LOAN ADMINISTRATION

Dec 2010

Table of Contents
1. 2. 3. 4. 5. 6. Loan Administration Principles & Framework ...3 12 Letter to the Borrower/ Disbursement Handbook ....13 17 Disbursement Procedures18 32 Withdrawal Applications ...33 46 Foreign Exchange Translation ...................................................47 52 Closing of Loan & Project ........53 62

Loan Administration Principles & Framework

Basic Principles of Loan Administration

Only Eligible expenditure: proceeds of financing shall be used only for purposes for which financing provided

Due attention & consideration to economy, efficiency & social equity

Expenditure is eligible as & when incurred: Advance payments made by project other than contractual advances are ineligible First withdrawal: First withdrawal from loan/ grant account is made normally only after financing is effective & disbursement conditions met Written application: Borrower can request for withdrawal only by means of written application in specified format along with relevant supporting evidence

Basic Principles of Loan Administration

Eligible expenditure: the following conditions should be met:

Incurred by project party During project implementation period Reasonable cost of goods & services procured Per procurement procedures as per Schedule 4 of FA/ LTB Per approved AWPB Per percentages stated in Schedule 2/ LTB against eligible categories Not prohibited by UNSC under Chapter VII of UN Charter Not following any coercive, collusive, fraudulent or corrupt practice Per financing agreement documents

Retroactive Funding: If Schedule 2 of FA expressly provides for retroactive funding, eligible expenditure incurred for project purposes before financing effectiveness can be reimbursed from loan account after effectiveness Letter to the Borrower/ Disbursement Handbook: Sent by IFAD to Authorised Representative of Borrower outlining important financing provisions, disbursement procedures & guidelines
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Basic Principles of Loan Administration

Disbursement process in IFAD: On receipt of Withdrawal Application (WA), the following steps are taken:

Programme Management Division (PMD) verifies WA for completeness of documentation & eligibility of expenditure
PMD approves WA & issues Payment Instructions & forwards to Loan & Grants Section of Financial Services Division (CFS)

CFS may conduct independent verification of WA & sends approved Payment order to the Treasury Division to make payment
CFS issues debit advice to Borrower & implementing agencies & generates billing statements on fortnightly basis

Non approval of WA: IFAD informs Borrower about reasons for rejection & suggests corrective action to be taken

IFAD Project & Legal Documents

Project Documents IFAD Generic Documents

Design Report Financing Agreement General Conditions Minutes of Loan Negotiations Amendments to Financing Agreement Letter to the Borrower (LTB)

Loan & Grant Administration Operational Manual

Loan Disbursement Handbook Procurement Guidelines

Audit Guidelines

Financing Agreement
Schedule 2 - Allocation & Withdrawal of Financing Proceeds
Category No. & description Loan amount allocated to each category % of expenditures to be financed Definition of terms Minimum withdrawal amount Statement of Expenditures (SOE) thresholds

Retroactive Financing
Conditions for first Disbursement on loan/ category/ component

IFAD Financing
Denominated in Special Drawing Rights (SDR) Withdrawal applications made in different currencies Disbursement is converted in SDR & deducted from financing amount

Financing Milestone Dates

Board Approval Date Financing Agreement Date Effective/ Entry into Force Date Project Completion Date Loan Closing Date
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Project Financing Agreement (New Version)

EFFECTIVE DATE (Article VII) Financing Agreement Date + generally 90-180 days

PROJECT COMPLETION DATE (Article I)

X anniversary of Effective Date

WINDING-UP PERIOD

Project Completion Date to Loan Closing Date

LOAN CLOSING DATE (Article I)

Project Completion Date + 6 months

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First Disbursement - requirements

Financing declared effective/ entry into force

Evidence of opening of Designated Account (DA) Letter on WA authorised signatories received Signatories of persons authorised to operate DA & specimen signatures received

Disbursement condition/s met AWPB & Procurement Plan approved Withdrawal Application in order (see checklist)

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Parties Involved

Borrower IFAD East & Southern Africa Division, including Nairobi regional loan administration unit & Country Programme Manager Loans Unit (Financial Services Division) Treasury

International Banking Channels

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Letter to the Borrower/ Disbursement Handbook

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Letter to the Borrower/ Disbursement Handbook

Letter to the Borrower/ Disbursement Handbook. . .

Operational guidelines for withdrawal of loan/ grant funds for project

purchases (procurement) of goods, works & consulting services, details of financial & audit reporting requirements

Explained to the Implementing Agency during Start-up mission For new projects subject to revised General Conditions, Disbursement Handbook is an annex to revised Letter to the Borrower

Includes prescribed forms to be used by Implementing Agency in withdrawing funds from loan/ grant
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Letter to the Borrower/Disbursement Handbook

. . explains the following topics:

Disbursement Conditions (Opening of Designated Accounts, appointment

of officers authorised to operate DA & sign WAs, etc)

Disbursement Procedures Designated Accounts Instructions for Withdrawal

Annual Work Plan & Budget & Procurement Plan

Allocation of Financing Proceeds Procurement of Goods, Works & Consulting Services, including Methods Review of Procurement Decisions by IFAD

Programme Reviews & Periodic Assessments

Financial Reporting & Auditing Project Completion/ Financing Closure Amendments
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Disbursement Handbook Topics

Basic Principles & Financing Administration Instructions for Withdrawal

Disbursement Procedures
Statement of Expenditure

Register of Contracts/ Contract Monitoring

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Disbursement Handbook Attachments

1. 2. 3. Sample letter of evidence of authority to sign WA Instruction for completing forms The various forms for use with 4 Disbursement Procedures Initial Deposit Advance/Replenishment to Special/ Designated Account Direct payment procedure Special commitment procedure

Reimbursement procedure
4. 5. 6. SOE provision & eligibility Project Checklist Form & Instructions in completing form Register of Contracts

7.

Status of Financial Statements & Audit Report

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Disbursement Procedures

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Disbursement Procedures
Withdrawal of Loan Funds (Explained in the Letter to the Borrower)

Disbursement Procedures

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Special/ Designated Account (Procedure I)

A facility provided in Financing Agreement for advance funding from IFAD

Initial Deposit/Advance paid in USD or other freely convertible currency

Replenishment applications should be submitted regularly using specified forms usually on quarterly basis (see checklist)

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Special/ Designated Account

General

Special Account/Designated provisions are found in Article II/ Section B of Financing Agreement & in Section 4.08 of General Conditions Article II/Section B provides bank where Special/ Designated Account should be opened, amount & currency of Authorized Allocation/ Advance, mode of payment (e.g., full amount or tranches) & designated persons or office authorised to operate Special Account Article IV deals with Loan Account & Withdrawals - Withdrawals from loan & grant accounts, special commitments, WAs, transfers, allocation & reallocation of financing proceeds, value dates of withdrawals, eligible expenditures & refund of withdrawals There are 3 stages in operation of the Special Account during project life: 1. 2. 3. Payment of Authorized Allocation or Initial Deposit Replenishment to Special Account Recovery of Authorised Allocation
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Special Account
Payment of Authorised Allocation (Initial Deposit)/Advance

Review wording of disbursement conditions in Schedule 2 of Financing Agreement/ LTB Ensure receipt of evidence of opening of SPA/ DA & Letter on authorized persons to operate account Check if opening of SPA is condition for effectiveness After IFAD payment, issue SPA letter The financing agreement may provide that authorised allocation/advance is paid in 2 or more tranches During project implementation, authorised allocation may be increased through amendment to financing agreement

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Special Account
Replenishment to Special/ Designated Account
Check following items

Exchange rate used

Frequency of submission of WAs

Adequacy of supporting documentation Correct use of summary sheets Replenishment during recovery period should equal the balance of the agreed percentage of expenditures duly justified Exercise care in reviewing WA to determine which expenditures are eligible under SOE & which are subject to supporting documentation Usually minimum 20% of Authorised Allocation

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Special Account
Recovery of Authorised Allocation (Initial Deposit)/Advance

Timing of recovery: monitor 2 trigger points, whichever comes first

Percentage of recovery: to be confirmed by CPM

Exchange rate to be used is historic rate at value date of payment of initial deposit Maintenance of SPA/ DA Initial Deposit/ Advance Recovery Control & reconciliation of unjustified balance with LGS

At start of recovery issue SPA/ DA Recovery Letter

Amount for refund to IFAD Unjustified balance per IFAD records; not balance in bank Unjustified balance should be reconciled with LGS When the initial deposit is fully justified, any balance in bank should remain with Borrower & should not be refunded to IFAD; all future replenishments are processed as reimbursements to Government

Loan account cannot be closed by IFAD if Authorised Allocation/ Advance is not fully justified or unjustified portion is not refunded to IFAD
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Special Account/ Statement of Expenditures

Special/ Designated Account

Statement of Expenditures

Relates to funding

Relates to the submission of prescribed form in lieu of required supporting documentation Eligibility is limited to coverage provided in Financing Agreement or prescribed by IFAD

Eligibility applies to all categories

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Special /Designated Account Reconciliation

To be provided with every WA for Replenishment

Reflects position of end of period covered by WA Should reflect all bank balances supported by bank statements as per Special/ Designated Account Reconciliation Format. Each line of SPA/ DA Reconciliation should be completed per Notes & Instructions enclosed

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Direct Payment (Procedure II)

Project instructs IFAD to make payment directly to a supplier, contractor, consultant, or any other third party

Minimum of approximately $20,000 equivalent for each Direct Payment

For payments below approximately $20,000, Project should use Designated Account funds Documentation should show evidence of: Amounts due (invoice, statement or demand note) Initial or advance payments, progress payments on contract (as recorded on the contract monitoring form), progress certificate & invoice/ purchase order

Note: Payment instructions in WA must be clear & complete 27

Special Commitment (Procedure III)

Disbursement procedure for payment of goods covered under a Letter of Credit

Stages / Processes
Project opens LC & sends WA to IFAD, with copy of LC & contract (Form 301) IFAD sends SC Letter to bank of supplier as guarantee of payment (Form 302) Bank sends request for payment to IFAD when LC conditions are met (Form 303)

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Special Commitment Procedure

General

A special withdrawal application (Form 301) is submitted by Project when agreed modality of payment for procurement of goods is through a

Letter of Credit (LC)

This WA is processed & reviewed using Checklist 3 for Special Commitment

After processing by CPM, certified Checklist is forwarded to Nairobi office

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Special Commitment Procedure

Issuance of Special Commitment Letter

Based on the certified Checklist, Nairobi office prepares a draft Special Commitment Letter (SCL), using Form 302 & sends it to finance division in Rome together with checklist for signature. LC details are duly reflected in the SCL. Completed SCL signed by Controller is mailed to negotiating bank (addressee of the SCL) with Form 303 as an attachment The value of the Special Commitment (the amount requested in WA Form 301) is converted into SDR using prevailing IMF rate as of preparation date & small percentage added to cater for exchange rate fluctuations SCLs that are issued for each loan/ grant are numbered sequentially Checklist is used to verify the steps in preparation & issuance of SCL

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Special Commitment Procedure

Payment Instructions on Special Commitments

Once the terms of LC are complied with, negotiating bank sends request
for reimbursement via SWIFT to IFAD Treasury or through written request for payment (Form 303)

Treasury sends SWIFT message of negotiating bank to Nairobi Office

After completion of checking process, Payment Order (PO) to pay the

negotiating bank is prepared using prescribed format for Special Commitment payment

The Payment that is authorised in PO is recorded in

Special Commitment Payment Summary, quoting WA number & LC Reference Number
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Reimbursement (Procedure IV)

An expenditure pre-financed by Government or other sources Reimbursed by IFAD in currency of expenditure Reimbursement applications should be submitted normally within 3
months from date of payment

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Withdrawal Applications

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Forms
Withdrawal Application Forms Application Summary Sheets Statement of Expenditure Forms. Register of Contracts Special/ Designated Account Reconciliation Statement Project WA Checklist IFAD WA Checklist

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WA Forms
Withdrawal Application Form 100

Sequential numbering irrespective of disbursement procedure used

All sections should be completed

Payment instructions must reflect complete name & address of bank & beneficiarys account number, including correspondent bank, if required

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Application Summary Sheet

Form 101-A (SA) & 101-B (Direct Payment/
Reimbursement to Government)

For direct payment and for reimbursement of expenditures not eligible under SOE

Supporting documents must be attached

Form 102-A (SA) and 102-B (to

Government) Supporting documents not required to be submitted; SOE form must be signed by designated Project staff

Prescribed form for expenditures eligible under SOE

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Supporting Documentation
For expenditures that are eligible under SOE
Prescribed SOE Form 102A or 102B, with certification text, duly certified by 3 designated signatories: Project Accountant, Project Coordinator & WA signatory

For direct payment to a contractor, supplier or consultant

Summary Sheet Form 101B, together with the following, as applicable:

Copy of invoice (or Demand Letter, Statement), certified for payment by Project
Coordinator

Copy of contract (for 1st progress payment) or contract monitoring form Copy of purchase order Copy of bank guarantee, for advance payment &/ or performance Copy of delivery receipt for goods Copy of certification for works completed on civil works Copy of consultants report, if required, for final payment to be made
Note: Since original copies of above documents are retained by PCU for audit purposes, a photocopy is accepted as supporting documentation

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Supporting Documentation
For replenishment to the Special/ Designated Account

The certified SOE form 102A, for eligible expenditures Summary Sheet Form 101A with copy of above documents (as applicable) plus evidence of payment (receipt or bank statement), for expenditures not eligible under SOE Special/ Designated Account Reconciliation Statement, together with Bank Statement by SPA/ DA holding bank

For Special Commitment Copy of Letter of Credit opened by Project Copy of contract For all WAs, irrespective of disbursement procedure

Project Checklist certified by Project Accountant & Project Coordinator Summary Breakdown by Category that adds up to WA amount

Copy of CPMs No Objection to procurement of goods, works or consultancy services

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SOE Procedure

CPM sends official notification on SOE coverage to Borrower

SOE arrangements specified in LTB

Amendment to Financing Agreement not required for changes in SOE coverage/ threshold unless SOE threshold is specified in Financing Agreement

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Statement of Expenditure
Provision in Financing Agreement
The Financing Agreement provision for SOE is always found in Schedule 2

Items that should be taken into consideration

SOE cases, taking into account whether threshold is applicable on contracts or expenditure The interpretation of the SOE coverage as provided in: (i) Financing agreement; (ii) Minutes of Loan Negotiation; or (iii) Agreement reached during Start-up Mission giving particular attention to financial ceiling (usually $20,000)

The types of expenditures normally fully eligible under SOE. Examples: Credit, Local training, Local salaries & allowances, Operating Costs & Civil Works on Force Account
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Statement of Expenditure
Prescribed SOE forms
SOE Form 102A for replenishment to Special/ Designated Account SOE Form 102B for reimbursement of pre-financed expenditures Certification text is required for each SOE form 3 signatures are always required: Project Accountant, Project Coordinator & WA Signatory

Other items to take note of

Relationship between SOE financial ceiling & procurement prior review threshold Proper filing system in PCU to enable audit trail during supervision missions Audit of SOE & separate opinion by independent auditor
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For Prompt Disbursements

Ensure (1) Authorised Signatories for WAs Banking Instructions, including correspondent bank Complete Supporting documentation Statement of Expenditure eligibility Procurement Procedures Terms of payment (contract payment terms) Currency of expenditure Correct % of financing Ensure (2)

Disbursement conditions are met (Sch 2 of Financing Agreement) Withdrawal Application Size: Direct Payment: usually minimum approximately $20,000 Repl. to SPA/ DA: 20% of Authorised Allocation/ Advance (or more) Exchange Rate correctly calculated Accuracy of computations
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Withdrawal Application Submission

WA Contents
Each WA submission should consist of the following

Required supporting documentation

Withdrawal Application Amount

If final WA amount approved is lower than WA submission, PO can be released & Project is advised on reductions made If the final WA amount approved is higher than WA submission, Project should be advised on findings & corrections made (in practice WAs may be processed in reduced (not increased) amounts from what is indicated in Form 100. If amount payable is more than what is in Form 100, project is advised to claim in subsequent WA) A WA can be authorised for partial payment & balance paid in separate PO

WA Checklist

(Form 105)

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Withdrawal Application Submission

Withdrawal Application Form 100

The preparation & approval of WA at project level is a long process

involving project staff & concerned officers in relevant Ministry

The Project is required to submit prescribed Form 100 signed by designated

WA signatory

WA without authorized signatures will not be processed When a WA is not signed at all or only 1 of 2 required signatories signed,
project is required to send new WA with required signature or signatures

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Withdrawal Application Submission

Written Communication
Written Communication from Project authority is required for the following:

Change of WA authorized signatories Original signed letter from

representative of Borrower

When PO already issued & payment was made on WA, Projects request
for adjustment in WA submitted Original signed letter from Project Coordinator

Confirmation on increase in WA amount as result of review Change in bank where Special Account is maintained Change of account number, in same bank, due to changes in banks
system

Confirmation of last WA submitted before closing of Loan Account

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Withdrawal Application Submission

Email Communication
Email Communication from Project authority is acceptable for the following:

Change in the category to charge Information on correspondent bank or change in correspondent bank

Any other relevant information provided by project relating to claim

in WA

Project should complete all sections in WA

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Foreign Exchange Translation

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Foreign Exchange Translation

Usage of Exchange rates
The usage of exchange rates in IFAD loans applies to one of the following areas: 1. Conversion of IFAD financing in US Dollars (USD) to Special Drawing Rights (SDR) Conversion of withdrawals from loan account based on approved WAs submitted in various currencies into SDR For replenishment to Special Account, conversion of local currency expenditures funded from Special Account into currency denomination of Special Account, e.g. USD, Euro Conversion of amounts submitted through WAs as justification of authorised allocation (initial deposit) to Special Account
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2.

3.

4.

Foreign Exchange Translation

Conversion of IFAD Loan into SDR

The IFAD loan is reflected in Design Report in US Dollars

During financing negotiations between representatives of Borrower & IFAD,
US Dollar loan amount is converted into SDR using prevailing USD/ SDR rate at the end of month preceding loan negotiation

Likewise, amounts allocated to each category are converted into SDR

using same exchange rate

Financing amount is fixed & is reflected in relevant sections of financing

agreement

If the project is partially financed from a grant, known as project-component

grant, grant amount is also denominated in SDR

SDR rate are listed on a daily basis by the International Monitory Fund &
available through its website www.imf.org
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Foreign Exchange Translation

Conversion of withdrawals made from Loan/ Grant Account

Loans & project-component grants are denominated in SDR Disbursements from loan/ grant account are made in currencies in which expenditures to be financed from loan/ grant proceeds have been paid or are payable Each withdrawal application that is submitted by Borrower is paid in currency requested in WA & approved by IFAD The payment made is converted into SDR using prevailing rate as of value date of payment, i.e., date of debit of IFADs bank account for equivalent amount of disbursement For withdrawal requests denominated in currencies other than USD, requests are converted first into USD using prevailing UN rate during month of payment thereafter converted & SDR as above
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Foreign Exchange Translation

Conversion of local currency expenditures funded from Special Account

When preparing WA for replenishment to Special/ Designated Account, local currency expenditures are converted into denomination of Special Account, using prevailing rate at time of transfer of funds from Special Account to

Project Operating Account in order to recoup actual value of transfer made

One of the tools to be used by Project in monitoring special accounts movements & operation is Special/ Designated Account Reconciliation Statement. This statement is submitted with each WA for replenishment to Special/ Designated Account

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Foreign Exchange Translation

Conversion of WAs used as Justification (or Recovery) of Initial Deposit/ Advance to Special/ Designated Account

2 trigger points for start of justification of initial deposit/ advance to Special/

Designated Account; whichever comes first shall be applied:
a) b) 6 months before Project completion Date, or When undisbursed balance of financing, less outstanding Special Commitments, is equal to twice the amount of Authorised Allocation

When either of the trigger points is reached, each request for replenishment
to Special/ Designated Account will be used partially or in full, as
justification of Authorised Allocation/ Advance

Exchange rate used for partial/ full justification is historic rate rate at which
authorised allocation/ advance was paid
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Closing of Loan & Project

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Closing of Loan & Project

Conclude execution of all service contracts to be financed by IFAD before Project Completion Date
Review procurement plan

Check table on physical & financial execution of contracts

Propose solutions that facilitate complete execution of works Cancel contracts that cannot be executed in allotted time

Review inventory of fixed assets

List of assets detailing: type, date of purchase, purchase value, residual value,
recommended assignment or disposal

Back-up of files and documents for 10 years

Create database in-country
Secure files keep under lock & key! Project Completion Report, lessons learned, evaluations & other future uses
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Closing of Loan & Project

Winding-up staff on completion date

Review staff roster noting provisional dates of contract termination

Calculate staff compensation

Verify availability of financing & national resources

Positions generally maintained until financing closing date (6 months after project completion date):
Project Coordinator Financial & administrative officer/accountant M&E Officer

Person in charge of follow-up/evaluation

Secretary Drivers & guards as needed 55

Closing of Loan & Project

Winding down

1 year before Project Completion Date (PCD):

CPM informs Project of approaching PCD & remind of eligibility requirements

6 months before PCD:

Start recovery of Special Account initial deposit Determine rate of recovery

All activities must be completed by PCD

On or after PCD:
Monitor payments on contracts determine eligibility

Between PCD and Loan Closing Date (LCD)= winding up period:

Project must send letter to CPM explaining plan of action & projected expenditures
Monitor payments on contracts - only those completed by PCD are eligible Only winding-up expenditures are eligible 56

Closing of Loan & Project

Eligibility Requirements for Expenditures

Goods delivered; civil works completed; services rendered; on or before PCD

Winding-up Expenditures (between PCD & LCD)

Salaries & allowances of key project staff

Operating Costs Project Completion Report costs Final audit report fees
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Closing of Loan & Project

Loan Closing

If additional time is required by Borrower to submit WA for eligible expenditures, Borrower should contact CPM to establish grace period

CPM requests Loans Unit to keep loan account open to accommodate payment of late WAs

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Closing of Loan & Project

Procurement in Project Completion Process

To ensure:
closely review all goods are delivered/ works completed/ services rendered by project completion date: monitor final procurement plan & progress reports during last year of project take measures to facilitate completion of physical execution of contracts

cancel contracts that cannot be executed within completion date

Ensure only contracts executed by project completion date are paid Ensure procurement files are complete & obtain missing documents from project Report on lessons learned & make recommendations for future projects

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Closing of Loan & Project

Recovery / Justification

Each WA processed/approved as justification - partial or full :

is not a disbursement from loan account
is used as justification only is converted into SDR at rate used at value date of payment of initial deposit, i.e., historic rate

Any amount of initial deposit that remains unjustified at closing date of Financing, is promptly refunded to IFAD in currency used by IFAD for purpose of withdrawal from Loan Account Refund to be made to IFAD is unjustified portion of initial deposit - not balance in bank where Special Account is held

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Closure of Loan Account

Requirements

SPA Initial Deposit is fully recovered / justified

Last WA is confirmed by Project Authority to IFAD Project ensures all eligible expenditures are claimed for payment Final Audit Report submitted Project Completion Report accepted by IFAD

Undisbursed balance of financing is cancelled by IFAD

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Thank You

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