World Bank removes loan fees to make borrowing more accessible for vulnerable countries

The World Bank removes several loan fees to help vulnerable countries borrow more affordably, expanding its financial capacity to address global challenges.

 

 

[dropcap]T[/dropcap]he World Bank has announced a significant reform aimed at reducing borrowing costs for vulnerable countries by removing several fees associated with loans.

This move is part of the bank’s broader efforts to expand its financial capacity to support nations facing urgent global challenges, including climate change, inequality, and economic instability.

 

Also read: World Bank approves $1.57bn in loans for Nigeria’s health and climate resilience

 

In a statement shared through its official X handle on Tuesday, the World Bank revealed that it had eliminated the prepayment premium on loans from the International Bank for Reconstruction and Development (IBRD).

Additionally, the bank introduced a grace period for commitment fees on undisbursed balances and extended its lowest pricing to small, vulnerable states.

“These measures are designed to ease financial pressure on nations that need development financing the most,” the World Bank stated.

“We are working hard to make it easier for countries to borrow and to repay their loans more easily by removing some fees on IBRD loans.”

This initiative aims to make borrowing more affordable and accessible, particularly for nations that face significant economic and environmental challenges.

The reform aligns with the World Bank’s vision of becoming a “better, more efficient, and bigger” institution capable of addressing overlapping global crises, such as climate change and poverty.

As part of its ongoing financial reforms, the World Bank aims to increase its lending capacity by $150 billion over the next decade.

These reforms are being supported through innovative financial instruments, leveraging shareholder support, and optimising available capital. Importantly, these changes will not compromise the institution’s Triple-A credit rating.

One key element of these reforms is the reduction of the IBRD’s equity-to-loans ratio from 20% to 18%, which is expected to unlock an additional $70 billion in lending capacity over the next ten years.

Additionally, the bank has secured $10 billion through bilateral guarantees and $1 billion via a guarantee from the Asian Infrastructure Investment Bank.

“These adjustments reflect our commitment to scaling up resources while maintaining financial stability,” the World Bank explained.

The financial institution acknowledged the enormity of the challenges it faces in addressing global crises.

It highlighted the trillions of dollars needed annually to combat climate change, support fragile states, and promote digital inclusion, while recognising that governments and multilateral institutions alone cannot meet these financial demands.

To address this gap, the World Bank has introduced a Framework for Financial Incentives (FFI), which aims to encourage investments in global challenges such as biodiversity, water security, and energy access.

Approved in April 2024, the FFI also launched the Global Solutions Accelerator Platform and the Livable Planet Fund, with Japan making the first contribution.

“The FFI is the first comprehensive framework among multilateral development banks to incentivise financing for projects with global benefits,” the World Bank noted in its statement.

The bank is also developing innovative financial tools to attract private sector investment in emerging markets. These include outcome bonds, catastrophe bonds, and climate-resilient debt clauses, which offer flexible terms for borrowers during natural disasters.

Notable examples of these innovative instruments include the Wildlife Conservation Bond, which funded Black Rhino conservation in South Africa, and the plastic waste reduction-linked bond, which supported recycling projects in Ghana and Indonesia.

By focusing on innovative financing solutions and expanding lending capacity, the World Bank is finding new ways to channel private investment into emerging markets, helping to overcome barriers to sustainable development and addressing the pressing challenges of our time.