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The following is a brief written summary of our findings.

I. Process and Scope

Senior management of the World Bank informed us that they took seriously the concerns thathad been raised by the World Bank Treasury group regarding these transactions, and told us thatno employees of the World Bank would be sanctioned for having brought forth their concerns ingood faith.

With that in mind, we have reviewed the transactions at issue as opposed to investigating anyparticular person(s). We entered into this engagement with open minds, and allowed our reviewto take us wherever the facts led. No one put any constraints on our investigation or suggestedthat we should reach any particular outcome. During the course of our review we interviewedtwenty one people, several of them multiple times. We reviewed the transaction documents inquestion, along with the authorizing documentation and many relevant emails. We asked peopleduring interviews to identify documents they thought we should review, and many of them didso.

The scope of our review centered upon authorization and governance issues: was there properauthorization for IDA to enter into the China concessional loan and was there authorization toenter into the IDA-IFC Note Payment Agreement? We were not asked to – and did not - conducta “fairness review” of the IDA17 replenishment, e.g., did one donor country get a “better deal”vis-à-vis some other donor country? The simultaneous bilateral negotiations that comprise anIDA replenishment make such a fairness review difficult as many donor countries have needsparticular to them, which in turn may be reflected in their completed negotiations.

II. Brief Outline of Transaction

The IDA17 Replenishment allowed countries for the first time to make donations by loans aswell as through the customary grant process. This development was hailed as a method ofincreasing donations to the replenishment and thereby increasing the pool of funds available toassist the neediest of countries. During the IDA17 Replenishment discussions, IDA and the IDADeputies agreed to a limited number of borrowing options to ensure that the loans had features atleast as concessional as IDA credits (long-term low interest rate loans to borrowing countries).The agreed framework allowed IDA to accept loans that had an “all-in” SDR equivalent couponof up to 1% or up to 1.67% in U.S. dollars.2 In order to meet this requirement, IDA could onlyaccept loans from donor countries at higher interest rates if IDA could structure an arrangementthat reduced the effective interest rate to the required maximum 1% SDR concessional rate.

2 IDA provides its credits and grants in Special Drawing Rights (“SDR”), the currency basket of the InternationalMonetary Fund which includes US dollars, Euros, British Pounds and Japanese Yen. Using the agreed referenceexchange rate, the single currency equivalent of 1% SDR in U.S. dollars is 1.67%.

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China, along with other countries, was interested in making a concessional loan contribution toIDA17, but could only provide such loans through the State Administration of Foreign Exchangeof the People’s Bank of China (“SAFE”) at a market rate. The market rate negotiated with SAFEwas eventually fixed over the maturity of the loan at 3.70%. In addition to making the loan,China committed to providing a $300 million grant, of which $178.9 million would be used to“buy down” the interest rate on the loan. Depending on changes in market conditions and howthe grant buy down amount was invested, the grant buy down amount would close the interestrate gap, but it would not alone completely bring down the effective interest rate on the loan tothe 1.67% concessional rate.

The challenge for IDA was how to bridge the gap between the SAFE rate and the requiredconcessional rate while staying within the concessional loan framework. IDA turned to theWorld Bank Treasury staff 3 for a solution during October 2013. World Bank Treasury staffproposed several alternatives, but they involved China either increasing the amount of its grantor hedging the interest rate risk itself, and IDA concluded that China would not accept thosealternatives. With the blessing of the Managing Director and World Bank Group Chief FinancialOfficer (“MDCFO”), IDA then turned to IFC for assistance. IFC agreed that it could provide aninvestment vehicle for the entire amount of the loan plus the $178.9 million portion of China’sgrant that would provide IDA with the necessary cash flows needed to bring down the “all in”interest rate on the loan to the required concessional level, while at the same time allowing IDAto fund $1 billion in disbursements of IDA17 credits per IDA’s standard disbursement schedule.In order for this structure to work, China agreed to disburse its entire loan up front instead ofover the three years provided by the concessional loan framework. China was the only one ofthe five donor countries making concessional loans that agreed to disburse the entire loan upfront.

III. Authorization to Enter Into the Transactions

The principal concern raised by the World Bank’s Treasury group was whether the Chinaconcessional loan transactions were properly authorized under World Bank governanceprocedures. While the concessional loan package was the first of its kind, our review found thatit was indeed properly authorized.

One element of the Treasury group’s concern about proper authorization was based on the factthat the World Bank Treasury has generally been the only entity in the World Bank that investsIDA funds. But the World Bank Treasury is not the only entity in the World Bank that isauthorized to make such investments. Under IDA’s 2012 General Investment Authorization, theMDCFO (and others) are also expressly authorized to invest IDA funds. The MDCFO wasaware of and authorized the negotiations between IDA and IFC as early as November 2013.More importantly, on August 25, 2014, the MDCFO expressly authorized the Vice President ofDFi to enter into the IDA-IFC Note Purchase Agreement that is a key basis for the Treasurygroup’s concerns.

3 The World Bank Treasury Staff serve as the Treasury for IBRD and IDA. IFC has its own Treasury.

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The World Bank’s Treasury group invests IDA’s liquid assets to achieve two objectives: (1)ensure that funds will be available on a timely basis in the amount needed to meet future cashflow requirements, and (2) maximize returns subject to pre-specified loss constraints to generateadditional investment income that can be used to increase IDA’s internal resources available forfuture replenishments.

IDA’s purchase of the IFC Note (“the Note”), while technically an investment, was not viewedby IDA’s Development Finance (“DFi”) group, which is responsible for the replenishment andstewardship of IDA, as a standard investment of IDA’s liquid assets, but rather as a transactionthat was an integral part of the concessional loan provided by China as part of IDA17.Accordingly, the Note was not designed to fall within one of the three tranches set forth in IDA’sinvestment strategy, a point which troubled some in Treasury. Importantly, though, that sameIDA investment strategy is approved by the MDCFO, who also approved this transaction. TheMDCFO explicitly authorized the Vice President of DFi to enter into the IDA-IFC NotePurchase Agreement on August 25, 2014, even though one could argue that the Vice President ofDFi already was authorized under a standing designation to enter into transactions within his areaof responsibility.

Because the IDA-IFC Note Purchase Agreement was technically an investment, in addition tothe MDCFO’s formal designation of the Vice President of DFi as an Authorized Officer for thepurpose of signing the Note Purchase Agreement, IFC also was formally approved by the WorldBank Group Chief Risk Officer’s staff as an approved counterparty and multilateral issuer ofdebt for IDA on August 6, 2014.

A different element of the Treasury group’s concern about proper authorization related to the factthat, while China had agreed to disburse the entire loan to IDA on September 2, 2014, its $300million grant, which included the $178.9 million that would be used to “buy down” the interestrate on the loan, was not due to be paid until January 15, 2015. In order for the tri-lateralstructure among China, IDA, and IFC to meet the required concessional interest rate of 1% SDR,IDA needed to invest the full $1,178.9 billion on September 2, 2014. In order to do so, IDA used$178.9 million of its own liquid assets to cover the difference for the four and a half months untilChina’s grant element was due to be received. IDA negotiated with IFC to increase the firstpayment on the Note in order to compensate IDA for the lost opportunity cost of the temporarywithdrawal from its own liquid assets.

On November 21, 2013, the Executive Directors of the Bank and IDA had approved aconcessional loan framework that allowed IDA to use its own liquid assets to cover temporaryshortfalls in liquidity that occurred in administering the concessional loan program. IDA’s useof its own funds to bridge the four and a half months until China’s grant element was due to bereceived fell within the scope of that approval. In addition, because China had entered into anunqualified Instrument of Commitment (“IOC”) on or about August 5, 2014, for the entire$300 million grant, including the $178.9 million for the interest-rate buy down, IDA did notconsider that it was putting its own liquid assets at risk. Importantly, IDA’s customary practiceis to rely on unqualified Instruments of Commitments.

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The IDA’s 2012 General Investment Authorization allows certain officers to “enter into” certaininvestments. Accordingly, we looked into the date that the IDA-IFC Note Purchase Agreementwas “entered into,” to determine whether the proper authorization existed as of that date. Whileother terms had been agreed in advance, other issues such as the adjustment to the first paymentunder the Note to cover the lost opportunity cost were still being negotiated into August 2014.Moreover, IFC told us that if IDA had walked away from the deal on August 25, IFC would havehad no recourse. The IDA-IFC Note Purchase Agreement was entered into on August 25, 2014,the date on which it was signed, and that was the day on which the MDCFO formally designatedthe Vice President of DFi as an Authorized Officer for the purpose of signing the document.

IV. Other Issues

We considered whether the IFC Note was a marketable investment and whether it violatedIDA17’s prohibition on earmarks, both of which concerns World Bank Treasury staff raisedduring our review. The MDCFO concluded that the Note was marketable. Significantly, the IFCalso required that the Note be liquid. IDA uses the term “earmarks” to reference a particularproject or recipient country. Because, among other reasons, the loan proceeds were notdesignated for any particular project or recipient country, we found that the Note did not violatethe prohibition on earmarks, as that term is used in IDA.

Questions were also raised as to the intra-World Bank Group nature of the IDA-IFC NotePurchase Agreement and the unrealized mark-to-market loss to IDA from the outset. TheTreasury group asked whether this transaction was conducted at arm’s length and whether itsomehow constituted a conflict of interest. IDA and IFC are different legal entities and each hadseparate counsel representing it during the negotiation of the Note Purchase Agreement. IFCalso retained outside counsel to represent it during the negotiation. The separate representationswere important in determining that IFC and IDA engaged in an arm’s length transaction. IDAand IFC each believed that it had struck a deal that was in its best interests.

The World Bank Treasury group was concerned that as of September 30, 2014, the fair value ofthe debt security was $1,146 million, resulting in an unrealized mark-to-market loss. The mark-to-market loss is an accounting calculation of the fair market value of the investment at aparticular point in time based on a bond yield curve. The accounting loss will disappear overtime. The Treasury Group thought that this mark-to-market loss might be an income transfer thatrequired approval of IDA’s Board of Governors. Transfers of net income require approval ofIDA’s Board of Governors, but an unrealized mark-to-market loss is not a transfer of net incomeand does not require approval by IDA’s Board of Governors. Moreover, the unrealized mark-to-market loss does not demonstrate that there was a conflict of interest here. The MDCFO and DFidetermined that it was in the best interest of IDA to purchase the IFC Note because it providedthe structured cash flows needed to achieve the all-in concessional interest rate required to acceptthe $1 billion loan provided by China, a consideration which is not reflected in the mark-to-market calculation.

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V. Conclusion

We found no evidence of fraud or dishonesty in connection with the IDA-IFC transaction or theChina concessional loan, and found that IDA was authorized to enter into each of them. Wefound no conflict of interest in the IDA-IFC transaction, as each acted in its own best interests.We found no governance violations. We did find, however, that there is a lack of clarityregarding the roles of the IDA team in DFi and Treasury and that well-meaning people in eachgroup differ over their roles and responsibilities. Clarifying those roles, and working to improvecommunications between the groups, would help reduce the risk of issues such as these arising inthe future.