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The World Bank Group’s Approach to the Mobilization of Private Capital for Development

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. Official 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 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 Infrastructure Facility, and loans, credits, and technical assistance to improve the policy and enabling environment as well as public investments that complement 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 mobilization includes third-party funding from both private and public sources (including other multilateral development banks, development finance institutions, 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 coordinated 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.

off–balance sheet Typically, World Bank Group lending and advisory 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 Corporation 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). Multilateral 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 commitments in a year. The International Bank for Reconstruction and Development, 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 development 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.)

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.)