In September 2010 IFAD’s Executive Board approved the establishment of a EUR 300 million Spanish Food Security Cofinancing Facility Trust Fund. The Trust Fund allows IFAD to increase the total amount of external resources available to member states from developing countries during the Eighth Replenishment period ending in 2012. The demand from these countries far exceeds the current available funding and the Spanish cofinancing offers a unique opportunity to scale up IFAD-funded projects, enabling them to have a larger and more meaningful impact.

Hunger and rural poverty are top priorities for the Spanish Master Plan 2009-12 .The Government of Spain considers IFAD to be a reliable partner to manage resources to finance projects and programmes focusing on food security and agriculture. IFAD will administer the Trust Fund as Trustee.

The Trust Fund is just one component of a strategic partnership to be established between IFAD and the Government of Spain, which further develops the ongoing Partnership Agreement signed in 2007. It represents an innovative source of funding. This is the first  time that IFAD administers a Trust Fund which borrows money from a third party. The Trust Fund will use these resources to  provide  loans to member states under IFAD’s lending terms.

Similarly, through the Trust Fund, Spain fulfills its  global commitments to food security, agriculture and rural development. The Trust Fund is an example of strategic engagement in international development advancing the Paris Agenda, avoiding duplication of efforts, as well as supporting a stronger role for the multilateral partners. The financial model developed by the two parties ensures sound management of the resources which will increase the funds available for IFAD projects and safeguard the Spanish investment. In case of future adverse unforeseen events, Spain will provide grants to balance the Trust Fund.

Terms and conditions of the Trust Fund

The Trust Fund consists of a EUR 285.5 million loan and a grant of EUR 14.5 million. The basic terms and conditions of the Trust Fund are:

• Principal: EUR 285.5 million paid to the Trust Fund in a lump sum in December 2010
• Interest rate:  Euribor 12 months
• Maturity:  45 years
• Repayment: The total amount of loan repayments collected from Trust Fund borrowers  according to the relevant amortization schedules annually
• Allocation: IFAD to commit funds during the Eighth Replenishment period
• Grant:  EUR 14.5 million payable to the Trust Fund in four years (this grant money is provided to lower the average interest rate).

Spain will provide additional grant money to cover any negative annual balance of the Trust Fund and to cope with the unlikely event of a default or arrears. Excess balance of the grant at liquidation of the Trust fund will be returned to Spain.

Eligibility and allocation criteria

Taking into consideration the geographic priorities in the Master Plan of the Spanish Cooperation 2009-2012, IFAD member states eligible to receive IFAD loans may be considered as borrowers under the Trust Fund. Funds shall be distributed among the various types of IFAD loans in such a way that at least 50 per cent of available resources shall be granted to borrowing countries in the form of loans on ordinary terms. No more than 37 per cent of available funds shall be granted to borrowing countries in the form of loans on highly concessional terms. This will ensure the financial sustainability of the Trust Fund.

When a country’s performance-based allocation system (PBAS) allocation has been fully committed and the potential borrowing government is capable of taking on extra funding, it is eligible to receive loans from the Trust Fund. IFAD member  states with no PBAS and member states in arrears cannot borrow.

The Spanish cofinancing will provide, on a demand-driven basis, incremental resources for countries in which the Eighth Replenishment resources do not fully meet the demand. This will make a substantial additional contribution to scaling up IFAD-funded projects and programmes.

Governance

The governance structure of the Trust Fund  is part of the governance of IFAD, as follows:

• Submission of projects by the President to the Executive Board for approval;
• Approval of projects by the Executive Board; and
  
• Implementation of projects by the relevant IFAD regional divisions

Projects funded through the Trust Fund will go through the same quality enhancement and quality assurance processes as other IFAD-supported projects. The Lapse-of-Time (LOT) procedure cannot be used for Spanish cofinancing.

Lending terms

The loans  provided under the Trust Fund will be denominated in Euro. Loan disbursements can be executed in Euro or any other currency. The repayment of principal and interest can be executed in any currency while ensuring the repayment of the Euro equivalent as per disbursement schedule.

The accounts of the Trust Fund and its nominal financial statements will be expressed in Euros.

Interest rates and terms are identical to IFAD’s terms.  The interest rate will be linked to the Euro libor and communicated periodically together with the SDR interest rates.   The Trust Fund will be aligned with the policies and practices of IFAD, which will lend the Spanish cofinancing funds at the same terms and conditions as the regular resources. Any change made to IFAD’s Lending Policies and Criteria will not apply to the Trust Fund resources unless agreed by the signatories.

Information and monitoring

The Trust Monitoring Committee will meet at least once a year, preferably in October, to review progress on the execution of the Trust Fund. IFAD as Trustee will periodically report to Spain on Trust Fund loan operations and loans committed, as well as investments made with available Trust Fund resources. IFAD will also submit regular information on project progress.