Finance
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IFAD Financial Products and Terms - IFAD
Financial products and terms
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IFAD Lending Terms
Lending terms are determined in accordance with the Policies and Criteria for IFAD Financing and the Framework on IFAD Financing Conditions. They are primarily based on a country's gross national income per capita (GNI), as per World Bank calculation, and a creditworthiness assessment.
Through the Debt Sustainability Framework, Performance-Based Allocation System (PBAS) resources are provided for grants and loans on super highly concessional, highly concessional, blend and ordinary terms. Borrowed Resources Access Mechanism (BRAM) resources are provided only in ordinary terms.
Lending and financial terms
The Transition Framework establishes the principles and procedures for the transition and reversal of a country's lending terms. The terms applicable are reviewed prior to the start of every replenishment period and are effective in principle for the three-year period.
Lending terms are reviewed annually. Subject to internal assessment, if a country becomes eligible for less concessional terms, the new terms are applied gradually over the replenishment period using a phasing-out/phasing-in mechanism. If a country becomes eligible for a reversal to more concessional terms, the reversal is effective the following calendar year.
For highly concessional terms, eligible Member States are normally those that, at the end of the year before the start of the replenishment period:
have a GNI per capita lower than or equal to the operational cut-off as determined annually by the International Development Association (IDA);
have a GNI per capita higher than the operational cut-off but not classified by IDA as "gap countries" or "blend countries"; or
are classified by IDA as a "small state economy".
For blend terms, eligible Member States are normally those that, at the end of the year before the start of the replenishment period, are classified by IDA as a "blend" or "gap" country.
For ordinary terms, eligible Member States are normally those that are not eligible for loans on highly concessional or blend terms.
The Debt Sustainability Framework (DSF) is a conceptual framework for providing grant resources to eligible countries. The framework is based on technical economic country analyses called Debt Sustainability Analyses (DSAs), which are conducted by the International Monetary Fund and/or the World Bank in collaboration with the countries concerned.
One of the key outputs of a DSA is the risk of debt distress, which can be: (i) low; (ii) moderate with substantial space; (iii) moderate with limited or some space; (iv) high or in debt distress. This classification determines which financing terms are applicable within the DSF Framework.
Countries at moderate risk of debt distress with substantial space to absorb shocks will receive their PBAS allocation in the form of loans in highly concessional terms with small state amortization profile.
Countries at moderate risk of debt distress with limited or some space to absorb shocks will receive 80% of their PBAS allocation in the form of loans in super highly concessional terms and 20% of their PBAS allocation in the form of loans in highly concessional terms with small state amortization profile.
Countries in debt distress or at high risk of debt distress will receive 100% of their PBAS allocation as a grant.
Grants provided under the Debt Sustainability Framework are not subject to a service charge or other fee. No commitment fee or front-end fee is applied on IFAD loans financing. Additionally, there is no cancellation fee or penalty for early repayment.
The NCBP addresses the problems of moral hazard and free riding in concessional lending. It deepens creditor coordination around the DSF and allows IFAD to apply remedies to countries that are borrowing excessively on non-concessional terms. These include a cut in the borrower's allocation or hardening of a borrower's lending terms.
Financing details
Loans on super highly concessional terms have a maturity period of 50 years, including a grace period of 10 years starting from the date of approval by the Executive Board. They are offered free of interest but bear a service charge on the principal amount outstanding, subject to a floor of 0.10 per cent per annum in special drawing rights (SDR) with adjustments made for single-currency loans in USD and EUR.
The amortization of a super highly concessional principal of loan is set at 2.5 per cent of the total principal withdrawn per annum from years 11 to 50.
Loans on highly concessional terms have a maturity period of 40 years, including a grace period of 10 years starting from the date of approval by the Executive Board. They are offered free of interest but bear a service charge on the principal amount outstanding, subject to a floor of 0.75 per cent per annum in SDR with adjustments made for single-currency loans in USD and EUR.
The amortization of a highly concessional principal of loan depends on whether the Member State is:
- a small state economy: the amortization is set at 2 per cent of the total principal withdrawn per annum for years 11 to 20, and 4 per cent of total principal withdrawn per annum for years 21 to 40.
- not a small state economy: the amortization is set at 4.5 per cent of total principal withdrawn per annum from years 11 to 30, and 1 per cent of total principal withdrawn per annum from years 31 to 40.
Loans on blend terms have a maturity period of 25 years, including a grace period of five years starting from the date of approval by the Executive Board. They bear a service charge on the principal amount outstanding, subject to a floor of 0.75 per cent per annum with adjustments made for single-currency loans.
In addition, interest is payable on the principal amount outstanding at a fixed rate of 1.25 per cent with adjustments made for single-currency loans in USD and EUR, subject to a floor of zero per cent. The principal of loan is amortized at 5 per cent of the total principal withdrawn per annum from years six to 25.
Loans on ordinary terms are provided in variable interest rates. The variable interest consists of a market-based variable reference rate, a variable spread and a maturity premium. The variable spread will be determined quarterly and applied over market-based rate (that together form the IFAD reference interest rate).
Effective 1st January 2022, IFAD introduced differentiation according to a country's per capita income for access to average repayment maturity buckets and the application of a maturity premium.
Loans approved in IFAD11 (2019-2021) will maintain the same maturity premiums applicable at the time of the approval.
Ordinary terms loans approved from 1st January 2022 are categorized as follows:
- Category 1 includes lower-income countries (LICs) and lower-middle-income countries (LMICs) eligible for super highly concessional, highly concessional and blend terms. These countries will be subject to the standard maturity premium differentiation which, together with the other elements of the pricing structure, will ensure a minimum recovery of IFAD’s cost of funding the borrowed resources.
- Borrowers eligible for this category will have access to resources subject to a maximum of 35 years maturity and 10 years grace period, with a maximum average repayment maturity of 20 years.
- Category 2 includes LMICs non-eligible for category 1 (already accessing semi-concessional loans), borrowers transitioning from blend terms to semi-concessional loans, creditworthy fragile and conflict-affected states, and small state economies that are eligible for borrowing from the International Bank for Reconstruction and Development. These countries will be subject to a maturity premium higher than category 1.
- Borrowers eligible for this category will have access to resources subject to a maximum of 30 years maturity and 8 years grace period, with a maximum average repayment maturity of 18 years.
- Category 3 will include upper-middle-income country (UMIC) borrowers with a GNI per capita below the Graduation Discussion Income (GDI) threshold that do not qualify for an exemption listed within category 2. These countries will be subject to a maturity premium higher than category 2.
- Borrowers eligible for this category will have access to resources subject to a maximum of 20 years maturity and 5 years grace period, with a maximum average repayment maturity of 15 years.
- Category 4 will include UMICs with GNI per capita above the GDI threshold and less than the threshold for high-income countries (HICs), or those considered eligible for official development assistance (ODA). These countries will be subject to a maturity premium higher than category 3.
- Borrowers eligible for this category will have access to resources subject to a maximum of 18 years maturity and 3 years grace period, with a maximum average repayment maturity of 12 years.
Loans in ordinary terms can be denominated in USD and EUR.
Grants may be provided to:
- developing Member States;
- intergovernmental organizations in which Member States participate; and
- other entities which the Executive Board determines to be eligible pursuant to article 8 of the Agreement.
Grants are provided in accordance with the Policy for Grant Financing established by the Executive Board and the related Implementing Procedures outline the rules and processes relevant to the grants cycle.
The market reference rate for ordinary term loans denominated in USD is the Secured Overnight Financing Rate (SOFR). For ordinary term loans denominated in EUR, the market reference rate is EURIBOR.
For existing ordinary term loans denominated in SDR, the market reference rate is the weighted average of market reference rates of the five SDR currencies – USD, EUR, GBP, JPY and CNY. The International Swaps and Derivatives Association recommended credit adjustment spread is applied to the market reference rates for USD, GBP and JPY to account for the discontinuation of USD LIBOR, GBP LIBOR and JPY LIBOR. Market reference rates for EUR and CNY are unchanged.
Financing conditions: regional infographics
Interest rates
