Risk-Sharing Facility

World Bank and IFC risk-sharing guarantees help share the risk of losses on portfolios of eligible loans or other assets. Through these agreements, the World Bank Group reimburses a portion of principal losses incurred by originators like banks or corporations beyond an agreed-upon first-loss threshold. The guarantees consist of the structures below. 

IFC Risk Sharing Facilities (RSFs)

These are agreements between IFC and originators like banks or financial institutions, where IFC reimburses a portion of principal losses incurred on portfolios of eligible assets as per an agreed risk-sharing formula. The assets must meet pre-defined eligibility criteria set at the outset. RSFs enable originators and IFC to partner in growing new business lines or expanding into target markets, sometimes collaborating with third-party sponsors. 

Beyond risk sharing, IFC can provide advisory services to strengthen originators' capabilities in asset origination, monitoring, and servicing across various sectors like SMEs, agribusiness, energy efficiency, and more. While typically covering newly originated assets, RSFs may also extend coverage to existing portfolios predating the facility. They are suited for originators seeking credit risk protection without funding needs. However, IFC can couple an RSF with a loan if both credit protection and funding are required, accelerating portfolio growth. 

RSFs prove valuable when introducing new products or tapping into new consumer/business segments lacking performance data, helping originators build track records. Their structuring allows flexibility based on originator and third-party needs, enabling benefits like improved risk management, portfolio diversification, and preparation for future securitizations. 

World Bank Project-Based Payment Guarantee for Risk-Sharing Facilities For Public Sector Projects

These RSFs are designed to encourage local currency lending to small- and medium-size sub-projects in priority sectors or programs. Our direct payment guarantee for RSFs partially capitalizes the RSF and covers financial obligations under its credit enhancement products. The supported RSFs are those implemented by a government-backed FI that offers credit enhancement products to a pool of eligible local retail lenders to encourage them to lend to projects in priority sectors that lack access to affordable local currency commercial finance due to real or perceived risks: market demand, technology, credit, etc. Examples are sectors supported by RSFs include new climate technologies (e.g., e-mobility, rooftop solar, battery storage, etc.), affordable housing, women-owned businesses, and small businesses.    

World Bank guarantees are financial tools to leverage commercial financing for development purposes while optimizing the use of scarce public resources. The World Bank deploys its guarantees at the request of a member country. In exchange for the World Bank offering a guarantee, the member country requesting the guarantee provides a sovereign counter-guarantee to indemnify the World Bank if the guarantee is ever drawn (Indemnity Agreement). The World Bank only provides guarantees that backstop the risk of non-performance by governments or public entities for commercial financiers and, to the extent necessary, mobilize private capital to support public and private sector programs and projects.  As with any other guarantee, World Bank guarantees do not inherently reduce the risk of government non-performance. Instead, they shift the financial responsibility for the risk cover to the World Bank as a guarantor. The World Bank then transfers this financial responsibility to the Government through the Indemnity Agreement if that risk ever materializes.