What are Financial Intermediary Funds?
Financial Intermediary Funds (FIFs) are financial arrangements that typically leverage a variety of public and private resources in support of international initiatives, enabling the international community to provide a direct and coordinated response to global priorities. Most FIFs have supported global programs often focused on the provision of global public goods, preventing communicable diseases, responses to climate change, and food security. FIFs often involve innovative financing and governance arrangements as well as flexible designs which enable funds to be raised from multiple sources, both sovereign and private. Funds can be channeled in a coordinated manner to a range of recipients in the public and private sectors through a variety of arrangements. FIF structures are customized, depending on the needs of the partnership and agreements with the World Bank.
The World Bank's distinctive role across FIFs is the provision of financial intermediary services, as Trustee of the funds. For all FIFs, the World Bank provides a set of agreed financial services that involve receiving, holding and investing contributed funds, and transferring them when instructed by the FIF governing body. Under some FIFs, the Bank also provides customized treasury management or other agreed financial services; some examples include bond issuance, hedging intermediation and monetization of carbon credits.
FIF Trusteeship does not involve overseeing or supervising the use of funds. This is the role of other implementing agencies that receive funding and are responsible for project or program implementation. Transfers are generally made by the Trustee to external agencies (e.g. United Nations agencies or Multilateral Development Banks) for the implementation of activities. In the case of FIFs whose governing bodies have the legal and other required capacities to take on responsibility for the use of funds (e.g. Global Fund to Fight AIDS, Tuberculosis and Malaria), the Bank transfers funds received from donors directly to multiple third party entities, usually in recipient countries, based on instructions from and on behalf of the governing body.
The Bank's FIF Trusteeship Models
There are two basic models in the Bank’s trusteeship portfolio, which currently includes more than 22 FIFs:
• In some FIFs (e.g. the GEF), the Bank as trustee enters into transfer agreements with implementing or supervising agencies, and transfers funds to these agencies upon instructions from the governing body. In turn, the implementing or supervising agencies enter into grant agreements to disburse funds to beneficiary recipients. The implementing or supervising agencies appraise and supervise the implementation of projects by such recipients and are responsible for monitoring the use of funds.
• In other FIFs (e.g. the Global Fund), the Bank as trustee makes direct transfers to recipient entities upon instructions from a governing body which has legal, oversight, and other essential capacities and assumes overall responsibility for the use of funds.
The Bank's technical, financial, and legal expertise is employed in designing and establishing FIFs. This includes legal and Treasury services, donor contribution management, accounting, reporting capabilities, prudent financial management policies, procedures and internal controls. The investment of liquid assets of FIFs is managed by the Bank's Treasury, with the primary objective of capital preservation. An emphasis has also been placed on IT systems infrastructure to support FIFs. The Bank uses integrated information systems that provide end-to-end financial transaction processing and support FIF governing bodies, implementing agencies and secretariats with required data and customized financial reporting.
The World Bank's Role in the Management of FIFs
In addition to its trustee role, the Bank may also be involved as an implementing agency responsible for appraisal and/or supervision of projects or programs financed by the FIF; by providing secretariat services to the FIF; and as a FIF donor.
For some FIFs, the Bank has provided upstream advisory support during the design phase (e.g., for the AMC and IFFIm). For others (e.g., the Global Fund), Bank operational teams provide downstream technical assistance to build local capacity for implementation. In cases where the Bank has been selected as an implementing agency by the FIF governing body, resources may be received by Bank operational units for the implementation of activities through IBRD/IDA trust funds. These roles are managed by different Bank vice-presidencies. In general, because different entities play different roles within the FIF structure, a key aspect of governance is the clear separation of roles and responsibilities within the Bank.