Continued improvements to the design and use of trust funds are essential to create a better, stronger World Bank Group as envisioned in the Forward Look. IDA18 introduced innovations that ensure IDA remains “fit for purpose” by strengthening its capacity to support our poorest members, including by doing more in fragile environments and by leveraging the private sector. Capital adequacy discussions are underway to explore options to strengthen our ability to increase our impact for our clients. Similarly, we are working to ensure that trust funds remain a strong pillar of World Bank Group resources in support of its twin goals and the 2030 agenda.
World Bank Trust Funds
Trust funds, including Financial Intermediary Funds (FIFs), are an important source of development finance and partnership, providing support for global public goods, fragile and conflict-affected states, disaster prevention and relief, global partnerships, knowledge and innovation. Trust funds complement IDA and IBRD and account for 10 percent of Bank disbursements to our clients (17 percent in the case of IDA countries). Nearly 50 percent of all trust fund disbursements go to fragile states. Finally, trust funds are essential to the knowledge agenda, financing roughly two-thirds of all World Bank Advisory Services and Analytics.
Previous trust fund reforms over the past 15 years have delivered solid fiduciary controls and have improved integration of trust funds into the Bank’s operational and administrative processes. However most trust funds are still very small, with 10 percent of trust funds accounting for more than 75 percent of the total value of the Bank’s trust fund portfolio. These 10 percent of large funds show a clear link to high priorities such as fragile states (for example Afghanistan, Liberia), global themes (for example gender, climate change) and support to achievement of the SDGs (for example water, energy). This leaves a long tail of smaller, typically highly customized trust funds. While many have provided vital support for innovation and knowledge, fragmentation makes a clear link to priorities challenging and increases transaction costs – for fundraising, trust fund establishment, governance, and reporting.
Within this backdrop, trust fund reforms aim at strengthening the link between funding and strategic priorities and at improving efficiencies. To achieve this, we envision a future trust fund portfolio structured around fewer, larger “umbrella” programs[1] that could include multiple “associated” trust funds, with a strong focus on results and lower transaction costs through coordinated and streamlined governance and reporting. They will provide an opportunity to elevate the dialogue with our partners around shared priorities and mutually desirable outcomes. All Global Practices and Regions would establish a limited (but not centrally mandated) number of these programs to support their highest priorities. These programs will channel the majority of trust fund resources. In addition, activities that do not fit in these programs would be supported with simpler and nimbler trust funds with fully standardized features (governance, reporting, results). These new instruments will be designed with a view to further strengthen the integration of their funding into the World Bank’s strategy, business planning, budgeting and staffing processes, and to ensure that we remain highly responsive to our partner’s needs and priorities, including providing visibility.
The Bank is engaging all constituents to implement these reforms in an iterative process. Crucially, the roll-out of the new instruments will start with a pilot phase to be launched in the second half of 2018, which will enable a few GPs and Regions to test the principles underpinning them. Lessons from these pilots and feedback from our partners and from our clients will be reflected in the final design of the programs and standard trust funds, before they are generalized Bank-wide in FY 2019. In parallel, the Bank is developing a series of internal efficiency measures to improve our processes and systems, which will be implemented starting mid-2018.
IFC Trust Funds
IFC uses its global knowledge and expertise to tackle development challenges, unlock private investment, and create markets and opportunities where they are needed most. To help deliver on the new IFC 3.0 strategy, IFC leverages partnerships with key development partners to address market failures and incubate new approaches through advisory services and concessional lending (blended finance). Trust funds provide a critical source of financing for IFC advisory services, which work with governments to improve conditions that will attract private capital (structuring PPPs; building capital markets; implementing reforms) and with companies and financial institutions to help the private sector grow (adopting good practices and standards to improve governance, increase productivity, and environmental sustainability; accessing new markets or financing; and attracting partners). Trust funds for blended finance help lower the risk of investment and allow IFC to invest in projects that are not feasible solely on a commercial basis. Through trust funds, IFC collaborates with more than 30 governments and 20 foundations, corporations, multilateral and institutional development partners.
IFC has been reviewing its own trust funds in the context of IFC 3.0 and Maximizing Finance for Development. IFC reforms aim at strengthening the alignment of trust funds with strategic priorities, better integrating trust funds into budgeting, planning, and portfolio management processes, increasing efficiencies of trust fund management, streamlining reporting to partners, and ensuring strategic and efficient allocation of various funding sources (bilateral partner funds, IDA private sector window, capital markets advisory window, and IFC’s own budget). IFC and the Bank are also working to improve how both organizations collaborate on addressing development issues through the Cascade / Maximizing Finance for Development approach by ensuring that joint projects are supported by trust funds easily accessible by both institutions.
Financial Intermediary Funds
Finally, the Bank is also reviewing its approach to FIFs (such as the Global Environment Fund, the Global Agriculture and Food Security Program or the Global Partnership for Education). FIFs can be an important instrument for issue advocacy and partnerships, supporting collective action by building on the comparative advantages of multiple implementing entities and facilitating coordination. At the same time, the number of FIFs has grown substantially in recent years and continues to evolve, raising governance and strategic risks for the Bank and the overall aid architecture. Building on its more than two decades of experience with FIFs, the Bank will document lessons learned to highlight the “value proposition” of this unique partnership mechanism, ensure that best practices inform the design of FIFs, and improve risk management along the entire lifecycle.
[1] Final name to be determined