Cost Multiples For Pre-Arranged Financing: A Comparison Of Instruments From International Financial Institutions
With growing fiscal constraints, governments and development partners face increasing pressure to maximise the impact of every dollar spent.
This working paper presents a framework that compares contingent loans, grants from multilateral development banks, catastrophe bonds, and insurance provided through regional risk pools. The analysis reveals that while some instruments are more cost-effective for frequent events, others perform better for less frequent, high-impact shocks.
Key Findings
1.0–1.3
Typical cost multiple for contingent credit (contingent loans). Governments pay about $1.00–$1.30 to receive $1 of expected payout.
2–4+
Typical cost multiple for catastrophe bonds. Governments may pay two to four times the expected payout.
Key Terms Used In This Report
A pre approved loan released automatically when agreed crisis conditions or triggers are met.
The cost multiple measures the average amount a government pays to receive USD 1 of payout from a financing instrument over its lifetime.
Sovereign insurance is insurance coverage purchased by a national government to protect its budget against the financial impacts of disasters.
A catastrophe bond (cat bond) is a risk-transfer financial instrument that allows governments or insurers to transfer disaster risk to capital market investors.
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