Catalyzing Local Solutions to Global Challenges: The Framework for Financial Incentives (FFI)

As the World Bank Group evolves to become a stronger, more efficient and impactful institution, greater financing capacity and innovation will be essential. Recognizing this, the Bank is transforming its financial model, while seeking additional resources from donors, the private sector, and other development partners.

The new Framework for Financial Incentives (FFI), a keystone of this ambitious agenda, is a major initiative that aims to incentivize collective action on critical global challenges. It is also the first holistic framework among multilateral development banks to provide dedicated financing for projects with cross-border benefits.

Approved in April 2024, the FFI introduces a new way of incentivizing International Bank for Reconstruction and Development (IBRD) clients to tackle Global Challenges with cross-border impacts, or externalities ("GC+E projects").  More efficient water use in countries that share rivers and water tables, reduction in pollution, and stronger infectious disease control are just a few examples of these externalities. 

The FFI is a framework that, on one hand, creates incentives for contributors and donors to provide additional resources to IBRD and, on the other hand, offers a suite of incentives for IBRD clients to undertake these GC+E projects at scale.

Incentives for clients: The financial incentive package for IBRD clients includes targeted, transparent, and visible volume and tenor incentives at regular IBRD terms, and price incentives that reduce the cost of financing for clients to invest in GC+E projects.

Incentives for non-concessional contributions: Shareholder contributions to new balance sheet optimization (BSO) financial instruments that IBRD can leverage – portfolio guarantees and hybrid capital – can be directed to the new Global Solutions Accelerator Platform (GSAP) within IBRD. Due to the powerful leveraging effect of IBRD’s balance sheet, these contributions can be leveraged to produce 5 to 6.5 times more lending capacity (at regular IBRD terms) over 7 years to finance GC+E projects. The ability to leverage these contributions, combined with the focus on achieving impact creates a strong value proposition for shareholders to direct financing to IBRD through the GSAP.

Incentives for concessional contributions: The new Livable Planet Fund (LPF) will be established to provide grant financing needed for the price incentives under the FFI. This umbrella trust fund is the first fund exclusively providing incentives for Middle Income Countries to address global challenges that have a cross-border impact.

Why Create a Framework for Financial Incentives?

When investing in GC+E projects, countries generate cross-border benefits, which the global community can incentivize. Financial incentives are helpful in changing the cost-benefit analysis for investments with cross border impacts, where the domestic cost-benefit ratio of projects is different from the global cost-benefit ratio.

The FFI focuses specifically on providing clients with incentives to invest in projects that are expected to produce benefits beyond the borders of just one country, either by mitigating a negative cross-border externality or producing a positive one. By bringing together the need for additional IBRD lending capacity with creating the right incentives for clients to undertake these projects at scale, the FFI represents an important step toward making the Bank’s financial model fit for ending poverty on a livable planet.

Read "Banking for a better world," a blog about the FFI from World Bank Vice Presidents Aki Nishio and Ed Mountfield.