Name: Qorkhmaz Last name: Aydinli Faculty

Lending policies and operations

IFAD loan operations fall into two groups: projects initiated by the fund and projects co-financed with other financial and development institutions. IFAD-initiated projects are those for which the fund has taken the lead in project identification and preparation and in mobilizing additional resources from other financial agencies where necessary. Most of IFAD's assistance has been provided on highly concessional terms—loans repayable over 50 years with a 10-year grace period and an annual service charge of 1%.

The loans are repayable over 20 years at 4% annual interest, while a few have been offered at 8% over 15–18 years. However, at its 17th session of January 1994, the Governing Council adopted a resolution which amended the lending terms and conditions for the first time since the fund's establishment. In the future, those developing members countries having a Gross National Product (GNP) per capita of us$ 805 or less in 1992 prices, or which qualify for loans from the World Bank's "soft loan" agency, the International Development Association, will normally be eligible to receive loans from IFAD on highly concessional terms. Loans on highly concessional terms will be free of interest but will bear a service charge of 0.75% per annum and have a repayment period of 40 years, including a grace period of 10 years. The total amount of loans provided each year on highly concessional terms will be approximately two-thirds of the total lent annually by IFAD. IFAD loans represent only a part of the total project costs; the governments concerned contribute a share. In most of its projects, IFAD has cooperated with the World Bank (IBRD and IDA); the African, Asian, Inter-American, and Islamic development banks; the Arab Fund for Economic and Social Development; the Central American Bank for Economic Integration; the World Food Program; the EU; OPEC; and other multi-institutions. IFAD, while seeking to preserve an appropriate balance in its regional allocations, also has attempted to respond to the special needs of the 74 low-income, food-deficit countries. Well over 80% of the fund's loans were channeled to these countries in the 1978–95 period. The regional shares of IFAD-supported projects approved between 1978–95 under both regular and special programs were: Africa (sub-Sahara), 41%; Asia and the Pacific, 26%; Latin America and the Caribbean, 16%; and Near East and North Africa, 16.4%. In January 1986, IFAD, as the first international financial institution to respond to the socioeconomic crisis in sub-Saharan Africa, in the wake of the disastrous droughts and famines of 1983–85, launched the Special Programme for Sub-Saharan African Countries Affected by Drought and Desertification (SPA), with a target for resource mobilization of us$ 300 million. This target was outrun by contributions reaching us$ 322.8 million from five developing countries and the European Community. The program aims to restore the productive capacity of small farmers, promote traditional food crops mainly grown by small-holders, and initiate small-scale water control schemes, in addition to recommending measures for environmental protection and providing assistance to governments in regard to policy. By January 1993, a second phase of the program became effective. While it preserves the focus of the first phase, it extends its conceptual frame and operational scope. Specifically it carries environmental and soil conservation objectives from on-farm to off-farm (particularly in the common property resource domain), and addresses overall coping strategies of households and communities through economic diversification. New commitments in 2001 totaled us$ 405 million for 25 loans averaging us$ 16 million each. In selecting an area of a country for assistance, IFAD determines whether the area is geographically or functionally isolated from the rest of the national economy; the extent to which its population has a lower average per capita income than the national average; the degree to which the area is food-deficient; whether it has relatively inadequate delivery systems and infrastructure in comparison with the rest of the country; and the proportion of poverty—for example, the proportion of landless—in comparison with other rural areas. In terms of impact, IFAD's projects, at full development, will help some 30 million poor rural households out of hunger and poverty. The IFAD9 IAI has provided IFAD with significant lessons that will help advance a results-based agenda. On methods, the IFAD9 IAI represents a pioneering effort in trying to overcome the clear challenges of designing data collection and conducting impact assessments ex post. The initiative draws attention to the fact that using a representative sample of projects and focusing on one aggregate indicator limits the potential for learning and is unnecessarily restrictive – projects should be identified where learning will be the greatest, and indicators need to be selected to comprehensively represent IFAD’s success. Moreover, the IFAD9 IAI has paved the way for the future by underlining areas where M&E and data collection should be strengthened. The analysis shows that IFAD projects active during the period 2010-2015 have reached 139 million beneficiaries, providing them with substantial services through a community-led approach. The IFAD9 IAI has demonstrated that IFAD’s investments in rural people have generated returns in a number of critical areas, including poverty reduction, assets gains, resilience, livestock ownership, agricultural revenues, nutrition and women’s empowerment. Millions of rural people have benefited in a variety of ways from IFAD investments. Vis- à-vis the global IFAD9 accountability goal of showing that 80 million beneficiaries have been lifted out of poverty, the results presented in this document present final inferential estimates, assuming that the parameters originate from representative projects. Noting the inadequacy of the “movement out of poverty” indicator, as it does not capture the depth of IFAD investments, projections of the impact of the overall portfolio indicate that 24 million beneficiaries have been lifted out of poverty, ceteris paribus (a finding that is statistically significant, using a 60th percentile relative poverty line and employing durable assets as the preferred proxy for long-run wealth). Asset indicators were chosen as a proxy for poverty because they represent better indicators for long-run relative wealth vis-à-vis income indicators (which tend to be more volatile). This argument is also in support of the exclusion of income-based indicators as poverty proxies. Note that there is a potential underestimation of the poverty reduction impact of the Fund because of the following factors:

1. The impact is calculated based on a sample of projects that were initiated during IFAD8 and IFAD9, and which have different characteristics from IFAD10 projects, as the latter have an expanded outreach and size of investment. Hence, these projections represent a “what if scenario” and are thus a lower-bound estimate of the potential poverty impact of the Fund.

2. Measuring the impact at project closure underestimates the potential poverty reduction impact which matures in the longer term. Effectively, an impact over a three-year period has been measured.