Summary
Following a request of the Evaluation Committee
of IFAD's Executive Board for a Thematic Study (TS) on the relationship
between IFAD and its Cooperating Institutions (CIs), the following report
is a response to that request. The TS is based on the use of data from
IFAD's various information systems and databases, and in particular, a
comprehensive review of 322 Project Files, including approximately 2 200
Supervision Mission Reports and about 900 IFAD staff Back-to-Office Reports,
which provided sufficient quantitative data for carrying out the analysis
of several issues. In addition, significant information was gathered from
over 30 interviews with experienced IFAD staff as well as a consultation
with IFAD staff on their perceptions concerning the performance of CIs.
Complementary information was also collected from the CIs.
IFAD entrusts the administration of its
loans and the supervision of its projects to CIs. So far, the Fund has
established agreements with 15 CIs, of which, 10 have effectively been
involved in more than 320 IFAD operations. IFAD has pioneered a working
arrangement whereby it relies on a number of cooperating agencies to carry
out, on its behalf, designated duties which the CIs are expected to perform
according to their own technical standards, while at the same time conforming
to IFAD's mandate and policies. In addition to supervising projects and
administering loans, the CIs, according to the provisions of the cooperation
agreements, can also perform preinvestment activities (e.g. project identification,
preparation and appraisal) on behalf of the Fund.
As these functions have grown over time,
a number of questions have arisen which the TS seeks to address: firstly,
the quality of services provided by CIs in supervision tasks and their
effectiveness in project implementation; secondly, whether, in performing
their various functions, CIs respond to IFAD's specific concerns; and
thirdly, a growing concern regarding the costs of these services.
Two 'guiding questions' have oriented the
TS:
(a) How have IFAD's relationships with
CIs evolved since 1978?
(b) What are the costs and benefits of
these relationships?
The answers to the above questions, and
the findings of the TS and its specific conclusions on the various themes
analyzed have led to the following Main Conclusions:
First
main conclusion
IFAD's relationships with CIs shows a pattern
with two different phases. From 1978 to 1984, IFAD's relationships
with larger International Financial Institutions (IFIs) CIs (i.e. the
World Bank and the Regional IFIs), were strong and growing steadily while
relationships with non-IFIs CIs (i.e. United Nations Development Programme/Office
for Project Services (UNDP/OPS)) and smaller subregional IFIs were rather
marginal. From 1985 to 1991, there has been a new trend: a progressive
divergence between IFAD and the larger IFIs-CIs is recorded, along with
the growing role of UNDP/OPS and, to some extent, small subregional IFIs-CIs.
Second
main conclusion
The costs and benefits of IFAD's relationships
with CIs are associated with the two different phases above mentioned.
The First Phase (1978-1984) has
had the following main benefits:
(i) IFAD's initial technical and financial
inexperience was compensated for by the support received from the larger
CIs-IFIs.
(ii) IFAD's capacity to provide financial
assistance was made possible through the cofinancing of numerous projects
with funds from the CIs-IFIs.
(iii) IFAD's costs at preinvestment stages
of the project cycle (i.e. Identification, Preparation and Appraisal)
were highly "subsidized" by the CIs-IFIs which financed most
of these expenditures.
(iv) Project Supervision Costs were mainly
financed by the CIs-IFIs because of the comparatively high percentage
of CI-initiated projects.
The main costs of the First Phase
have been the following:
(i) As a consequence of IFAD's limited
participation in CI-initiated projects, in many cases, IFAD's main concerns
with respect to the target-group and other aspects associated with the
terms of the Fund's Lending Policies and Criteria were not fully taken
into account.
(ii) IFAD-initiated projects carried out
by CIs-IFIs faced similar problems at the Appraisal stage.
(iii) IFAD's participation in Project Supervision
and Loan Administration tasks was marginal. Over time, different perceptions
between IFAD and the CIs provoked growing divergencies on the priorities
and issues to be addressed during project implementation.
The Second Phase (1985-1991) has
shown the following benefits:
(i) The development of IFAD's so-called
'specificity' is the main benefit of this phase in which IFAD has become
increasingly involved in project preinvestment stages, in turn generating
a process of formulation of new objectives and new and more adequate instrumentalities
for IFAD's projects.
(ii) IFAD's progressive self-reliance and
experience in project formulation has, in turn, had a positive effect
on the development of new capabilities for Project Supervision and Loan
Administration in UNDP/OPS and various subregional IFIs-CIs.
(iii) IFAD's capacity for mobilizing cofinancing,
other than through traditional IFIs-CIs, has developed significantly in
the last years.
The main costs of this Second
Phase are the following:
(i) IFAD's financial assistance decreased
in real terms due both to a reduction in IFAD's resources and the growing
absence of cofinancing from CIs, given the emphasis on structural and
sector adjustment by the major IFs, especially the World Bank.
(ii) IFAD's costs associated with preinvestment
activities grew significantly in absolute and relative terms. IFAD's total
Project Supervision costs also increased significantly as CI-initiated
projects became more and more marginal. As a consequence, IFAD might face
a critical situation in the medium term if no corrective actions are taken.
(iii) In the last seven years, the growth
of IFAD's operational expenditures is almost double the growth of IFAD's
loan portfolio.
(iv) A growing gap in technical, personnel
and institutional terms has developed between IFAD and various of the
larger IFIs-CIs.
Specific
findings and conclusions
The two Main Conclusions presented are
based upon a set of findings and specific conclusions of the TS. These
are organized according to the following elements analyzed by the TS.
(a) IFAD's mandate regarding the establishment
of relationships with other international organizations.
(b) Legal links established between IFAD
and the different international institutions, particularly CIs.
(c) Evolution of the actual involvement
of CIs in IFAD operations.
(d) The role of CIs in the preinvestment
stages of IFAD's project cycle.
(e) The role of CIs in Project Supervision
and Loan Administration.
(f) Costs of CI functions.
(g) IFAD's specificity and the relationships
with CIs over time.
Conclusion 1
IFAD has fully met the requirement of establishing
relationships with other international organizations. However, in spite
of having concluded 33 Cooperation Agreements (CAs), the actual work is
restricted to no more than one-third of these institutions. It could even
be argued that IFAD could work with still fewer than the ten with which
it is actively engaged.
Recommendation
1
At an opportuned point in the future, IFAD
might consider reviewing its criteria for pursuing collaborative arrangements
with CIs with a view to eventually limiting their number. Elements of
such criteria may include, inter alia: past experience with
pre-investment and/or supervision/loan administration activities in terms
of response to IFAD's concerns, costs of services, and the cofinancing
record of IFAD-initiated projects. It is not recommended that this exercise
take place now in order to allow time for some recently approved smaller
CIs to fully express their very encouraging propensity to work with IFAD.
A hasty decision to focus, for example on a few major CI-IFIs may lead
to lost opportunities to develop and preserve IFAD's specificity.
Conclusion 2
IFAD's requirements in working with CIs
were, in a first stage, adequately articulated within the legal framework
designed for the establishment of relationships with CIs. However, these
legal tools were not used to their full potential, e.g., the Letters of
Appointment were not modified to take into account changes in IFAD's policies
and procedures. The response of CIs has been mixed: while the large CIs
have introduced formal procedures to deal with IFAD, without major adaptation
to IFAD policy changes, the smallest CIs have been able to develop a few
formal instruments and were much more responsive to IFAD's demands.
Recommendation
2
IFAD should introduce amendments to some
of the legal instruments which link the Fund to the CIs. In particular,
the following measures should be considered:
(i) Introducing as an annex to the CAs
a standard formal document which would summarize the most important requirements
for the satisfactory supervision of IFAD-financed projects, in conformity
with policies derived from the development of the Fund's areas of specificity
in recent years. Such document, the content of which may slightly vary
according to the CI concerned, should contain specific directives judged
necessary as a result of lessons learnt in past collaboration with each
CI. The content of the document would be updated as policy changes occur.
(ii) A new format and content of the Letters
of Appointment to CIs must be formulated. This new format should introduce
special sections to provide clear instructions to the corresponding CI
on the main aspects of each project which constitute IFAD's main concerns
and require special attention during supervision.
Conclusion 3
The actual involvement of the larger CIs
(e.g. the World Bank and the regional IFIs) in IFAD's operations has been
drastically reduced in the last seven years. The main reasons for this
reduction in cooperation between IFAD and the oldest CIs (i.e. the World
Bank and the regional IFIs) were the changes in CI policies and priorities
regarding rural development and rural poverty alleviation in the mid-1980s,
while IFAD has persisted in pursuing its mandate. The development of IFAD
specificity and the corresponding formulation of specific objectives and
instrumentalities added new demands which larger CIs could not always
meet, given their emphasis in the case of the World Bank, thus reducing
the opportunities for cofinancing with IFAD. A policy of CI diversification
was also decided upon in that period.
Changes in the world economic context are
leading to a revival of the major CIs' concerns regarding poverty alleviation.
This process, together with IFAD's need to increase the participation
of CIs in cofinancing activities, could serve as the basis for a reinforced
link between these CIs and the Fund. However, past experience must be
taken into account in order to ensure better services on a sustainable
basis.
Recommendation
3
The steps being taken by IFAD to re-establish
a proper balance in its collaboration with CIs, with a view to enhancing
opportunities for cofinancing CI-initiated projects, should be pursued
but efforts must be made to ensure that those projects always meet a minimum
set of IFAD basic requirements especially with respect to project beneficiaries.
To this effect, inter-agency meetings on policy and operational matters
should be encouraged.
Conclusion 4
With the exception of FAO, no major involvement
of CIs in Project Identification and Preparation has ever been recorded
for IFAD-initiated projects. Since 1985 a strong trend has developed towards
reducing the number of Appraisals undertaken by CIs. Consequently, IFAD's
direct participation in all preinvestment stages of the project cycle
has been consistently increasing. Currently, most preinvestment activities
are carried out by IFAD.
Recommendation
4
IFAD's direct involvement in standard formal
Identification Missions should be reduced, bearing in mind that proper
identification can now count on in-house country and project knowledge
to the fullest extent possible. Likewise, the number of IFAD-initiated
by CI-appraised projects could be increased to reduce the workload and
direct responsibility of IFAD staff in that complex exercise.
Conclusion 5
Although there is no "Golden Rule"
for Project Supervision, as presently undertaken for the average
IFAD project, supervision can not be considered fully satisfactory. One
supervision Mission (SM) every eight months, composed primarily of two
staff members of the corresponding CI with an average stay of five working
days, does not provide enough supervision inputs for the types of projects
that characterize IFAD's operations. Moreover, less than one-quarter of
IFAD projects have included start-up or inception missions. There are
wide disparaties among CIs regarding this indicator: in general, UNDP/OPS
and small CIs-IFIs have carried out more of these missions. Concerning
timeliness of SMs, the records show that one-fifth of all projects did
not receive any SM in the first two years of implementation.
Recommendation
5
IFAD should review its SM requirements
and related average manpower coefficients to ensure that:
(i) no project receives less than one SM
per year, while problem projects receive adequate assistance in terms
of amount and quality of required supervision.
(ii) all CIs undertake start-up missions
(inception missions) in order to facilitate the compliance of effectiveness
conditions and/or to help in designing the programme of work for project
implementation.
Conclusion 6
There are differences in the supervision
inputs provided to different project-types and regions. Nevertheless,
these differences do not show significant disparity. But, there are significant
variations in supervision outputs produced by different CIs. IFAD has
to deal with heterogeneous Supervision Reports (SRs), different formats
and rating systems in order to measure project implementation performance.
IFAD, for its part has, in the course of carrying out the TS, compiled
a large database on supervision costs and impact.
Recommendation
6
IFAD should pursue its current efforts
to design a general format for SRs or, at least, negotiate with the different
CIs so that they include a minimum and homogeneous critical mass of project
data in all SRs. More particularly, in carrying out this work, it would
be useful to take into account the identified information flaws as well
as remarking on the quality of SRs.
IFAD should, moreover, systematically adopt
and apply a standard set of ratings to measure project implementation
performance. This should also be negotiated with the CIs. In addition,
much more attention should be paid during SMs to the contextual changes,
especially policy changes in the borrowing country, and their effects
on project implementation outcomes.
Conclusion 7
There are deficiencies in IFAD's SR filing
system since more than 10% of SMs do not have the corresponding reports
on file. These flaws are aggravated by the omission of important data
in the SRs.
Recommendation
7
The storage of information provided in
IFAD's SM reports should be urgently reviewed to ensure that complete
up-to-date information is available at all times for loan portfolio management
and evaluation purposes. The SR format referred to under Recommendation
6 should address the issue of the critical mass of proper data.
Conclusion 8
A statistical analysis of data on supervision
and project implementation performance has shown that there is not a significant
relationship between supervision efforts and project implementation performance.
This finding must be considered carefully since it implies that the quality
of supervision by CIs may have serious limitations and new approaches
should be explored. At the same time, there is evidence that significant
experience has been gained in loan administration work within IFAD. The
acquired experience could be useful for eventual experimentation with
new Project Supervision and Loan Administration approaches.
Recommendation
8
With a view towards identifying new and
efficient approaches to Project Supervision, IFAD should undertake in
a few selected projects, pilot-experiences in Project Supervision and
Loan Administration, taking into account a past experience with CIs as
well as internal know-how developed in the administration of technical
assistance grants and in the case of a few loans (under special circumstances
of capacity loss by a CI). IFAD management may want to study this proposal
further and seek authorization from its governing bodies to proceed. Two
complementary approaches, within the framework of such pilot experiences,
are recommended:
(i) IFAD should work out new and different
supervision agreements, particularly with those CIs which have so far
displayed a good understanding of IFAD specificity.
(ii) In some selected cases, IFAD should
carry out independently the supervision and loan administration of its
projects.
Conclusion 9
IFAD's direct involvement in supervision
shows a growing trend. More than one thousand IFAD visits have been carried
out to partially supervise project implementation: the participation of
299 IFAD staff in SMs carried out by CIs, 650 independent IFAD staff visits
to projects and 150 IFAD consultant follow-up missions summarize IFAD's
efforts in these tasks.
Recommendation
9
IFAD's direct involvement in supervision
derives principally from the need to preserve the Fund's identity by ensuring
that projects being implemented are essentially in line with proposals
approved by the Executive board. In this respect, IFAD management is accountable
to its governing bodies. Therefore to the extent of the availability of
the financial and human resources, such direct involvement should be maintained.
However, it should be focussed more and more on selected projects with
a view to drawing lessons on new and/or enhanced approaches to Project
Supervision and Loan Administration as discussed under Conclusion 8 and
the corresponding Recommendation.
Conclusion 10
Payments to CIs and consultants represent
40% of total IFAD operational expenditures. These costs show a growing
trend, although average real costs corresponding to the preinvestment
stages, as well as to Project Supervision, have not increased in the last
14 years. In fact, they have slightly decreased in real terms. World Bank
costs are 50% higher than the average cost of the rest of CIs for Project
Supervision, but are in line with IFAD's costs for preinvestment activities.
IFAD's operational expenditures represent
1.6% of the Fund's total portfolio. In the last five years, these expenditures
have grown at 17% a year and supervision costs have grown at 20% a year.
This trend could affect IFAD's financial viability in the medium term
given the slower growth of IFAD's loan portfolio (e.g. 12% per year) and
the corresponding slower increase in financial income.
Recommendation
10
IFAD should make it a policy (and practice)
to build up its new project pipeline to the fullest extent possible on
the basis of its staff's country and project experience, as suggested
under Recommendation 4, thereby reducing project identification costs.
With respect to project preparation, sustained efforts must be made to
use local expertise through individual consultants, universities and relevant
private institutions, with the expectation that if carefully selected,
the local experts concerned should be able to perform satisfactorily with
limited external inputs after a few project preparation exercises. The
result should be an overall cost reduction to IFAD and capacity-building
in the countries concerned. As regards Appraisal and Supervision costs,
IFAD should maintain its current practice of cost reimbursement negotiations
with CIs.
In connection with the proposed supervision
experiment (pilot-experiences) under Recommendation 8, a detailed feasibility
study should be undertaken in order to properly assess the alternative
costs of loan administration work. The results of this proposed study
would provide a sound basis for making decisions with respect to the growing
direct involvement by IFAD in these tasks.
