Three Lessons from Three Years of the Global Risk Financing Facility

Global

June 03, 2022

In 2017, a World Bank team met with donor partners from Germany and the United Kingdom to discuss how to shape the future global disaster risk finance agenda. The Caribbean, and parts of Latin America and the USA had just been hit by a series of devastating hurricanes, costing thousands of lives, and leaving affected countries with the highest ever recorded damages. As natural disasters and climate shocks increasingly threatened lives, assets, and livelihoods — especially poor and vulnerable countries, the question became: What more could be done to boost their financial preparedness?

The three parties decided to put in place a game-changing solution, specifically a vehicle that could provide technical assistance and expertise to partner countries, as well as systems to implement disaster risk financing solutions. This support would be coupled with significant grant financing to actually develop and implement these solutions.

Three years later, the World Bank’s Global Risk Financing Facility (GRiF) has assisted dozens of vulnerable countries in improving their financial preparedness by securing access to post-disaster financing. As the latest annual report highlights, the GRiF’s portfolio has grown to 43 projects, valued at over US$200 million. It is also yielding significant results.

During these past three years, GRiF has also learned some important lessons to ensure the success of climate and disaster risk finance and insurance solutions. Three of these lessons are as follows:

Lesson 1: In a world of more frequent and intense disasters, flexibility is key. Through its design, GRiF is able to strengthen financing solutions across a wide range of regions and beyond climate and disaster shocks. This flexibility was pivotal in GRiF being able to swiftly and effectively respond to an emerging threat, the COVID-19 pandemic.

Today, GRiF supports 11 country projects, including seven countries under the International Development Association (IDA), that is, the World Bank Group’s fund for the poorest countries. Of the seven, four are in fragile, conflict, and violence (FCV)-affected countries. There are also eight global projects focused on improving data, analytics, and country capacity for implementing innovative financial solutions.
Being able to adapt to specific financing needs has enabled GRiF to provide US$12 million to capitalize a partial portfolio credit guarantee scheme in Burkina Faso as part of a US$100 million financial inclusion project, which will provide a lifeline to 2,000 micro, small and medium enterprises (MSMEs) that are affected by the COVID-19 pandemic.
A GRiF grant of US$16.5 million enabled Jamaica, a small island developing state, to issue its first catastrophe bond. This bond provides financial protection of up to US$185 million against losses from named storms for three Atlantic tropical cyclone seasons until the end of December 2023.

GRiF is also being used to strengthen shock-responsive social safety net programs in Malawi and Sierra Leone.

Photo Credit: Dominic Chavez/World Bank

Lesson 2: Risk financing is evolving; thus, innovation is key to improving design and implementing solutions. GRiF collaborates with new partners, such as the European Space Agency, to link the latest technology with on-the-ground operations, supporting governments in using state-of-the-art analytics to support better decision-making.

GRiF is providing US$5.5 million for the Crisis Risk Finance Analytics Program, which is partnering with the European Space Agency to link the latest technology with on-the-ground operations. The program leverages earth observation and big data as part of its efforts to improve crisis risk analytics methodologies and tools. In 2021, the program supported the Next Generation Drought Index (NGDI) platform to create more robust drought indices and models. It also developed a new modeling framework that allows countries to better estimate financial losses caused by floods and earthquakes using satellite data and artificial intelligence (AI)-based analysis.
In Indonesia, a GriF grant supports the development of an end-to-end data system for systematic damage reporting and claims management related to disaster events. In Sierra Leone, the social protection system is piloting digital payment systems by linking them to the country’s first national switch. This will allow banking access to the most remote populations in the country. Such measures will make financial responses quicker and more transparent.

Lessons 3: Successful risk financing solutions create a demonstration effect. By providing innovative and flexible risk finance solutions, GRiF is supporting projects that may not otherwise attract capital. When the success of these projects has been proven, this method of financing can then be replicated by others. For example, this past year, GRiF helped the International Red Cross and Red Crescent Climate Centre and Kartoza develop the first-ever impact-based forecasting tool for floods in Indonesia. Other humanitarian agencies are now also exploring how the new platform could be used to enhance their work. Thus, by funding innovative pilot projects, GRiF is pushing the boundaries and testing new solutions, proving their viability to other funding sources, and helping countries to mitigate the adverse impacts of disasters.

GRiF was designed to be flexible and innovative. It also provides an important demonstration effect to encourage financing to “crowd-in” additional sources of financing, thereby creating a sustainable model to address future disasters. Over these past three years, GRiF has proven the importance of each of these elements. We will continue to push the envelope so that more vulnerable communities can benefit from access to post-disaster financing when disaster strikes.

For more information about the Global Risk Financing Facility, please visit our website and/or join us for our monthly Technical Talks.

Main Photo Credit: World Bank EAP Collection

Simon Hagemann

Financial Sector Specialist

World Bank Group

Simon is a Financial Sector Specialist in the World Bank’s Crisis & Disaster Risk Finance global team. His key projects include work on the Global Risk Financing Facility (GRiF), as well as work in the Sahel (Niger, Senegal) and in Asia and the Pacific (Nepal, PCRAFI). Simon has also been leading the team’s engagement with international partners including the G20/V20-led InsuResilience Global Partnership and the Asia-Pacific Economic Cooperation. In his new capacity, Simon will work on the new Risk Finance Umbrella, the Global Risk Financing Facility, and he will continue working with international donors and partners. Prior to joining the Bank, Simon worked on disaster risk finance and insurance as a Senior Policy Officer with the German Federal Ministry for Economic Cooperation and Development (BMZ). He also held various positions in climate and environment, working with the Bank in DC on climate and forestry in Africa, and on climate adaptation with the United Nations Development Programme around Africa. Simon holds a master’s degree in International Relations from the Institut d’etudes politiques (France) as well as undergraduate degrees in Economics and International Relations from the Institut d’etudes politiques and the European University Frankfurt (Germany). He is fluent in German, English and French.

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CO-AUTHORS

Ronette Jordan

Disaster Risk Management Specialist

World Bank Group

Ronette Jordan is a Disaster Risk Management Specialist for the Global Facility for Disaster Reduction and Recovery (GFDRR), which is housed at the World Bank Group and supports mainstreaming of disaster risk management in developing country policies and investment programs. Ronette supports donor relations and trust fund administration activities for the Canada-Caribbean Resilience Facility and Global Risk Financing Facility (GRiF). Immediately prior to this role, she worked as an Advisor to the World Bank’s Executive Director for Canada, Ireland and the Caribbean covering issues related to climate, disaster risk management and resilience. Before joining the Bank, she worked as an Economist and Project Management Specialist for the Government of St. Vincent and the Grenadines where she was managed the Government’s investment program and provided technical inputs for development policy and strategy formulation. Ronette holds degrees from Nottingham University, where she completed a master’s in Development Economics and Policy Analysis, and the University of the West Indies, where she completed her undergraduate studies in Economics. She also has post graduate certifications in Project Planning, Appraisal and Management from the University of Bradford.

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