CASE STUDY

A World Bank Facility makes funding affordablefor countries hosting refugees
The Global Concessional Financing Facility(GCFF) funds projects for refugees in middleincome countries. The World Bank Treasury
helped create the Facility’s financial
framework that provides a low-cost andstreamlined financial and administrative
solution for all stakeholders.

Background

When countries get a sudden influx of refugees, theystruggle to expand their infrastructure and social
services to accommodate the new population. However,mobilizing financing for such expansions is not easy for
middle-income countries (MICs), as they don't haveaccess to concessional loans reserved for the poorestnations.
To assist MICs financially through such crises, theinternational donor community and MultilateralDevelopment Banks (MDBs) typically provide low-costfinancing by establishing trust funds. These trust funds
lower the cost of borrowing by using donor grants
alongside MDB loans.
Yet, this trust fund option had several drawbacks to theobjectives set by stakeholders. (i) The cost ofadministering trust funds, as high as 4 percent, reduces
the net funds available for the project. (ii) The separate
disbursement of grants and loans prevents true-blendingof financial resources and creates accounting challenges.
Another option would be for the donor to give bilateral
grants to the beneficiary directly. But this increases costs
for the donor, as it requires the donor to oversee theimplementation process in the beneficiary country.
In 2016, in partnership with four other MDBs, the WorldBank established the GCFF as a low-cost, straightforward,
and robust solution for lending to MICs that hostrefugees.

1To determine the amount of donor contributions for a project, each MDB
starts by calculating the ‘concessionality spread.’ This spread is the difference
between a fixed market reference rate and the variable spread of the MDB (for18–20-year Average Repayment Maturity), minus the IDA (InternationalDevelopment Association) rate. The concessionality amount for a given loan iscalculated by applying the concessionally spread on the MDB loan amount. This

Photo Credit: GCFF

GCFF Financial Objectives•••

Provide the lowest possible cost to all stakeholders
while accommodating donor and MDB constraints
Achieve a streamlined, robust, and equitablefinancial structure with a single flow of funds throughone financial institution (for both grant and loan in
one single disbursement)
Adapt to market conditions and the changing
financial landscapeFinancial Solution

GCFF provides financing at the lowest possible cost to
the beneficiary. The donor grant received by the GCFF
is used to bring the regular pricing level of the MDB down
to the concessional level (the lowest possible financialcost) for that particular beneficiary. To that end, the GCFF
uses a unique formula for defining the concessionality
in the funding amount. 1The low-cost loan is treated just like any other loan of thepartnering MDB. For example, in the case of the IBRD, thebeneficiary can fully customize the terms and conditions
in line with any other IBRD Flexible Loan.

result is capped at the maximum percentage of concessionality—it cannot behigher than the IDA concessionality percentage. The spread is calculated every
quarter by the World Bank Treasury. The formula accommodates concessionalloans in addition to the grants in line with the lending policies and legal
requirements of each donor country.

CASE STUDYWorld Bank Treasury's Role

Figure 1: The donor grants are used to bring the MDBs' regular pricing
levels down to concessional levels, using a Concessionality Formula.

As an additional cost-saving, GCFF's structure reduces
the administrative cost by leveraging the MDB
employees to manage the GCFF, who only allocate hourly
charges as needed (administrative costs for GCFF are 1.5
percent on average as opposed to 4 percent for trust
funds). As a result, a more significant percentage of thedonor funds is devoted to supporting the project rather
than its administration.
GCFF lowers the operational cost for the donors as
MDBs integrate GCFF projects into their own loan
operations with the same oversight procedures. Thiseliminates the need for the donors to have ground
operations for managing fund disbursement andmonitoring the project.
GCFF achieves a single flow of funds.
Unlike the trust fund mechanisms, under the GCFF, theMDB simultaneously disburses both the loan and grantamount. The simultaneous disbursement reducestransaction and monitoring costs since GCFF grants are
truly blended with the MDB loans, benefitting from thesame MDB infrastructure.
GCFF adapts to changing financial landscape.
In 2021, the GCFF was extended for five more years (GCFFII). Its dynamic financial framework allows it to expand tocover more fragile and conflict regions and welcome
more MDBs and donors. The financial formula wasadjusted to transition away from LIBOR to new reference
rates. Also, the formula was made more equitable toaccommodate for shorter maturity terms.

• The Treasury team spearheaded the development andapproval of GCFF's financial framework. This required
close collaboration and knowledge sharing withinternal stakeholders, such as the World Bank Group
Finance and Accounting (WFA), Fragility, Conflict &Violence General Practice, and Legal Vice Presidency,
Development Finance, country teams; as well as
external stakeholders such as the donors, partnerMDBs and numerous institutions of the benefitting
countries (incl. governments, central banks, stateowned enterprises).
• The team created and improved a unique formula for
calculating the concessionality and revised the formulain line with the changing financial landscape andlessons learned.
• The team established an innovative mechanism (i) toreceive concessional loans in addition to the grants and(ii) to make room for the lending policies and legal
requirements of each donor country.
• The team provided just-in-time support for thegovernments and the partner-MDBs for each project.
Since 2016, the team has supported GCFF
concessionality calculations for 20 projects, leveraging
more than USD 5.5 billion in concessional financing
from different MDBs through USD 750 million of GCFF
financing.

Outcome

Extended to 2026, the GCFF continues to help MICs infragile and conflict regions to borrow at concessional
levels. On May 9, 2022, Moldova joined the ranks ofprevious beneficiaries: Colombia, Ecuador, Jordan, andLebanon. The financial framework is appropriately
dynamic to accommodate qualifying beneficiaries due tothe recent refugee crisis in Europe.
Given the straightforward, robust, and equitablestructure of GCFF, the Inter-American Development Bank
joined the five original MDBs. Following the success ofGCFF, other facilities, such as the Global Public Goods
Window, the International Finance Facility for Education(IFFed), and the Global Risk Financing Facility, have beenmodeled after the same financial framework asestablished by the World Bank Treasury team.

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.