Today's Thought: “A medicine cat has no time for doubt. Put your energy into today and stop worrying about the past.” -Erin Hunter, Rising Storm

IFAD offers financing in the form of loans, grants and a debt sustainability facility

Lisa Baker

IFAD loan terms 

Loan terms are determined in accordance with IFAD’s Financing Policies and Criteria, and are primarily based on a country’s per capita gross national income (GNI) (as calculated by the World Bank using the Atlas method). ) and an assessment of creditworthiness.

Transition Framework. The Transition Framework establishes the general principles and procedures that govern the transition processes and contemplates the possible change in the eligibility of a given country to loans under certain conditions. The loan conditions applicable to each country are reviewed before a new replenishment period begins. and in principle they remain in force during the three years of the cycle. If IFAD considers that a country is eligible for financing under less favorable terms, the new terms will be applied progressively throughout the replenishment period through a mechanism of gradual transition to the new terms. Loan conditions are reviewed annually. If a country qualifies for more favorable terms at one of these reviews, the change will take effect the following calendar year.

IFAD provides highly concessional, blended and ordinary loans.

The Member States that qualify for highly concessional loans are normally those that at the end of the year prior to the start of a replenishment period:

  • have a per capita gross national income (GNI) less than or equal to the operational limit determined annually by the International Development Association (IDA);
  • they have a GNI per capita higher than the operational limit, but have not been classified by IDA as “countries that cannot yet receive financing on ordinary terms” or as “countries that may receive financing on combined terms”;
  • they are classified by IDA as “small state economies.”

Member States that qualify for blending loans are typically those that at the end of the year prior to the beginning of a replenishment period have been classified by IDA as “countries eligible for blending” or “countries that they still cannot receive financing under ordinary conditions ”.

Member States that do not qualify for highly concessional or bundled loans are those that can benefit from ordinary terms.

Debt sustainability mechanism. The Debt Sustainability Framework (MSD) is a conceptual framework that supports debt relief for eligible countries (in IFAD, Member States that meet the criteria for highly concessional loans). The framework is based on technical economic analyzes of the country, called Debt Sustainability Analysis (DSA), carried out by the International Monetary Fund or the World Bank in collaboration with interested countries. One of the main conclusions of this analysis is the classification of the risk of over-indebtedness, namely: i) countries with low risk of over-indebtedness; ii) countries with a moderate risk of over-indebtedness; iii) countries with high risk of over-indebtedness, or iv) countries with over-indebtedness.

IFAD does not apply any commitment or opening fee to its financial products. There is also no cancellation fee or penalty for early refund.

Policy on Financing in Unfavorable Conditions. The Non-Favorable Financing Policy is a multifaceted policy aimed at addressing the problems of moral hazard and the misuse of concessional loans. It focuses on enhancing creditor coordination around the Debt Sustainability Framework, and enables IFAD to apply measures to countries that over-borrow on non-concessional terms; Measures that could be applied may include a cut in the allocation of funds or tightening of a borrower’s loan terms.

Financing modalities

Loans in very favorable conditions

The highly concessional loans have a 40-year maturity term, including a 10-year grace period from the date of Executive Board approval. They are offered interest-free, but a service charge is applied on the outstanding principal amount, subject to a minimum of 0.75% per annum, with adjustments for single currency loans.

The repayment of the principal of a highly concessional loan will depend on whether the Member State is a small state economy or not.

  • If it is a small state economy, the amortization is set at 2% of the total principal withdrawn annually in years 11-20, and at 4% of the total principal withdrawn annually in years 21-40.
  • If it is not a small state economy, the amortization is set at 4.5% of the total principal withdrawn annually between years 11 and 30, and at 1% of the total principal withdrawn annually between years 31 and 40.

Donations made under the Debt Sustainability Framework are not subject to service charges or other fees.

Loans in combined conditions

Combined condition loans have a 25-year maturity term, including a five-year grace period from the date of Executive Board approval. A service charge is applied to the outstanding principal, subject to a minimum of 0.75% per annum, with adjustments for single currency loans. In addition, interest is paid on the outstanding principal at a fixed rate of 1.25%, with adjustments for single currency loans, subject to a minimum of 0%. The principal of the loan is amortized at 5% of the total principal withdrawn annually between years 6 and 25.

Loans under ordinary conditions

These loans have a variable maturity and grace period. The maximum maturity term that a borrower can request is 35 years, subject to a maximum average repayment term of 20 years. The maximum grace period is set at 10 years, from the date IFAD has determined that all the general conditions precedent to principal withdrawal are met.

  • The average repayment term is the sum of the weighted average repayments of the principal during the repayment period, therefore it depends on the choice of the maturity term and the grace period chosen by the borrower./li>
  • There are six average maturity tranches (that is, average maturity time intervals) into which loans are classified: i) up to 8 years; ii) from 8 years to 10 years; iii) from 10 years to 12 years; iv) from 12 years to 15 years; v) from 15 years to 18 years, and vi) from 18 years to 20 years.

Interest on ordinary loans is made up of a variable market-based benchmark rate and a spread. Borrowers can choose between a variable spread and a fixed spread. The level of the loan spread depends on the average repayment tranche as well as the income category of the borrower, subject to other country classifications.

Loans with an average maturity term of more than eight years include a maturity premium. The maturity premium also differs based on the income category; Currently, borrowers can be classified as follows:

  1. borrowers subject to an ordinary maturing premium with a GNI per capita of up to USD 7,065;  
  2. borrowers exempt from increasing the maturity premium; 
  3. borrowers with a GNI per capita of up to USD 7,065 subject to a discount from the ordinary maturing premium; and
  4. borrowers with a GNI per capita greater than USD 12,535 subject to an ordinary maturing premium surcharge.

As soon as the borrower meets the conditions for the first withdrawal of funds, IFAD will send him a repayment schedule. Principal repayments usually correspond to equal amounts, although there is the possibility of varying the repayment installments.


Comments are closed.

Digital Marketing Monkeypox Beauty