For sovereign borrowers, the IDB offers cost-effective, market based, financing through the Flexible Financing Facility (FFF). The FFF enhances borrowers’ risk management capabilities in projects, lending programs, and asset-liability management strategies.
Sovereign borrowers can choose from a menu of embedded options to tailor financial terms of Ordinary Capital (OC) loans. The FFF provides competitively priced resources with integrated and stand-alone risk management features.
Loans under the FFF can by divided into tranches, allowing for sub-loans within a single loan. Each tranche may have different financial structures, including currency, repayment schedule, and interest rate basis.
US dollars or regional local currencies (LCs), subject to market availability. Currency conversion options are available.
Maturity, Amortization and WAL
Financing Works, Goods and Services (Investment loans) Standard Terms:
- 25 years final maturity
- 5.5 year grace period and semiannual straight line amortization thereafter, corresponding to a Weighted Average Life (WAL) of 15.25 years.
Financing Policy Reforms (Policy Based Loans) Standard Terms:
- 20 years final maturity
- 5.5 year grace period and semiannual straight line amortization thereafter, corresponding to a WAL of 12.75 years.
Flexible repayment options are available without additional cost.
A commitment fee 50 bps is applicable on undisbursed loan amount and starts to accrue 60 days after loan contract signature.
Lending Rate
All sovereign guaranteed loans bear a variable lending rate composed by the SOFR base rate + IDB variable lending spread: SOFR base rate is composed by the USD SOFR daily overnight compounded rate + IDB's funding margin, variable by quarter. Current funding margin (1st quarter 2025) is 41 bps.
IDB’s variable lending spread periodically determined by IDB Board. Lending spread for 2025 is 80 bps.
Interest rate conversion options are available.
Borrowers have the option to select the loan repayment term that better suit project cash flows and liquidity risk management considerations. It can be done during loan signature or during the disbursement period.
Standard FFF loans carry a semiannual straight line amortization schedule. Other repayment options include bullet repayment structures, extended grace periods, uneven amortization schedules, and shorter repayment periods subject to: (i) the cumulative WAL (Weighted Average Life) of all tranches cannot exceed the loan’s original WAL, and (ii) the loan’s original final maturity date, which cannot be exceeded.
Through built-in options in FFF loans, borrowers have the ability to manage currency exposures by transforming US dollar or Local Currency (LC) denominated loans into other major currencies or other regional LCs. These options are available at any time during the life of a loan, on a partial amount or on the full outstanding loan balance.
LC financing enhances the ability to manage currency exposures and better match project cash flows of sovereigns and sub national entities.
FFF loans carry a variable interest rate based on USD SOFR daily overnight compounded rate plus the IDB lending spread. Borrowers can change the interest rate basis of the loan—from SOFR-based to fixed or vice versa—at any time during the life of the loan. The interest rate basis can be converted but the IDB lending spread remains variable.
In addition to fixing or unfixing the interest rate, borrowers can choose to limit the interest rate volatility by buying an interest rate cap or collar.
Borrowers have the ability to manage exposures to commodity prices through call and put options.
Options are embedded in any FFF loan agreements (i.e., no ISDA required), are structured on a case-by-case basis, and are settled in cash.
Using standard market techniques, borrowers have the option to manage interest rate, currency and other types of exposures through direct hedges with the IDB throughout the life of IDB loans. Hedges are offered against outstanding loan balances (OLBs) on a loan or loan portfolio basis. To access hedging products, an ISDA Master Derivatives Agreement must be signed with IDB.
Through the Principal Payment Option (PPO) borrowers have a one-time option to defer principal repayments for two years following the occurrence of an eligible natural disaster and repay those amounts in future amortization installments. This provides vital financial relief in that time of distress. The deferred payments and allow the country to cover public expenses at its discretion.
The occurrence of a catastrophe can significantly impact the fiscal accounts of sovereign borrowers. This situation presents significant challenges to sustainable development. Through the built-in Catastrophe Protection Conversions in the FFF, borrowers have the ability to manage exposure to catastrophe risk.
The IDB’s Catastrophe Protection Conversions in the FFF provide Borrowers with a cost-effective streamlined way to secure catastrophe risk transfer instruments. The IDB offers Catastrophe Protection Conversions in FFF loans for a single or for multiple perils. Sovereign nations can tailor their protection to cover a layer of losses. If a pre-defined Catastrophe event occurs the country receives a corresponding cash payout from the IDB. In exchange for this protection, the country pays the costs of the market instrument issued by the IDB plus an applicable fee.
The objective of this Contingent Credit Facility is to provide member countries with liquid resources to cover urgent financing needs that arise immediately after a natural disaster of unexpected, sudden, and unusual proportions, until other sources of funding can be accessed.