World Bank approves catastrophe loan facility
WASHINGTON, March 4 (Reuters) - The World Bank on Tuesday approved a catastrophe lending facility designed to give developing countries access to emergency funds in the event of a natural disaster such as hurricane or earthquake.
The Catastrophe Risk Deferred Drawdown Option will offer middle-income countries struck by a natural disaster immediate funding of up to $500 million once a state of emergency is declared.
Countries may qualify for the loan facility if they have a hazard risk management program that is monitored by the World Bank.
World Bank President Robert Zoellick said the facility was an example of how the institution could design products that are useful to middle-income countries.
"These financial product enhancements reflect the World Bank Group's commitment to using creative ways to expand resources for our country partners," Zoellick said.
"As our client relationships with middle-income countries become more sophisticated, the World Bank is responding with development solutions that share knowledge, build markets and institutions, and provide capital."
The World Bank also separately approved changes to its existing so-called Deferred Drawdown Option, which pre-approves countries for a loan in case of an unforeseen event.
Only two countries made use of the facility because it was unclear whether the funding would be available when they needed it because disbursements were conditional on a World Bank review.
In addition, the facility was more expensive than World Bank loans and charged a higher commitment fee as well as a surcharge for a longer maturity.
The changes allow the World Bank to monitor the country's economy on a continuous basis so that when the country needs funding, it can access the money quickly.
The funds may be drawn down at any time unless the World Bank notifies the borrower that one or more of the drawdown conditions are not met.
The changes also align the pricing of the loans with standard World Bank terms for middle-income countries.
"The improvements provide borrowers with greater certainty that the funds will be available when needed, extend the maturity and align the fee structure with the recent loan pricing reform, thereby eliminating a commitment fee and surcharge for extended maturities," the World Bank said. (Reporting by Lesley Wroughton; editing by Gary Crosse)
