Lending Instruments

Since starting operations more than 40 years ago, the Bank’s development assistance has been channelled through various instruments. Right up to the early 80s, the conventional instruments used by the Bank were mainly project loans, including lines of credit, and technical assistance. However, since the mid-1980s, the need for structural reforms called for the introduction of a different mechanism to ensure faster-disbursing and policy-based loans. This led to the introduction of Structural Adjustment Programmes at the macro-economic level, and Sectoral Adjustment Programs at the sectoral level via  Structural Adjustment Loans (SALs) and Sectoral Adjustment Loans (SECALs).

The Bretton Woods Institutions (BWIs) have played a leading role in the design and formulation of these programmes. The Bank has, however, become an active partner in the process, in a complementary context. In order to strengthen its future participation in Policy-Based Lending (PBL) operations, the Bank is playing a more active role in background studies and policy dialogue to ensure it adds value to the content and design of policy framework papers.

The Bank would adopt a flexible approach and will use a balanced set of instruments in order to meet the variegated needs of its clients. In this context, the Bank intends to enhance the role of SECALs and SIPs, and also participate in the design of future adjustment programmes aimed at addressing issues relevant to the areas of strategic interests outlined in this paper. The Bank would also work closely with the World Bank to conduct joint Public Expenditure Reviews (PERs) to ensure that budgetary resources are allocated to reflect the priority areas of poverty reduction.

Technical assistance, under ADF, has been provided via the Technical Assistance Fund (TAF) to assist the institution's regional member countries build institutional capacity mainly through training and studies, planning support and policy guidance. The Bank would improve the effectiveness of TAF operations by casting sector studies within the framework of the Country Strategy Papers to ensure that studies are operationally relevant and demand-driven and continue to help AfDB countries in mobilizing funds for their technical assistance programmes. A participatory approach, spanning the entire project cycle, would be adopted to also ensure that study designs address the needs of targeted beneficiaries.

The Bank would place more emphasis on assistance relating to the project cycle, with particular reference to quality-at-entry, to enhance overall quality of projects. In order to engender greater borrower commitment and ownership at the preparatory phase, the Fund would need to adopt a new instrument that allows Bank Group regional member countries pre-finance project start-up activities in the early phase of the project cycle. To this end, the Bank would introduce a Project Preparation Facility (PPF) to both Categories A-only and B coun¬tries. Finally, TAF resources would be used to provide institutional capacity building assistance in post-conflict situations and also facilitate resumption of dialogue in affected RMCs.

Need for Lending Instruments

The Bank would continue to adjust its operations by adapting existing instruments and adopting new instruments, when necessary, to assure efficient delivery of services to the changing needs of its clients.

In this context, the emphasis on participatory approaches to development has raised the need for a more holistic approach to development. This is leading to some shift from a project-specific approach to a program or sector approach, where all stakeholders, including targeted beneficiaries of the civil society, the donor community, and borrower countries are involved from the onset of program design to its implementation to ensure true ownership by Bank Group regional member countries.

In response to the current emphasis on programs and participatory approaches to development, the Bank is collaborating with the World Bank and other development partners to facilitate the adoption and internaliza¬tion of Sector Investment Programs (SIPs) at the country level.

Unlike the projects, SIPs serve as the vehicle for a joint approach to country programming at the sectoral level, and therefore, have the advantage of coordina¬ting actions of development partners at the sectoral level. Thus, SIPs help to minimise duplication of effort by ensuring that the borrower is in the driver’s seat and all stakeholders are in full participation of the development program of an RMC. With SIPs, complementarity and synergy can be built among development partners through shared experiences, best practices and lessons learned. This way, the risk of failure can be minimised, while enhancing development impact.

The appropriate lending instruments for SIPs are Sector Investment Loans (SILs), which the Bank has already introduced into its existing operations: the Bank has participated in SIPs in Malawi and Ethiopia with the World Bank and other development partners, and intends, to expand the use of these new instruments to better respond to the changing needs of its clients.