The World Bank has announced the removal of several loan fees to make borrowing more affordable for vulnerable countries. This initiative is part of the institution’s broader strategy to expand financial capacity and tackle pressing global issues such as climate change, inequality, and economic fragility.
Through a link shared on its official X (formerly Twitter) handle on Tuesday, the bank detailed significant reforms, including the elimination of the prepayment premium on International Bank for Reconstruction and Development (IBRD) loans. Additionally, it introduced a grace period for commitment fees on undisbursed balances and extended its lowest pricing structure to small, vulnerable states.
“The bank is working hard to make it easier for countries to borrow and to pay back their loans more easily by removing some fees on IBRD loans,” the World Bank stated.
These reforms aim to alleviate financial burdens on nations that require development financing the most. “These measures are designed to make borrowing easier and more affordable for countries facing significant challenges,” the institution added.
The changes are part of the World Bank’s vision to build a “better, more efficient, and bigger” institution capable of addressing overlapping global crises. This reform package includes plans to boost lending capacity by $150 billion over the next decade through innovative financial instruments, shareholder support, and optimized capital usage.
The bank assured that its measures would not compromise its Triple-A credit rating. Notably, the equity-to-loans ratio of the IBRD has been adjusted from 20% to 18%, unlocking an additional $70 billion in lending over 10 years. Furthermore, $10 billion has been secured through bilateral guarantees, and $1 billion was unlocked via support from the Asian Infrastructure Investment Bank.
“The adjustments to our capital framework reflect our commitment to scaling up resources while maintaining financial stability,” the bank emphasized.
The reforms come at a time when trillions of dollars are required annually to address global challenges, including combating climate change, supporting fragile states, and promoting digital inclusion. The bank acknowledged, however, that governments and multilateral institutions cannot meet these demands alone.
To bridge this gap, the World Bank has introduced a Framework for Financial Incentives (FFI), which encourages investment in global challenges such as biodiversity, water security, energy access, and pandemic prevention. Approved in April 2024, the FFI has already launched key initiatives such as the Global Solutions Accelerator Platform and the Livable Planet Fund, with Japan making the first pledge.
“The FFI is the first comprehensive framework among multilateral development banks to incentivize financing for projects with global benefits,” the bank noted.
The World Bank is also developing new financial instruments to attract private sector investment in sustainable development. These include outcome bonds, catastrophe bonds, and climate-resilient debt clauses, which offer borrowers flexible terms during natural disasters.
One standout example is the Wildlife Conservation Bond, which directed private financing toward Black Rhino conservation in South Africa. Another innovation, the plastic waste reduction-linked bond, has mobilized funds for recycling projects in Ghana and Indonesia.
“We are finding new ways to channel private investment into emerging markets and address barriers to sustainable development,” the bank stated.
The World Bank’s reforms aim to strengthen its financial capacity and encourage global collaboration in addressing urgent challenges. By reducing borrowing costs and introducing innovative financing models, the institution is positioning itself as a pivotal player in fostering sustainable development and resilience worldwide.
