilization in the sector

 In the Arab Republic of Egypt, reforms for the energy sector and the broader
economy were supported by DPOs, and these laid the foundation for
successful public-private partnerships (PPPs) and mobilization in the power
sector.

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to Private Capital Mobilization

 Examples of sustained upstream engagements, which led to mobilization

include the power and health sectors in Turkey and the power sector in
Kenya and Jordan.

Figure K.1. Linkages between Catalyzation and Mobilization in the Arab

Republic of Egypt

Source: Independent Evaluation Group.

Note:: DPF = development policy financing; EBRD = European Bank for Reconstruction and Development;
GoE = government of the Arab Republic of Egypt; EETC = Egyptian Electricity Transmission Company ; FiT =
feed-in tariff; MIGA = Multilateral Investment Guarantee Agency; MW = megawatt; TA = technical assistance.

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to Private Capital Mobilization

Figure K.2. Linkages between Catalyzation and Mobilization in the Power

Sector in Cameroon

Source: Independent Evaluation Group.

Note: AfDB = African Development Bank; EIB = European Investment Bank; IBRD = International Bank for
Reconstruction and Development; IDA = International Development Association; IFC = International Finance
Corporation; IPP = independent power project; MIGA = Multilateral Investment Guarantee Agency; WB =
World Bank.

At the same time, mobilization opportunities can arise in unregulated or lightly

regulated environments, or in projects, which are robust (for example, those
based on hard currency export revenues) in countries with otherwise weak
enabling environments. These examples include the following:

 Argentina, where earlier World Bank work had provided technical inputs to
shape the approach to renewable energy, but where a change in

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to Private Capital Mobilization

administration and approach presented an opportunity for Bank Group

mobilization. Where International Finance Corporation (IFC) Advisory was
able to assist the government in implementing its plans for renewable
energy auctions, and where the World Bank was able to provide a guarantee
to backstop government commitments under the renewable energy fund.

 Panama, where mobilization volumes were driven by specific large

transactions (for example, Panama Metro line 1), which needed relatively
little in the way of enabling environment reforms and where overall the
investment climate was favorable.

Resolving market constraints is often a difficult and long process, and actions to
strengthen the enabling environment need to be taken private capital has been
mobilized. Examples of such cases include the following:

 In Albania, a policy-based guarantee supporting the financial viability of the

power sector framework after the privatization of distribution companies,
and advisory engagements on generation privatization; and

 In Ghana, an energy sector reform technical assistance, which was approved

in 2018 to strengthen the enabling environment.

The country cases highlight some of the challenges of sustaining reforms, and on
occasion ensuring that all relevant constraints are addressed:

 In Argentina, transmission capacity is a substantial constraint on the

implementation of renewable energy;

 In Mongolia, the World Bank did undertake upstream work to enhance

transparency around mining revenues and rents, but this is still a politically
charged topic with potential to affect the mobilization activities undertaken;

 In Zambia, continued institutional weaknesses and a slower pace of sectoral

reform have limited the scaling-up of initial successes with Bank Group–
supported solar projects; and

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to Private Capital Mobilization

 Where public funding is available, private capital mobilization may have very
little replication effect – for example, in Panama, where the Multilateral
Investment Guarantee Agency (MIGA) successfully mobilized commercial
capital for the first lines, subsequent lines of the metro have been funded
through development finance investments; government-to-government
funding competition in Bangladesh also reduces the space for mobilization.

Two of the earlier IEG evaluations (“Creating Markets” and Development Policy
Financing in IDA) have noted that addressing both sector and broader reforms is
important to create an environment conducive to private sector investment. The
necessary features of such an environment include country governance capacity,
transparency, efficient and predictable public administration, and physical
infrastructure. Corruption, for example, could be an impediment to reforms of
state-owned enterprises and sectors. Investing in the latter to move forward
with market creation is important. Multisector operations that balance Equitable
Growth, Finance, and Institutions–related objectives with objectives related to
Human Development and Sustainable Development perform better, all else
being equal, than operations focused mainly on economic reforms and those
focused mainly on reforms led by line ministries.

These reviews also suggest that the diagnostic underpinnings of the upstream
reforms needed for mobilization and market creation need to be strengthened so
that they shape Bank Group and address both sector-specific and cross-sectoral
issues. IEG’s evaluations found that the Systematic Country Diagnostics (SCDs)
cover the private sector agenda inconsistently and that integrating the private
sector agenda adequately into Country Partnership Frameworks (CPFs) is still a
challenge. The new Country Private Sector Diagnostics, and other products such
as Infrasaps, can provide a picture of sector-specific and macro reforms that are
needed to mobilize private capital. These, however, have been recently
introduced and will need to be evaluated for their effectiveness at the
appropriate time, as will the impact of the new IFC upstream units.

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to Private Capital Mobilization

The evidence as to the benefits of collaboration with development partners on

reforms to the enabling environment is mixed. The “Creating Markets”
evaluation found that where the Bank Group coordinated well with other donors,
the results were positive. Partnerships with development agencies enhanced
strategy consensus and financial resources. However, another IEG evaluation
found that in International Development Association (IDA) countries,
development policy financing (DPF) with development partners using joint
policy assessment frameworks (JPAFs) have not been associated with better
outcomes than other DPF operations with otherwise similar characteristics.

Bank Group Collaboration to Mobilize Private

Capital
The cases examined show an important role for Bank Group collaboration, either
programmatic, where the Bank Group engages in complementary activities (for
example, DPOs to affect the enabling environment for the World Bank, and
mobilization for IFC and MIGA), and joint projects (such as in Nachtigal) where
the Bank Group institutions provide financial support to the same project. IEG
reviews and reports have addressed some of the constraints to more effective
collaboration, including the learning review of World Bank Group Joint Projects: A
Review of Two Decades of Experience Lessons and Implications from Evaluation and
the joint IEG-IFC report on joint implementation plans (JIPs).

The evaluation of joint projects found that they had higher transaction costs due
to more coordination, overlapping processes, and differing requirements. These
often led to delays in project completion, requiring extra project preparation,
appraisal, and intra- Bank Group coordination. Clients complained about having
to comply with two different sets of World Bank and IFC environmental and
social requirements. Clients also did not always understand the overlap and
complementarity of Bank Group products.

Though joint projects are not a large share of the total number of private capital
mobilization projects some of these constraints, particularly around alignment

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to Private Capital Mobilization

of incentives and budget. More generally, addressing these will be important to

strengthen Bank Group collaboration in presenting development solutions. As
part of the effort to implement Maximizing Finance for Development and the
cascade approach, a number of recent initiatives have been undertaken to
enhance collaboration among the different parts of the Bank Group and to focus
on the upstream including the Maximizing Finance for Development strategy for
the Mashreq, which provided joint World Bank, IFC, and MIGA oversight of a
common work program; and the Maximizing Finance for Development
accelerator, which built teams in identified areas for priority programs. These all
began to be implemented in 2018 and will need to be evaluated at the
appropriate time.

The IEG/IFC review of JIPs highlighted how JIPs can be helpful where Bank
Group institutions are involved in the same sector. The benefits of JIPs included
better information sharing, a reduction of overlaps and conflicts, better
sequencing of activities, and providing a more unified voice in external and
internal communications. Written plans of joint work facilitated oversight by
Bank Group senior management.

This evaluation has also shown the importance of an integrated Bank Group
engagement to mobilization, including addressing the upstream environment,
particularly where this is a sustained engagement. This goes beyond policy and
regulatory reforms to include physical investments that crowd in the private
sector. Examples include the following:

 The Colombia 4G roads program, where upstream institutional capacity

building and strengthening was undertaken by joint World Bank and IFC
teams, in addition to work on capital markets policies and regulations: this,
with the advisory project, helped the success of the engagement, which also
saw investment in projects by IFC and support by investors to MIGA.

 In India, the Rewa solar project, collaboration with the World Bank helped
de-risk many aspects of the solar project, resulting in strong private sector
interest and low prices.

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to Private Capital Mobilization

 In India also, The Clean Ganga project has demonstrated the benefits of
close World Bank–IFC engagement, with IFC structuring the project, and
financing being provided for part of the government payment for the project
under a World Bank loan.

At the same time, the Bank Group needs to be flexible and opportunistic. Sector
reforms can regress, broader governance issues and macroeconomic factors are
critical, and the openings for sector and economic reforms can be narrow. This
means that the Bank Group’s joint activities to support mobilization may need to
be recalibrated within CPFs, both to pull back where opportunities have
diminished and to engage where they have increased. Joint programs need to be
driven by the country directors and regional directors and should reflect the
realities of opportunities for collaboration.

The project pipeline is also a likely constraint to scaling up mobilization in the

medium term. Recognition of this had led to the creation of the Global
Infrastructure Facility, which is currently funding preparation of 20
infrastructure projects that are being implemented by the Bank Group and other
MDBs; in addition, other MDBs have invested in their own project preparation
funds. A continued emphasis on developing the project pipeline will be needed
alongside efforts to improve upstream and enabling environment. An increased
emphasis on the project pipeline sharpens the need for collaboration on
upstream activities that affect the enabling environment and the pursuit of
downstream activities.

Does Mobilization Catalyze Further

Investment? Yes, But Not Systematically
The team has reviewed cases and literature and has undertaken empirical work
to see whether there is evidence that mobilization by the MDBs and the World
Bank have catalytic effects; that is, whether they lead to an increase in
investment when the World Bank is not involved. There is some evidence of this
happening, but such effects are not systematic and need to be better understood.

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to Private Capital Mobilization

The PPP Advisory mobilization projects provide some anecdotal examples of

possible catalyzation. In the Clean Ganga national mission in India, the
structure developed by the World Bank Group is being replicated and scaled up
to include projects where the Bank Group is not now involved. Of the eight
projects under implementation (awarded and under construction) only three
involve PPP Advisory. In addition, the success of the Rewa solar park led to
efforts to replicate this although with mixed success. In Brazil, IFC’s advisory
engagement on airport concessions focused on Rio de Janeiro and Belo
Horizonte and brought in international operators for the first time.
Subsequently, two other projects (in Fortaleza and Porto Alegre) also saw
successful bids by international operators.

In other cases, it is not clear that there have been catalytic impacts:

 In the Philippines, the four projects that led to mobilization were

individually significant, but there do not seem to have been many
transactions in the same sectors after these – this may partly because the
national government moved away from its PPP program;

 In Albania, according to the Private Participation in Infrastructure database

there were no new energy projects following the advisory services on hydro
privatization besides IFC’s advisory on privatization of Kurum HPPs;

 In Brazil, though the success of the Goias distribution privatization was

expected to lead to six more privatizations; these have not moved forward so
far.

The portfolio review analysis done for this evaluation indicates that 75 percent
of the 270 IFC projects, which mobilized private capital and were evaluated did
not have any demonstration effects, as assessed by the task team, and that
14 percent had market-level demonstration effects.

Some empirical studies have supported findings that the involvement of MDBs
has broader benefits than for the projects they support and can catalyze future
investments.

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to Private Capital Mobilization

Broccilini et al. (2019) use loan-level data on syndicated lending to a large

sample of developing countries between 1993 and 2017 to estimate the
mobilization effects of MDBs, controlling for a large set of fixed effects. They
find evidence of positive and significant direct and indirect mobilization effects
of multilateral lending on the number of deals and on the total size of bank
inflows; the number of lending banks and the average maturity of syndicated
loans also increase after MDB lending. These effects last up to three years and
are not offset by a decline in bond financing. However, most of the effects are
concentrated in countries, which are more economically and financially
developed and have better credit ratings. By contrast, MDB lending is less
effective in low-income, less financially developed, and risky countries.

Marcelo and House (2016) investigate the relationship between multilateral

support and contract cancellation in long-term infrastructure public-private
partnerships. The results suggest that multilateral support has a positive effect
on the survival of long-term public-private partnership infrastructure contracts.
Whereas the observed data suggest that multilateral support has no effect on
cancellation rates, a quasi-experimental approach shows that the cancellation
rate for projects with multilateral support (6 percent) would have been about
48 percent higher without it. The authors speculate that possible causes of this
difference include policy advice, capacity building, oversight and risk mitigation,
project preparation assistance, assistance in mediation or renegotiation, and
other forms of support that are bundled into projects. The preferred creditor
status could also be having an effect.

Finally, for this evaluation, IEG undertook empirical work to assess the impact of
MDB financing on private infrastructure investments over the period 2007–18,
using the Private Participation in Infrastructure database
(https://ppi.worldbank.org/en/ppi). This found a positive relationship between
MDB participation and the number of projects and the volume of investments.
More work would be needed to establish a causal relationship, but the tentative
results suggest the possibility of benefits from MDB involvement outside of the
projects that are supported.

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Synthesis of Relevant Findings from Other IEG

Evaluations on Upstream
‘Creating Markets’ to Leverage the Private Sector for Sustainable Development and
Growth. An Evaluation of the World Bank Group’s Experience—Through 16 Case
Studies

This evaluation makes the following points of relevance to Bank Group efforts
around the mobilization of private capital:

 The enabling environment is essential for market creation efforts: good

sector regulations are not enough because country-level constraints, which
include country governance capacity, transparency, efficient and predictable
public administration, and physical infrastructure, may also need to be
addressed.

 Deficiencies in the regulatory and legal framework not only slow the
formation of markets, but can also jeopardize already-established markets.
Resolving such market constraints is often a difficult and long process and
poses a challenge to how the Bank Group structures its country-level
engagement programs.

 Bank Group success factors included the high-quality work of Bank Group
staff in structuring deals and providing advice and the physical presence of
Bank Group staff, their familiarity with local risks, and the quality of
engagement. Long-term policy dialogue and design flexibility can help
navigate political change, as does early and broad stakeholder involvement.

 Countries with limited experience in working with the private sector, such as
many low-income or countries with fragile and conflict-affected situations
are likely to face the greatest challenges in creating markets.

 Overall, the evidence points to the significance of the cascade approach as a

tool for implementing the Bank Group’s Maximizing Finance for
Development objectives, with its focus on clearing the obstacles that block

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to Private Capital Mobilization

private sector solutions and helping client countries create markets.

Nevertheless, a rigid implementation of the approach should be avoided.
Reform efforts can take a long time to succeed; meanwhile, opportunities
arise spontaneously in unregulated or lightly regulated environments. IEG
cases suggest that downstream activities that have a demonstration effect
can help policymakers shape the rules of the market.

 The Bank Group needs to have a better understanding of how to best

catalyze market creation by either investing directly or by working on the
enabling environment. This can include efforts to establish the necessary
regulatory and policy frameworks, and promote competition, foster
innovation, and build local capacity and skills at the government or firm
level. The Bank Group’s traditional advisory services and analytics work does
not provide a comprehensive enough view of country-level opportunities
and constraints. The SCDs do cover the private sector agenda, but
inconsistently. A 2017 IEG assessment of the CPF process pointed out that
integrating the private sector agenda adequately into CPFs is still a
challenge, possibly because their coverage of the private sector development
agenda is uneven.

 Where the Bank Group coordinated well with other donors, the results were
positive, suggesting the Bank Group should reinforce its practice of
coordinating with other development partners. Partnerships with
development agencies enhanced strategy consensus and financial resources.

Maximizing the Impact of Development Policy Financing in IDA Countries: A

Stocktaking of Success Factors and Risks

This evaluation makes the following points of relevance to the Bank Group’s
efforts in private capital mobilization:

 In countries with low capacity, successful operations have been associated

with efforts to secure high government ownership and with the use of

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simpler designs. In high-capacity contexts, ensuring the borrower’s

readiness to pursue complex structural reforms is still important for success.

 There is some evidence on the benefits of programmatic DPFs, but the added
benefits are higher when commitment amounts are lower as a share of
government expenditures.

 DPFs with development partners using joint policy assessment frameworks

have not been associated with better outcomes than other DPF operations
with otherwise similar characteristics. When the design is already strongly
relevant, the net added benefits of JPAFs may be negative. Lower reform
success in countries with strong donor coordination has been found when
government are experiencing reform fatigue or when changes in political
circumstances require bilateral negotiations.

 Multisector operations that balance Equitable Growth, Finance, and

Institutions–related objectives with objectives related to Human
Development and Sustainable Development perform better, all other things
being equal, than operations focused mainly on economic reforms and those
focused mainly on reforms led by line ministries. The increased success rates
of multisector operations are enhanced when design relevance is stronger.

Knowledge Flows
This evaluation makes points around collaboration, which are of relevance to
work on private capital mobilization, which may require collaboration across the
Bank Group and among different practices within it:

 Country director leadership is essential for collaboration on integrated

solutions. Interviews and country visits repeatedly show that collaboration
across Global Practices (GPs) depends on country directors, and that lending
operations tend to include adequate cross-GP collaboration only when
country directors and project leads insisted on it. Some Country
Management Units (CMUs) have set up platforms for cross-sector

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to Private Capital Mobilization

collaboration. CMU staff insist uniformly that the operating model

incentivizes GPs to embrace single-sector lending support more than
multisector approaches; they ascribe this behavior to the competition among
GPs to lead on lending. As a result, collaboration for integrated approaches
must be driven by country programs, that is, by country directors
specifically, who uniformly complained about high transaction costs. In
interviews, country directors often described the GPs as seeking to lead on
lending operations and unenthusiastic about cross-GP collaboration.

 Collaboration is strongest in initiatives with high visibility for senior

management. In prominent projects, GPs will be visible if they are involved
even if only in a supporting role. Second, prominent challenges with clear
goals and important consequences reduce organizational infighting. Third,
senior management is more likely to pay attention to these initiatives and
require collaborative integrated solutions.

Summary of IEG Review of Joint Bank Group

Approaches
World Bank Group Joint Projects: A Review of Two Decades of Experience Lessons
and Implications from Evaluation

This evaluation focused on projects that are explicitly joint (one or more Bank
Group entity providing financing or risk-bearing) as opposed to programmatic
approaches at the sectoral level. Joint projects are a minority of mobilization
approaches, but are nonetheless significant and some of the constraints
identified are likely to hinder broader joint approaches.

Some of the significant findings in the evaluation are the following:

 Standardization of World Bank Group documents could also accelerate joint

projects’ timelines and, for clients, minimize expensive legal fees. These
challenges emerged in addition to differing nondisclosure requirements and
other caveats negotiated among the Bank Group partners, especially private

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sector clients. Overall, intra- Bank Group coordination challenges delayed

project implementation and completion and, thus, the benefits of joint
projects.

 Inadequate explanation to the implementing agencies (about the pros and

cons of the various Bank Group instruments) hindered client understanding
about the suite of Bank Group products. Increased efforts to explain the
nuances of different Bank Group instruments and financing packages,
especially to government agencies involved, would go a long way to advance
clients’ understanding about the potential additionality of blended Bank
Group support.

 Joint projects entailed added transaction costs due to more coordination,

overlapping processes, and differing requirements. These required extra
project preparation, appraisal, and intra-World Bank Group coordination.
Clients complained about having to comply with two different sets of World
Bank and IFC environmental and social requirements. The World Bank
Group’s separate accountability mechanisms have dismayed clients and
some stakeholders, especially those involved in co-financed PPP projects. On
one occasion, both the World Bank Inspection Panel and IFC/MIGA
Compliance Adviser Ombudsman investigated separate complaints about the
same issue in a joint project.

 Differing business models, mandates, procedures, organizational cultures,

and mindsets within the World Bank Group have created disincentives,
magnified differences of approach, and spawned perceptions of conflicts of
interest..

 Different procedures, organizational cultures, and mindsets can entrench

practices that hinder collaboration. Operational Policy/Bank Policy 4.03 in
2012 was intended to relieve clients of the burden of complying with both
the World Bank Safeguards Policies and IFC Environmental and Social
Performance Standards in joint projects involving the two institutions.
However, the evaluation of joint projects did not find a co-financed joint

398
 Appendix K
Country-Led Reforms and Approaches
to Private Capital Mobilization

IFC–World Bank PPP project that applied IFC Environmental and Social
Performance Standards. Internal procedures (including templates in the
World Bank’s Operations Portal) have yet to be developed, and decision-
making rules in joint projects are not aligned. Unfamiliarity of World Bank
staff and managers with IFC’s performance standards also prevent its
adoption.

 The decision-making process of each participating World Bank Group

institution in a joint project remain separate from the others.

 Integrity due diligence processes are often conducted separately and not
aligned across the three World Bank Group institutions, though due
diligence information is shared eventually in some cases.

 Information sharing remains a big hurdle. Knowledge exchange falls short

among some joint project teams, partly because of different ranking of rights
in a project. Differing definitions of the “client” create diverging views about
contractual obligations and positions, including the levels of access to
information on the same project. For the World Bank, the client is the
government or the country. For the most part, IFC and MIGA clients are
private sector companies.

 Harmonizing and testing of a single evaluation framework or methodology

for Bank Group joint projects would enable deeper understanding of their
effectiveness and outcomes. Evaluative evidence, and lessons about how to
work as “One World Bank Group,” remain scarce. Because business models,
project timelines, and evaluation and sampling methodologies differ,
evaluation remains focused on each Bank Group institution separately.

 The value-proposition to clients of World Bank Group joint projects is not

fully known. Information relating to clients’ motivation for seeking World
Bank Group joint support could not be confirmed.

IEG/IFC Evaluation Experience with Bank Group Joint Implementation Plans

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Appendix K
Country-Led Reforms and Approaches
to Private Capital Mobilization

Though not a formal evaluation this report has some findings that can inform
joint Bank Group approaches that may be needed to mobilize private capital. JIPs
were developed in 2014 as part of a new country engagement model for
increasing collaboration among the Bank Group institutions. They have by and
large fallen out of use although some staff use some of these tools.

Some relevant findings of this report include the following:

 Maximizing Finance for Development and the cascade approach provide

overall direction and approaches for joint Bank Group approaches, but this
does not guarantee coordination.

 JIPs can be helpful where Bank Group institutions are involved in the same
sector. The benefits of JIPs are better information sharing, a reduction of
overlaps and conflicts, better sequencing of activities, and providing a more
unified voice in internal and external communications.

 Of the JIPs reviewed, not all were successfully implemented. The Georgia
energy JIP, for example, did not see its milestones met, possibly because
fundamental energy sector issues were not addressed.

 The additionality of JIPs is not completely clear; some staff interviewed for
this report felt that many or most projects would have been undertaken in
these countries anyway in the absence of JIPs. Other staff felt that the
information sharing and joint process helped these projects and thereby
added value.

• Different elements of the JIPs have greater utility. Written plans serve as
a bridge between the CPF and individual projects. Senior management
oversight is important and is needed in oversight of the joint programs of
work. Country and regional directors will be essential in identifying when
JIPs are needed.

400
Appendix L. Lessons of Experience from
IEG Micro Evaluations
This section captures the main lessons from Independent Evaluation Group
(IEG) micro evaluations related to World Bank Group approaches to private
capital mobilization. The following categories were used to code the
projects: Project Preparation and Design; Implementation and Supervision; Risk
Assessment; Enabling Environment; Financial Viability; Governance; Investors
Interest; Internal Collaboration; Client Commitment; Sponsor Capacity; Market
Comfort, Negotiating project terms with client, Accountability, Right Financial
Instrument, Standalone Assessment by Bank Group, Client Relationship
Management.

Based on the above coding the following lessons were identified:

 An adverse market change can be managed well by maintaining flexibility,

and by working closely with the company's shareholders and management
team to understand business issues early on and support business value
preservation. The conservative market assumption (including crude oil price,
coal prices, and market demand growth) should be used to forecast prices,
and market demand and supply dynamics. In the Neo Gas (2014) project, the
company incurred large debt-financed capital expenditures to expand off-
pipeline compressed natural gas distribution, but a sharp drop in oil prices
caused a sudden drop in the competitiveness of compressed natural gas. In
this changed market, certain financial covenants were amended. Rebalance
the company's capital structure by adjusting the financing mix and initiating
restructuring discussions to prevent liquidity issues and rebalance.
Even in the presence of an operating regulatory regime, supported by well-
structured contracts, dysfunctional sector dynamics can hamper the success
of a project. When faced with such sector-related systemic risks, a project
team should consider additional mechanisms in the transaction structure of
the project to further mitigate the risks related to the lack of financial
viability in the sector. The financial sustainability of Ghana's power sector
and the Volta River Authority Infrastructure Crisis Facility (2013) was

401
Appendix L
Lessons of Experience from IEG Micro Evaluations

highlighted at the time of Board approval, and the transaction team raised
payment risk as a key concern. Having tight covenants provides additional
comfort for IFC and B lenders; however, in structuring deals, the long-term
expansion prospects, especially those that are not shown in the financial
projections, should also be considered so that the company can seize
attractive new business opportunities like in Clearing Corporation of India II
(2007, India), where IFC and B lenders agreed to replace the debt limit with
financial covenants.

 A realistic assessment of the probability of project execution should be made

at approval: In InterEnergy (2017, Dominican Republic), the liquified natural
gas (LNG) gas conversion plan of Compañía de Electricidad de San Pedro de
Macorís ) seemed at the time to be imminent and would allow IFC to support
the diversification away from heavy fossil fuel toward cleaner LNG gas
generation. The government of the Dominican Republic, however, delayed
approval of the gas conversion plan after the decline in gas prices reduced
the attractiveness of the project. The project did not reach completion, and
generation was below target because of lower wind resource. Because of the
change in InterEnergy Holdings’ strategic plan, the investments yielded
lower than expected operating results. It still lacks an attractive pipeline and
did not meet the development goals.

 Thorough political assessment is needed: To save time in the creation of the

guarantee structure before the bid session, IFC can include a contractual
provision for the creation of such guarantee as a condition antecedent to the
contract signing. This structure obviously needs to be cautiously evaluated
and depends on the country and sector and can occur only after having
strong market signals that it would work. In Belo Horizonte Schools (2013)
the guarantee structure, created jointly by the municipality of Belo
Horizonte and IFC, required the creation of a backstop facility, which could
take more than the time frame expected for the contract signature in case
the bidding was successful. This timeline mismatch between the conclusion
of phase 2 and the creation of the guarantee structure could jeopardize the

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Lessons of Experience from IEG Micro Evaluations

whole project, because elections were approaching, and a different

government could take over and decide to drop it. In the Institute of
Business Management (2007, Pakistan), because of the political and
economic environment the local economy deteriorated. The Client chose to
expand only partially, cancel part of the loan, change the use of the facilities
constructed, and not enter a new market. Hence, see whether an expansion
can be broken down into two phases so that a portion can be canceled if the
worst-case scenario becomes the reality.

 In Kadikoy-Kartal-Kaynarca Metro Line (2011, Turkey), political decisions

can have a significant and sometimes long-lasting impact on project
performance, notably in infrastructure, because they might interfere with
the project’s operating environment. In addition, these political decisions
are more predictable in political risk insurance projects because private
investors would require their implementation prior to the investment, when
feasible, or would include them in the government’s contractual obligations.
This is unlikely to happen in the case of non-honoring of financial
obligations projects; therefore, these key decisions should be identified up
front at the underwriting stage. If political decisions are expected to be taken
during project implementation, they should be monitored accordingly.
Multilateral Investment Guarantee Agency (MIGA) should then leverage the
policy dialogue between the Bank Group and the sovereign or sub-sovereign
to address potential issues. This will maximize the (expected) development
impact and ensure the implementation of sound political decisions and
sector reforms.

Macroeconomic Impacts on Loans: It may be salient to pay attention to the

impact of currency volatility on the capitalization of the borrower, in addition to
the borrower's debt service capacity. It may be worthwhile to examine any
correlation between the macroeconomic environment and the expected pricing
strategies employed by IFC borrowers (that is, would steeper discounting be
required if disposable income is in a scenario that coincides with broader
macroeconomic events affecting the exchange rate?). The risks posed by the

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Appendix L
Lessons of Experience from IEG Micro Evaluations

mismatch between local currency earnings and US dollar–denominated debt of

the borrower may best be analyzed in the context of a cost-benefit analysis of
various foreign exchange hedging strategies. It may be helpful to refer the
borrowers to some providers of hedging services, particularly in times where
volatility is expected (as IFC does for insurance, for example). In Wings HAS
(2013) in Indonesia, additional equity unexpectedly had to be injected in 2015.

Repeat Clients: Risk sharing facility structures may be perceived as too complex
in the marketplace. IFC may have a better chance getting existing or previous
clients, who understand IFC's investment process, to sign up for these
structures. In the EBG Risk Sharing Facility (2009), the only bank that signed up
for the risk sharing facility under the micro, small, and medium enterprise
program was already a client of IFC. This client understood IFC's investment
process and was comfortable signing up. This is a clear indication that it is easier
to layer new projects onto existing clients. Because of the upfront fee, EBG was
committed to the project despite the delay in the ramping up period. The World
Bank expanded its small and medium enterprise lending business while deriving
comfort from the risk sharing facility structure, which promised to cover
50 percent of the credit risk. Similarly, MIGA’ ability to diversify its guarantees
portfolio based on host country is as important as repeat engagement with a
guarantee holder.

The disadvantage of repeat clients is that a disproportionate increase in business

with these clients raises concentration issues and may affect MIGA’s ability to
diversify client exposure. As in Shareholder Loan (Croatia 2013), MIGA could
develop and deepen business relationships with sponsors with well-developed
business plans and management systems and pay attention to providing high-
quality service to its existing customers. IEG agrees that MIGA benefits from its
business relationships with UniCredit and other repeat clients such as Raiffeisen
and KBC; however, diversification of clients is important.

Sponsor Capacity: Good sponsorship is essential for project success. In JICT

(2010, Indonesia), despite a construction delay, the company’s general
performance exceeded IFC’s expectation at appraisal. With its strong technical

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Lessons of Experience from IEG Micro Evaluations

capacity and cost-effective business model, the company was able to manage the
project cost within budget and recorded strong financial performance.

Good sponsor quality, with strong technical capacity, is fundamental to project

success. This factor, and a conservative approach on company’s performance,
can deliver results beyond expectation. In Cencosud Arg (2009), a guarantee
from a strong sponsor contributes to mobilize additional lending; the sponsor in
this case was a leading retailer in South America (headquartered in Chile), with
investment-grade status and a solid balance sheet. IFC recognized the value of a
strong guarantee. Without the guarantee, it would have been very difficult to
mobilize the B Loan, because the project would imply assuming full risk in
Argentina. The banks were not willing to lend in the country. Thanks to the
sponsor guarantee and IFC umbrella, IFC was able to mobilize $90 million from
B lenders. The lesson for future operations is that to mobilize additional
funding, IFC may need to search for additional security that can provide comfort
to B lenders. A strong guarantee is a good option, when feasible.

Right Financial Instrument: Policy-based guarantees are potentially a useful

instrument for supporting clients facing large external financing needs. As in
FYR Macedonia Public Expenditure (2013, North Macedonia), these guarantees,
when implemented in a challenging macrofiscal situation where there are large
financing needs, should incorporate a consistent macroeconomic framework
with necessary macro and fiscal actions for risk mitigation. The positive impact
of important public expenditure measures can be weakened if the program lacks
an overarching fiscal and debt framework.

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Appendix M. Analysis of Country Risk
Factors and Mobilization Approaches

Executive Summary
We analyzed financing instruments of three institutions—the International Bank
for Reconstruction and Development (IBRD) and International Development
Association (IDA); the International Finance Corporation (IFC) for both
investment services (IS) and advisory services (AS); and the Multilateral
Investment Guarantee Agency (MIGA)—against country indicators. The country
indicators analyzed were total debt service, ease of doing business score,
protecting minority rights, enforcing contracts, and regulatory quality.
Indicators range from low to high for total debt service and from weak to strong
for ease of doing business score, protecting minority rights, enforcing contracts,
and regulatory quality.

 The IBRD/IDA mobilization projects use investment project financing (IPF)

the maximum times as instrument for financing. Financing by IBRD falls as
we indicators for total debt service move from low to high, and as other
indicators move from weak to strong.

 The mobilization projects for MIGA use equity the maximum times as
instrument for financing. MIGA invests hugely in countries with weak ease
of doing business, protecting minority investor rights, and regulatory quality
scores.

 The mobilization projects for IFC-IS use B loans the maximum times as
instrument for financing. From analyzing portfolio data and lessons from
evaluated projects, we find that IFC-IS investments in projects are most
successful when the indicators are strongest. Exceptions occur when
enforcing contracts is weak; IFC additionalities can be used to explain high
investments. Asset Management Company components are increasingly
used as instruments of financing when scores for enforcing contracts,
protecting minority rights, and regulatory quality improve.

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Analysis of Country Risk Factors and
Mobilization Approaches

 IFC-AS projects, which are public-private partnership (PPP) mobilization

projects, are mapped along with World Bank guarantees. PPP mobilization is
high in countries where protecting minority investor rights is weak.

IBRD/IDA
We explored IBRD/IDA instrument used in countries with different levels of total
debt service (percent of exports of goods, services, and primary income). 1, 2 We
distribute the data in quartiles to analyze the same. The first quartile (Q1)
represents data that lie in the bottom 25 percent of data, quartile Q2 represents
50 percent of data that lie below the median, Q3 represents the quartile wherein
75 percent of the data lies below Q3, and quartile Q4 represents the 25 percent
of the data that lie above Q3.

The quartiles are not equidistant; that is, depending on data for countries the
distribution of quartiles will differ. The unit of analysis is projects for which
capital is mobilized. Hence, the count of specific instruments is project based.

In figure M.1, we plot a pivot table for instrument used for supporting
investment with different levels of debt service.

1 A similar approach is used for MIGA, IFC-IS, and IFC-AS.

2 We use this indicator because the data are most consistent for this indicator with respect to gross
debt (percent of GDP).

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Analysis of Country Risk Factors and
Mobilization Approaches

Figure M.1. Total Debt Service, by Quartile and Instrument

35
Count of Instruments

30 Weather Derivative
25 Product
20 PforR
15
10 Natural Catastrophe Bond
5
IPF
0
Q1 Q2 Q3 Q4
Quartile Distribution of Total Debt Service Data

Source: Independent Evaluation Group.

Note: IPF = investment project financing; PforR = Program-for-Results; Q = quartile.

In figure M.1 the IPF instrument is used most times by IBRD/IDA as an

instrument for investment by countries paying total debt service lying in
quartiles Q1, Q2, Q3, and Q4. The second-best instrument used is guarantees.

In table M.1 we give a detailed overview of size of quartiles and total number of
instruments used.

Table M.1. Size of Quartiles and Total Number of Instruments Used

(number)

Natural Weather
Catastrophe Derivative
Quartile Guarantees IPF Bond PforR Product Total
Q1 7 19 1 27

Q2 13 18 1 32

Q3 7 21 3 1 32

Q4 9 16 1 26

Total 36 74 3 3 1 117

Source: Independent Evaluation Group.

Note: IMF = International Monetary Fund; IPF = investment project financing; PforR = Program-for-Results.

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Mobilization Approaches

In figure M.2 we plot a pivot table for instrument used for investment with
different levels of ease of doing business.

Figure M.2. Ease of Doing Business Scores, by Quartile and Instrument

30

25
Count of Instruments

20
PforR
15 Natural Catastrophe Bond

10 IPF
Guarantees
5

0
Q1 Q2 Q3 Q4
Quartile Distribution of Ease of Doing Business Data

Source Independent Evaluation Group.

Note: IPF = investment project financing; PforR = Program-for-Results; Q = quartile.

In figure M.2 IPF is used the maximum times by IBRD/IDA as an instrument for
investment by countries with ease of doing business scores lying in quartiles Q1,
Q2, Q3, and Q4. The second-best instrument used is guarantees. The histograms
form an inverted U-shaped curve. As of the score for ease of doing business
increases and it gets easier to do business, the use of IPF increases till quartile
Q2 and then falls.

In table M.2 we give a detailed overview of size of quartiles and total number of
instruments used.

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Analysis of Country Risk Factors and
Mobilization Approaches

Table M.2. Size of Quartiles and Total Number of Instruments Used

(number)

Natural
Guarantee Catastrophe Pfor
Quartile s IPF Bond R Total
Q1 3 12 15

Q2 7 15 1 2 25

Q3 4 8 1 1 14

Q4 1 1 2

Total 15 36 2 3 56

Source: Independent Evaluation Group.

Note: DB = Doing Business; IPF = investment project financing; PforR = Program-for-Results.

In figure M.3 we plot a pivot table for instrument used for investment with
different levels of protecting minority investor rights.

Figure M.3. Quartile Distribution of Protecting Minority Rights Scores on

Instrument

40
35
Count of Instruments

30
25 PforR

20 Natural Catastrophe Bond

15 IPF
10 Guarantees
5
0
Q1 Q2 Q3 Q4
Quartile Distribution of Protecting Minority Rights Business Data

Source: Independent Evaluation Group.

Note: IPF = investment project financing; PforR = Program-for-Results.

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 Appendix M
Analysis of Country Risk Factors and
Mobilization Approaches

In figure M.3 the instrument IPF is used the maximum times by IBRD/IDA as an
instrument for investment by countries with protecting investor rights scores
lying in quartiles Q1, Q2, Q3, and Q4. The second-best instrument used is
guarantees. The maximum investment is in Q1 where the scores for protecting
minority investor rights are lowest. The lowest investment is in Q4 where the
scores of protecting minority investor rights is highest.

In table M.3 we give a detailed overview of size of quartiles and total number of
instruments used.

Table M.3. Size of Quartiles and Total Number of Instruments Used

Natural
Count of DB_Score of Catastro
Protect Minority Investor Guarant phe
Rights ees IPF Bond PforR Total
Q1 12 23 1 1 37

Q2 5 8 1 14

Q3 9 10 1 20

Q4 1 5 1 7

Total 27 46 2 3 78

Source: Independent Evaluation Group.

Note: DB = Doing Business; IPF = investment project financing; PforR = Program-for-Results.

In figure M.4 we plot a pivot table for instrument used for investment with
different levels for enforcing contracts.

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Appendix M
Analysis of Country Risk Factors and
Mobilization Approaches

Figure M.4. Quartile Distribution of Enforcing Contracts Scores on

Instrument

30
Count of Instruments

25
20 PforR
15
Natural Catastrophe Bond
10
IPF
5
Guarantees
0
Q1 Q2 Q3 Q4
Quartile Distribution of Enforcing Contracts Data

Source: Independent Evaluation Group.

Note: IPF = investment project financing; PforR = Program-for-Results.

In figure M.4 the instrument IPF is used the maximum times by IBRD/IDA as for
investment by countries with enforcing contracts scores lying in quartile-Q1.
The second-best instrument used is guarantees. In Q4, it is easiest to enforce
contracts where the IPF is used most by IBRD/IDA, and the second-best
instrument used is guarantees. In table M.4 we give a detailed overview of size of
quartiles and total number of instruments used.

Table M.4. Size of Quartiles and Total Number of Instruments Used

Natural
Count of DBScore Catastrophe
Enforcing Contracts Guarantees IPF Bond PforR Total
Q1 3 19 1 1 24

Q2 8 6 1 15

Q3 2 5 7

Q4 2 6 1 1 10

Total 15 36 2 3 56

Source: Independent Evaluation Group.

Note: DB = Doing Business; IPF = investment project financing; PforR = Program-for-Results.

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Analysis of Country Risk Factors and
Mobilization Approaches

In figure M.5 we plot a pivot table for instrument used for investment with
different levels of regulatory quality.

Figure M.5. Quartile Distribution of Regulatory Quality Scores on Instrument

45
40
Count of Instruments

Weather Derivative
35 Product
30 PforR
25
20
15
10
5
0
Q1 Q2 Q3 Q4
Quartile Distribution of Enforcing Contracts Data

Source: Independent Evaluation Group.

Note: DB = Doing Business; IPF = investment project financing; PforR = Program-for-Results.

In figure M5 the instrument IPF is used most by IBRD/IDA as an instrument for

investment by countries with regulatory quality scores lying in quartile Q1. The
second-best instrument used is guarantees. The investment steadily reduces as
we move along the x-axis, hence, as regulatory quality improves the investment
by IBRD/IDA is reduced.

In table M.5 we give a detailed overview of size of quartiles and total number of
instruments used.

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Analysis of Country Risk Factors and
Mobilization Approaches

Table M.5. Size of Quartiles and Total Number of Instruments Used

Count of
Regulatory Natural Weather
Quality_Quartile Catastrophe Derivativ
s Guarantees IPF Bond PforR e Product Total
Q1 11 31 42

Q2 8 24 2 1 35

Q3 11 16 1 1 29

Q4 9 12 2 1 24

Total 39 83 3 3 2 130

Source: Independent Evaluation Group.

Note: DB = Doing Business; IPF = investment project financing; PforR = Program-for-Results.

MIGA
We explore the MIGA instrument used in countries with different levels of total
debt service (percent of exports of goods, services, and primary income). 3 We
distribute the data in quartiles to analyze the same. The first quartile (Q1)
represents data that lie in the bottom 25 percent of data, quartile Q2 represents
50 percent of data that lie below the median, Q3 represents the quartile wherein
75 percent of the data lie below Q3. Quartile Q4 represents the 25 percent of the
data that lie above Q3. The quartiles are not equidistant; that is, depending on
data for countries paying debt service, the distribution of quartiles will differ.

In figure M.6 we plot a pivot table for instrument used for supporting investment
with different levels of total debt service.

3 We use this indicator because the data are most consistent for this indicator with respect to gross
debt (percent of GDP)

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Analysis of Country Risk Factors and
Mobilization Approaches

Figure M.6. Quartile Distribution of Total Debt Service Scores on Instrument

100
90
Count of Instruments

80 Shareholder Loan
70
60 Quasi-Equity
50
40 Non Shareholder Loan
30 Loan guarantee
20
10 Equity
0
Q1 Q2 Q3 Q4 Cross-Currency Swap

Quartile Distribution of Total Debt Service Data

Source: Independent Evaluation Group.

In figure M.6 the equity instrument is used the maximum times by MIGA as an
instrument for supporting investment with total debt service lying in quartiles
Q1, Q2, Q3, and Q4. The investment support by MIGA increases as we move
along the x-axis. The second-most used instrument for supporting investment is
Non-Shareholder Loan. In table M.6 we give a detailed overview of size of
quartiles and total number of instruments guaranteed.

Table M.6. Overview of Size of Quartiles and Total Number of Instruments

Guaranteed

Cross Non-
Count of -Curr- Loan Share- Share-
IMF_Total Debt ency Guar- holder Quasi- holder
Service_Quartile Swap Equity antee Loan Equity Loan Total
Q1 37 1 9 8 55

Q2 37 16 11 64

Q3 1 43 1 10 1 4 60

Q4 44 2 24 1 21 92

Total 1 161 4 59 2 44 271

Source: Independent Evaluation Group.

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Analysis of Country Risk Factors and
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In figure M.7 we plot a pivot table for instrument used with different levels of
ease of doing business scores.

Figure M.7. Quartile Distribution of Ease of Doing Business Scores on

Instrument

25
Count of Instruments

20
15 Shareholder Loan
10 Quasi-Equity
5 Non Shareholder Loan
0
Equity
Q1 Q2 Q3 Q4
Quartile Distribution of Ease of Doing business Data Cross-Currency Swap

Source: Independent Evaluation Group.

In figure M.7 the equity instrument is used most by MIGA by countries with ease
of doing business scores lying in quartiles Q1, Q2, Q3, and Q4. The second most
used instrument for supporting investment is Non-Shareholder Loan. Quasi-
equity is used in Q1 and Q2 where ease of doing business scores are weakest.

Caveat: The subset of Non-Shareholder Loan projects has not been included.

In table M.7 we give a detailed overview of size of quartiles and total number of
instruments used.

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Table M.7. Size of Quartiles and Total Number of Instruments Used

Count of Non-
DB_Score_Ease Cross- Share- Share-
of Doing Currency holder Quasi- holder
Business Swap Equity Loan Equity Loan Total
Q1 11 7 1 4 23

Q2 6 1 1 8

Q3 1 15 5 21

Q4 10 4 1 15

Total 1 42 17 2 5 67

Source: Independent Evaluation Group.

Note: DB = Doing Business; IPF = investment project financing; PforR = Program-for-Results.

In figure M.8 we plot a pivot table for instrument with different levels of
protecting minority investor rights.

Figure M.8. Quartile Distribution of Protecting Minority Investor Rights

Scores on Instrument

50
45
Count of Instruments

40 Shareholder Loan
35
30 Quasi-Equity
25
Non Shareholder Loan
20
15 Loan guarantee
10
5 Equity
0 Cross-Currency Swap
Q1 Q2 Q3 Q4
Quartile Distribution of Protecting Minority Investor Rights Data

Source: Independent Evaluation Group.

In figure M.8, the equity instrument is used the maximum times by MIGA with
ease of doing business scores lying in quartiles Q1, Q2, Q3, and Q4. The second-

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Appendix M
Analysis of Country Risk Factors and
Mobilization Approaches

most instrument for investment used is Non-Shareholder Loan. The investment

is highest in Q1 where the score for protecting minority investor rights is lowest.

In table M.8 we give a detailed overview of size of quartiles and total number of
instruments used.

Table M.8. Size of Quartiles and Total Number of Instruments Used

Count of
DB_Score
Protecting Cross- Non-
Investor Curr- Loan Share- Share-
Rights ency Guar- holder Quasi- holder
Quartiles Swap Equity antee Loan Equity Loan Total
Q1 30 1 9 1 3 44

Q2 15 10 1 2 28

Q3 9 1 1 11

Q4 1 14 11 2 28

Total 1 68 1 31 2 8 111

In figure M.9 we plot a pivot table for instrument used for investment with
different levels of Enforcement of Contracts.

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Analysis of Country Risk Factors and
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Figure M.9. Quartile Distribution of Enforcing Contracts Scores on

Instrument

35
30
Count of Instruments

25
Shareholder Loan
20
Quasi-Equity
15
Non Shareholder Loan
10
Equity
5
Cross-Currency Swap
0
Q1 Q2 Q3 Q4
Quartile Distribution of Enforcing Contracts Data

Source: Independent Evaluation Group.

In Q1 and Q2, enforcing contracts is weakest, and four instruments of financing

are used: Shareholder Loan, quasi-equity, Non-Shareholder Loan, and equity. In
Q4, where enforcing contracts is strongest only equity and Non-Shareholder
Loans are used.

Table M.9. Instrument Used for Investment

Count of DB_Score Non-

Enforcing Cross- Share- Share-
Contracts_Quartile Currenc holder Quasi- holder
s y Swap Equity Loan Equity Loan Total
Q1 7 5 1 2 15

Q2 7 3 1 1 12

Q3 1 20 6 2 29

Q4 8 3 11

Total 1 42 17 2 5 67

Source: Independent Evaluation Group.

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Analysis of Country Risk Factors and
Mobilization Approaches

In figure M.10 we plot a pivot table for instrument used for investment with
different levels of regulatory quality.

Figure M.10. Quartile Distribution of Regulatory Quality Scores on Instrument

120

100
Count of Instruments

Shareholder Loan
80
Quasi-Equity
60
Non Shareholder Loan
40 Loan guarantee
Equity
20
Cross-Currency Swap
0
Q1 Q2 Q3 Q4
Quartile Distribution of Regulatory Quality Data

Source: Independent Evaluation Group.

In figure M.10, the equity instrument is used most by MIGA for countries with
ease of doing business scores lying in quartiles Q1, Q2, Q3, and Q4. The second-
most used instrument for supporting investment is Non-Shareholder Loan. The
financing is maximum in Q1 where the regulatory quality is lowest. In Q1, four
instruments are used: Loan guarantee, quasi-equity, Shareholder Loan, and
equity. In Q4, Loan Guarantee is not used. In table M.10 we give a detailed
overview of size of quartiles and total number of instruments used.

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Table M.10. Size of Quartiles and Total Number of Instruments Used

Count of Cross- Non-

Regulatory Curr- Loan Share- Share-
Quality_Quartil ency Guar- holder Quasi- holder
es Swap Equity antee Loan Equity Loan Total
Q1 63 2 18 2 15 100

Q2 30 1 10 18 59

Q3 41 1 17 8 67

Q4 1 38 23 12 74

Total 1 172 4 68 2 53 300

Source: Independent Evaluation Group.

IFC-IS
In figure M.11 we plot a pivot table for instrument used for investment with
different levels of debt service.

Figure M.11. Quartile Distribution of Total Debt Service Scores on Instrument

Other
Mobilization by
Decision
300 Non-Agented
Parallel Loan
Count of Instruments

250
200 MCPP
150 Loan(HKMA)
100 MCPP Loan
50
0 IFC Initiatives
Q1 Q2 Q3 Q4

Guarantees

Quartile Distribution of Total Debt Service Data

Source: Independent Evaluation Group.

Note: AMC = Asset Management Company; HKMA = Hong Kong Monetary Authority; MCPP = Managed Co-
Lending Platform Program.

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Analysis of Country Risk Factors and
Mobilization Approaches

In figure M.11, the instrument “B loans” is used the maximum times by IFC-IS
for investment by countries where Total Debt Services lies in quartiles Q1, Q2,
Q3, and Q4. The Asset Management Company as instrument of financing
increases as we move along the x-axis. In Q1 and Q2, IFC initiatives are used
more as financing instruments. The traditional investment consists of: A loan
Participation, Agented Parallel Loans, B loan, Managed Co-Lending Platform
Program loan, Managed Co-Lending Platform Program loan (Hong Kong
Monetary Authority), Non-Agented Parallel Loan, and Other Mobilization by
Decision. We classify for each instrument separately we can see its impact. IFC
initiatives consist of Infrastructure Crisis Facility–Debt Pool, Distressed Asset
Recovery Program, Microfinance Enhancement Facility, Global Trade Liquidity
Program I and II and Critical Commodities Finance Program, Global Trade
Liquidity Program I and II and Critical Commodities Finance Program and Global
Warehouse Finance Program, and Microfinance Enhancement Facility. We
classify this as IFC initiatives. The Asset Management Company consists of IFC
Funds. We classify this as AMC. Guarantees consist of Structured Finance Non-
IFC. We classify this as guarantees.

In table M.11 we give a detailed overview of size of quartiles and total number of
instruments used.

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Table M.11. Size of Quartiles and Total Number of Instruments Used

Count of Non- Other

IMF_Total Agente Agente Mobili-
Debt A Loan d IFC MCPP d zation
Service Partici- Parallel Guarant Initiative MCPP Loan Parallel by
Quartile pation Loan AMC B Loan ees s Loan (HKMA) Loan Decision Total
Q1 3 10 28 9 6 4 12 3 75

Q2 4 2 21 42 10 12 10 1 27 12 141

Q3 1 6 23 52 7 3 8 2 63 7 172

Q4 7 34 112 12 2 14 1 47 10 239

Total 5 18 88 234 38 23 36 4 149 32 627

Source: Independent Evaluation Group.

Note: AMC = Asset Management Company; HKMA = Hong Kong Monetary Authority; MCPP = Managed Co-Lending Platform Program.

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Analysis of Country Risk Factors and
Mobilization Approaches

In figure M.12 we plot a pivot table for instrument used for investment with
different levels of ease of doing business.

Figure M.12. Quartile Distribution of Ease of Doing Business Scores on

Instrument

Other Mobilization by
Decision
80 Non-Agented Parallel Loan
70
Count of Instruments

60 MCPP Loan(HKMA)
50
40 MCPP Loan

30
IFC Initiatives
20
10
B Loan
0
Q1 Q2 Q3 Q4
AMC
Quartile Distribution of Ease of Doing Business Data

Source: Independent Evaluation Group.

Note: AMC = Asset Management Company; HKMA = Hong Kong Monetary Authority; MCPP = Managed Co-
Lending Platform Program. In Q1, out of eight instruments for financing seven are used; for the exception is
MCPP Loan (HKMA). In Q4, all eight instruments are used for financing. Use of Other Mobilization by Decision
and AMC as instruments has increased in Q4.

Caveats: The Guarantees instrument does not figure in because the Doing Business
scores for the specific approval year for the country are not available.

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Table M.12. Overview of Size of Quartiles and Instruments Used

Count of
DB_Score Non- Other
Ease of Agented MCPP Agented Mobilizati
Doing Parallel IFC MCPP Loan Parallel on by
Business Loan AMC B Loan Initiatives Loan (HKMA) Loan Decision Total
Q1 1 4 6 4 4 20 6 45

Q2 12 25 5 1 26 1 70

Q3 9 12 1 11 18 51

Q4 1 12 22 1 4 3 15 6 64

Total 2 37 65 6 24 4 79 13 230

Source: Independent Evaluation Group.

Note: AMC = Asset Management Company; HKMA = Hong Kong Monetary Authority; MCPP = Managed Co-Lending Platform Program.

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Analysis of Country Risk Factors and
Mobilization Approaches

In figure M.13 we plot a pivot table for instrument used for investment with
different levels of protecting minority investor rights.

Figure M.13.

120

100
Other Mobilization by
Count of Instruments

Decision
80 Non-Agented Parallel Loan

60 MCPP Loan(HKMA)

MCPP Loan
40
IFC Initiatives
20
B Loan
0
Q1 Q2 Q3 Q4
Quartile Distribution of Protecting Minority Investor Rights Data

Source: Independent Evaluation Group.

Note: AMC = Asset Management Company; HKMA = Hong Kong Monetary Authority; MCPP = Managed Co-
Lending Platform Program.

As we move along the x-axis from Q1 to Q4, the financing steadily increases. The
use of AMC has steadily increased. Other Mobilization by Decision has also
increased in Q4.

In table M.13 we give a detailed overview of size of quartiles and total number of
instruments used.

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Table M.13. Overview of Size of Quartiles and Total Number of Instruments Used

Count of Non- Other

DB_Score Agented MCPP Agented Mobilizati
Protecting Parallel IFC MCPP Loan Parallel on by
Inv Qua Loan AMC B Loan Initiatives Loan (HKMA) Loan Decision Total
Q1 3 8 20 3 15 29 7 85

Q2 2 13 26 3 10 1 33 1 89

Q3 1 17 51 6 1 11 3 90

Q4 2 22 22 1 8 2 34 9 100

Total 8 60 119 7 39 4 107 20 364

Source: Independent Evaluation Group.

427
Appendix M
Analysis of Country Risk Factors and
Mobilization Approaches

In figure M.14 we plot a pivot table for instrument used for investment with
different levels of enforcing contracts:

Figure M.14. Quartile Distribution of Enforcing Contracts Scores on

Instrument

Other Mobilization by
Decision

70 Non-Agented Parallel Loan

60
MCPP Loan(HKMA)
Count of Instruments

50
MCPP Loan
40

30 IFC Initiatives

20
B Loan
10
AMC
0
Q1 Q2 Q3 Q4
Agented Parallel Loan
Quartile Distribution of Enforcing Contracts Data

Source: Independent Evaluation Group.

Note: AMC = Asset Management Company; HKMA = Hong Kong Monetary Authority; MCPP = Managed Co-
Lending Platform Program.

As we move along the x-axis Enforcement of Contracts get stronger. In Q4, the
use of AMC as a financing instrument is high relative to Q1, Q2, and Q3. The use
of Non-Agented Parallel Loans as a financing instrument of steadily declines. In
Q4, the use of the Managed Co-Lending Platform Program (MCPP) Loan as
instrument of financing is high relative to Q1, Q2, and Q3.

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Analysis of Country Risk Factors and
Mobilization Approaches

Table M.14. Overview of Size of Quartile Scores and Total Number of Instruments Used

Count of
DB_Score Non- Other
Enforcing Agented MCPP Agented Mobilizati
Contracts Parallel IFC MCPP Loan Parallel on by
Quartile Loan AMC B Loan Initiatives Loan (HKMA) Loan Decision Total
Q1 11 7 2 3 38 2 63

Q2 3 7 3 5 2 21 5 46

Q3 1 4 29 1 5 1 13 2 56

Q4 1 19 22 11 1 7 4 65

Total 2 37 65 6 24 4 79 13 230

Source: Independent Evaluation Group.

Note: AMC = Asset Management Company; HKMA = Hong Kong Monetary Authority; MCPP = Managed Co-Lending Platform Program.

429
Appendix M
Analysis of Country Risk Factors and
Mobilization Approaches

In figure M.15 we plot a pivot table for instrument used for investment with
different levels of regulatory quality.

Figure M.15. Quartile Distribution of Regulatory Quality Scores on Instrument

250
Other Mobilization by
Decision
Non-Agented Parallel Loan
200
Count of Instruments

MCPP Loan(HKMA)
150
MCPP Loan

100 IFC Initiatives

Guarantees
50
B Loan

0 AMC
Q1 Q2 Q3 Q4
Quartile Distribution of Regulatory Quality Data

Source: Independent Evaluation Group.

Note: AMC = Asset Management Company; HKMA = Hong Kong Monetary Authority; MCPP = Managed Co-
Lending Platform Program.

As we move along the x-axis regulatory quality gets stronger. In Q4, the use of
AMC as instrument of financing is high relative to Q1, Q2, and Q3. The use of
MCPP Loan as instrument of financing declines as we move from Q1 to Q4.

In table M.15 we give a detailed overview of size of quartiles and total number of
instruments used.

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Table M.15. Size of Quartiles and Total Number of Instruments Used

Non- Other
Count of Agente Agente Mobiliz
Regulatory A Loan d IFC MCPP d ation by
Quality_ Particip Parallel Guarant Initiativ MCPP Loan Parallel Decisio
Quartiles ation Loan AMC B Loan ees es Loan (HKMA) Loan n Total
Q1 2 15 45 4 7 12 49 10 144

Q2 5 4 26 80 13 8 12 2 38 3 191

Q3 8 27 60 16 5 9 2 29 8 164

Q4 7 28 90 11 7 5 38 10 196

Total 5 21 96 275 44 27 38 4 154 31 695

Source: Independent Evaluation Group.

Note: AMC = Asset Management Company; HKMA = Hong Kong Monetary Authority; MCPP = Managed Co-Lending Platform Program.

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Analysis of Country Risk Factors and
Mobilization Approaches

IFC-AS
We map IFC-AS–PPP mobilization with World Bank guarantees. In figure M.16
we plot a pivot table for PPP Advisory Projects used with different levels of total
debt service.

Figure M.16. Quartile Distribution of IMF Debt Service on PPP Mobilization

25
Count of Instruments

20

15
PPP Mobilization
10
Guarantees
5

0
Q1 Q2 Q3 Q4
Quartile distribution of IMF Debt Service data
Source: Independent Evaluation Group.
Note: AMC = Asset Management Company; HKMA = Hong Kong Monetary Authority; IMF = International
Monetary Fund; MCPP = Managed Co-Lending Platform Program.

The ratio of PPP mobilization and guarantees is continuously increasing till Q3;
it falls in Q4. In table M.16 we give a detailed overview of size of quartiles and
total number of instruments used.

Table M.16. Overview of Size of Quartiles and Total Number of Instruments

Used

Count of IMF_Total Debt PPP

Service_Quartile Guarantees Mobilization Total
Q1 7 1 8

Q2 13 9 22

Q3 7 12 19

Q4 9 11 20

Total 36 33 69

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Analysis of Country Risk Factors and
Mobilization Approaches

Source: Independent Evaluation Group.

Note: AMC = Asset Management Company; HKMA = Hong Kong Monetary Authority; IMF = International
Monetary Fund; MCPP = Managed Co-Lending Platform Program.

In figure M.17 we plot a pivot table for PPP Advisory Projects used with different
levels of ease of doing business:

Figure M.17. Quartile Distribution of Ease of Doing Business Scores on PPP

Mobilization
Count of Instruments

PPP Mobilization
Guarantees

Quartile distribution of Ease of Doing Business data

Source: Independent Evaluation Group.

As we move along the x-axis, the PPP mobilization steadily increases and then
falls, forming an inverted U-shaped curve. In table M.17 we give a detailed
overview of size of quartiles and total number of instruments used.

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Table M.17. Size of Quartiles and Total Number of Instruments Used

Count of DB_Score_Ease of PPP

Doing Business Guarantees Mobilization Total
Q1 4 2 6

Q2 3 6 9

Q3 4 8 12

Q4 4 3 7

Total 15 19 34

Source: Independent Evaluation Group.

In figure M.18 we plot a pivot table for PPP Advisory Projects used with different
levels of protecting minority investor rights.

Figure M.18. Quartile Distribution of Protecting Minority Investor Rights on

PPP Mobilization

25

20
Count of Instruments

15
PPP Mobilization
10
Guarantees

0
Q1 Q2 Q3 Q4

Quartile distribution of Protecting Minority Investor Rights data

Source: Independent Evaluation Group.

In Q1, the PPP Advisory Projects are the highest where the score for protecting
minority investor rights is lowest. In table M.18 we give a detailed overview of
size of quartiles and total number of instruments used.

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Analysis of Country Risk Factors and
Mobilization Approaches

Table M.18. Size of Quartiles and Total Number of Instruments Used

Count of
DB_Score
Protecting
Investor Quartile Guarantees PPP Mobilization Total
Q1 11 9 20

Q2 6 2 8

Q3 6 5 11

Q4 4 8 12

Total 27 24 51

Source: Independent Evaluation Group.

In figure M.19 we plot a pivot table for PPP Advisory Projects used with different
levels of enforcing contracts.

Figure M.19. Quartile Distribution of Enforcing Contracts on PPP Mobilization

14

12
Count of Instruments

10

8
PPP Mobilization
6
Guarantees
4

0
Q1 Q2 Q3 Q4

Quartile distribution of Enforcing Contracts data

Source: Independent Evaluation Group.

In Q4, the ratio of PPP Advisory Projects to guarantees is the highest. In

table M.19 we give a detailed overview of size of quartiles and total number of
instruments used.

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Mobilization Approaches

Table M.19. Size of Quartiles and Total Number of Instruments Used

Count of DB_Score Enforcing

Contracts_Quartile Guarantees PPP Mobilization Total
Q1 5 5

Q2 7 6 13

Q3 6 1 7

Q4 2 7 9

Total 15 19 34

Source: Independent Evaluation Group.

In figure M.20 we plot a pivot table for PPP Advisory Projects used with different
levels of regulatory quality.

Figure M.20. Quartile Distribution of Regulatory Quality on PPP Mobilization

30

25
Count of Instruments

20

15 PPP Mobilization
Guarantees
10

0
Q1 Q2 Q3 Q4
Quartile distribution of Regulatory Quality data

Source: Independent Evaluation Group.

As we move along the x-axis the PPP mobilization steadily increases and then
falls, forming an inverted U-shaped curve.

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Analysis of Country Risk Factors and
Mobilization Approaches

Table M.20. Size of Quartiles and Total Number of Interventions

Count of Regulatory PPP

Quality_Quartiles Guarantees Mobilization Total
Q1 11 5 16

Q2 8 12 20

Q3 11 13 24

Q4 9 4 13

Total 39 34 73

Source: Independent Evaluation Group.

437
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