Finance

World Bank + Blockchain

Financial technology changing EMs

A World Bank blockchain-based bond issuance worth USD80.48 million is expected to set the tone for future development in emerging economies.

The World Bank recently launched the world’s first bond to be created, allocated, transferred, and managed through its life cycle using distributed ledger technology. Investors have welcomed the use of blockchain technology in bonds.

Arunma Oteh, the World Bank’s Treasurer, stated that she is “delighted that this pioneer bond transaction using the distributed ledger technology, bond-i, was extremely well received by investors.” She went on to explain how high-quality investors understood the value of leveraging technology for innovation in capital markets.

Named bond-i—or the Blockchain Offered New Debt Instrument—this two-year debt security has the Commonwealth Bank of Australia (CBA) as the sole lead manager of the deal, which totals AUD110 million.
The World Bank is a frequent issuer in the Australian dollar market given the country’s well-established financial infrastructure.

After the World Bank’s mandate to arrange the bond, a two-week consultation period with the market started to assess potential support from key investors.

The issuance was backed by investments from other institutions: First State Super, NSW Treasury Corporation, Northern Trust, QBE, SAFA, and Treasury Corporation of Victoria.

James Wall, Executive General Manager of CBA, noted that the response of the market had been “overwhelming,” exceeding expectations and constituting a good example of how technology can improve traditional bond selling.

Carrying an AAA rating, the World Bank takes advantage of its borrowing power to develop new bond markets and raise funds to finance development projects in emerging economies.

Every year, the World Bank raises USD50-USD60 billion for supporting sustainable development across the world.

Using blockchain is not the first time the bank has pioneered in using technology.
In 1989 it issued the first globally traded and settled bonds, and in 2000 it was responsible for the first fully integrated electronic bond.

In fiscal year 2018 (July 1, 2017 — June 30, 2018), the World Bank Group’s commitments to projects in emerging economies reached almost USD64 billion with record increases in human development and climate change financing through different instruments, including loans, grants, equity investments, and guarantees.
The amount was up from USD59 billion, registered in 2017.

The International Development Association (IDA), part of the World Bank Group, was the institution with the highest increase in financing with USD24 billion (+27% compared to previous year), used for financing projects in the world’s 75 poorest countries at interest rates of zero or near-zero.

Applying blockchain technology to bond issuance is part of a wider strategy in place by the World Bank.

The financial institution launched the Blockchain Innovation Lab in 2017 to find new ways of taking advantage of groundbreaking technologies for banks, ranging from increasing education standards across the world to raising awareness in the fight against climate change.

The International Financial Corporation (IFC), also a member of the World Bank Group and focused on private sector development, is active in assessing the potential of blockchain and its possible uses in developing countries.

According to the institution, “Blockchain may be especially useful in mitigating ongoing de-risking by financial institutions, a trend that is having a severe impact on recipients of remittances, businesses that need correspondent banking, and institutions that work in fragile and conflict states.”

Blockchain, combined with mobile technologies, cloud-based solutions, and big data, may just be the magic formula for unleashing digital finance to bring banking to the next billion people.