1. Cofinancing refers to any arrangement under which Bank funds or guarantees are associated with funds provided by third parties for a particular project or program.
2. There are two sources of cofinancing:
(a) Official cofinancing is usually concessional and comes from donor governments and their agencies (mainly through bilateral assistance programs) and multilateral financing institutions (principally the regional development banks).
(b) Private cofinancing refers to any arrangement that involves financing from such private sources as commercial banks, insurance companies, or other private lenders, for a Bank-supported project (including financing that is partially guaranteed by the Bank).1
3. Export credit cofinancing, which may come from official or private sources, is linked to the export of specified goods or services from a particular country. It may be provided in the form of suppliers' or buyers' credits. Export credits are often guaranteed or insured by Export Credit Agencies (ECAs) operating in the suppliers' country.
4. Cofinancing may be channeled in two ways, each of which has distinct modalities for the procurement of cofinanced goods and services:
(a) In parallel cofinancing, the Bank and the cofinancier finance different goods and services or different parts of a project.
(b) In joint cofinancing, expenditures from a common list are jointly financed by the Bank and the cofinancier. The funds are disbursed in agreed proportions. When the cofinancier's funds are provided on more concessional terms than the Bank's, they may be disbursed first to maximize the benefits to the recipient.
5. Cofinancing may be in the form of a loan or a grant.
(a) Loan. When cofinancing funds are provided as a loan, the cofinancier enters into a loan agreement with the borrower and normally disburses its funds directly. If procurement follows Bank policies and if the Bank recovers its costs, the Bank may supervise procurement and review withdrawal applications; in such cases, the Bank and the cofinancier usually sign a colenders' agreement that sets out the terms and conditions of the services to be provided by the Bank to the cofinancier.
(b) Grant. When cofinancing funds are provided as a grant, the cofinancier may make the funds available directly to the recipient under a grant agreement or to the Bank under a Trust Fund Agreement (provided the costs of administration are reimbursed to the Bank). The Bank, as administrator of the funds on behalf of the cofinancier, enters into a Grant Agreement with the recipient and disburses the funds according to the terms of the Grant Agreement.
From 1983 to 1988, the Bank entered into private cofinancing operations mainly through the B-Loan program; from 1989 to 1994, it used the Expanded Cofinancing Operations (ECO) program. In September 1994, the Bank's Executive Directors approved a proposal to expand the scope of the Bank's guarantee program and to make guarantees a mainstream instrument in Bank operations. The Bank expects to issue policies and procedures statements on guarantees.