CASE STUDY

IPF-DDO: World Bank’s Innovative Solution Provides aSafety Net for Projects and Institutions.
Investment Project Financing (IPF)with a Deferred Drawdown Option(DDO) is a credit line that provides
timely access to funds for a projector a public institution to ensure thecontinuity of operations.
Governments around the world areprioritizing risk management
Economic crises or natural disasters can lead to severe
and long-lasting impacts on a country's income andpoverty levels. This can result in the loss of valuable
physical and human resources and undo the country’s
progress toward development.
Governments have begun implementing measures toenhance their economy's resilience to shocks. One suchmeasure is the implementation of pre-approved loans,which are established before a crisis occurs and can beaccessed when needed. These instruments, called
contingent credit lines, can provide much-needed
liquidity during the most critical phase of the crisis.

An IPF with a DDO feature can help
protect projects or institutions
The World Bank supports clients in managing financial
risk via contingent credit lines (see the reverse page for a
full range of products). IPF-DDOs can be helpful forclients to shock-proof specific projects or specific public
institutions’ funds.
Like an insurance policy, the IPF-DDO allows borrowers
to immediately access the entire financing amount for
specific, pre-defined expenditures for projects or
institutions (such as covering the increased cost ofhydropower generation) when a pre-defined trigger ismet (national declaration of drought conditions).
The IPF-DDO is not a standard WB lending instrument
and is approved on a stand-alone basis. Treasury’s
Financial Products & Client Solutions team can support
Operations staff to obtain Management approval andhelp clients to understand the financial terms of the IPFDDO.

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IPF-DDO Key FeaturesDrawdown• Up to 100% immediate drawdown
possible during the drawdown periodPricing• Same lending rate as regular IPF loans,but set at drawdown• Average repayment maturity calculated
from loan effectiveness• Tailored repayment schedule for eachdrawdown

Fees andMaturity• One-time 25 bps front-end fee• 50 bps standby fee on undrawn balance• Fast-disbursing operation for FY23.

Possible uses of IPF-DDOs• Mitigating impacts of shocks to the banking system.
Backstops the reserves of a Bank Deposit Guarantee
Fund(4) to protect depositors’ cash from bank failures.
• Mitigating impacts of weather shocks. Backstops anenergy stabilization fund, financing specific payments
to cover increased electricity generation costs in case ofa decrease in hydropower generation due to drought.
• Supporting disaster preparedness. Backstops anational disaster risk finance or risk pooling fund,financing specific insurance payouts from the fund if a
disaster hits and the fund’s resources are depleted.
• Contingent financing for future positive events.
Provides a contingent credit line for an anticipatedpositive event, for example, for anticipated investment
expenditures if a sustainability target is reached.
• Green transition financing. Unlocks commercial
financing through a financial intermediary for green
transition through a risk-sharing program to cover thepotential loss and partially mitigate the credit risk
exposure of the participating financial institution.

CASE STUDY
How does the IPF-DDO differ from other contingent financing options?
The World Bank offers a range of contingent financing instruments, such as the Cat-DDO, DPF-DDO, and IPF Project-Based Guarantee.
Cat-DDO (1)DPF-DDO (2)IPF-DDO (3)Financinguse

Finances all expenditures throughgeneral budget support addressing
shocks related to natural disasters
and health emergencies.

Finances all expenditures throughgeneral budget support.

Approval
criteria

The borrower must have anadequate macroeconomic policy
framework and a satisfactory
disaster risk management programin place.
The Cat DDO has a prespecifieddrawdown trigger, typically themember country’s declaration of astate of emergency or a specificparametric trigger.
Unknown at the time of Board
approval and dependent upon thetrigger. Sound macro framework
required at approval and renewal,
but not for drawdown.
Three years; may be renewed up to
four times (IBRD) or once (IDA).

Adequate macroeconomic frameworkand satisfactory program
implementation.

Trigger

Disburseme
ntExpectation
Duration

Finances earmarked investment
project expenditures, with financing
available to be drawn down upon
the occurrence of a prespecifiedtrigger event.
Standard IPF approvalconsiderations, following IPF policy,directives, and guidance.

For a DPF DDO, the drawdown isavailable upon the country’s request.
It is an immediate source of liquidity
to respond to economic shocks orother fiscal needs.
Drawdown is possible at any time
during the three-year period.

Pre-specified triggers established
for the particular project; can be a
specific parametric trigger, adefined market event or contractual
obligation, or another trigger.
Unknown at the time of Board
approval and dependent upon thetrigger/event occurring.

Three years; may be renewed once
for an additional three years as set
out in the Letter of Development
Policy and adequate macroeconomic
framework.

Expected project length of up to fiveyears, in line with standard IPF
project duration. [May be extended
for up to three years for a
maximum total of eight years]

IPF Project-Based
Guarantee
Backstops
government
obligations to theprivate sector.
Standard IPF approvalconsiderations,following IPF policy,directives, andguidance.
Call on the Guaranteeby the Private Sectoras defined by theLegal Agreement.
Unknown at the timeof Board approval andmay be called by theprivate sector.
Duration depends onthe Terms andConditions of theGuarantee – e.g., 1020 years.

Cat-DDO Development Policy Loan (DPL) with a Catastrophe Deferred Drawdown Option
DPF-DDO Development Policy Financing (DPF) with a Deferred Drawdown Option(3)
IPF-DDO Investment Project Financing (IPF) with a Deferred Drawdown Option(4)
On December 19, 2022, the World Bank Board of Directors approved a $452 million Investment Project Financing (IPF) with a Deferred Drawdown Option (DDO) for the“Institutional Strengthening and Financial Safety Net Resilience Project (P171039)”.
(1)(2)

Contact: Miguel Navarro-Martin, Manager, Financial Products & Client Solutions, The World Bank Treasury
 mnavarromartin@worldbank.org  +1 (202) 458 4722
1225 Connecticut Avenue NW, Washington, D.C., 20433, U.S.A.