World Bank group launches Cat DDO

The International Bank for Reconstruction and Development (IBRD), part of the World Bank, has announced a new loan facility designed to provide emergency finance for middle-income countries suffering natural catastrophes.

Countries that have World Bank-certified hazard risk management programmes in place can apply for the catastrophe risk deferred drawdown option (Cat DDO), which will provide them with bridge financing while other sources of funding are mobilised.

The maximum amount available will be limited to $500 million or 0.25% of a country’s gross domestic product, whichever is smaller. Loan pricing is in line with standard IBRD terms, which include a 0.25 percentage point front-end fee. The funds may be drawn down over a three-year period, which may be renewed up to four times for a total of 15 years.

The bank has also improved the terms of an existing contingency financing product, the deferred drawdown option that was launched in 2001, to address certain issues that created a disincentive to using the option. These improvements will 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.

See also: Eyes on the storm