East and Southern Africa Loan Administration

1. LOAN ADMINISTRATION Dec 2010

2. Table of Contents Loan Administration Principles & Framework ……………….…..3 – 12 Letter to the Borrower/ Disbursement Handbook ……..….…….13 – 17 Disbursement Procedures…………………………………………18 – 32 Withdrawal Applications ……………………………………….…..33 – 46 Foreign Exchange Translation...................................................47 – 52 Closing of Loan & Project ……………………….……......……….53 – 62

3. Loan Administration Principles & Framework

5. Due attention & consideration to economy, efficiency & social equity

6. Expenditure is eligible as & when incurred: Advance payments made by project other than contractual advances are ineligible

7. First withdrawal: First withdrawal from loan/ grant account is made normally only after financing is effective & disbursement conditions met

9. Incurred by project party

10. During project implementation period

11. Reasonable cost of goods & services procured

12. Per procurement procedures as per Schedule 4 of FA/ LTB

13. Per approved AWPB

14. Per percentages stated in Schedule 2/ LTB against eligible categories

15. Not prohibited by UNSC under Chapter VII of UN Charter

16. Not following any coercive, collusive, fraudulent or corrupt practice

17. Per financing agreement documents

18. Retroactive Funding: If Schedule 2 of FA expressly provides for retroactive funding, eligible expenditure incurred for project purposes before financing effectiveness can be reimbursed from loan account after effectiveness

20. ProgrammeManagement Division (PMD) verifies WA for completeness of documentation & eligibility of expenditure

21. PMD approves WA & issues Payment Instructions & forwards to Loan & Grants Section of Financial Services Division (CFS)

22. CFS may conduct independent verification of WA & sends approved Payment order to the Treasury Division to make payment

23. CFS issues debit advice to Borrower & implementing agencies & generates billing statements on fortnightly basis

25. Loan Disbursement Handbook

26. Procurement Guidelines

27. Audit Guidelines

28. Design Report

29. Financing Agreement

30. General Conditions

31. Minutes of Loan Negotiations

32. Amendments to Financing Agreement

34. Loan amount allocated to each category

35. % of expenditures to be financed

36. Definition of terms

37. Minimum withdrawal amount

38. Statement of Expenditures (SOE) thresholds

39. Retroactive Financing

41. Withdrawal applications made in different currencies

43. Financing Agreement Date

44. Effective/ Entry into Force Date

45. Project Completion Date

48. Evidence of opening of Designated Account (DA)

49. Letter on WA authorised signatories received

50. Signatories of persons authorisedto operate DA & specimen signatures received

51. Disbursement condition/smet

52. AWPB & Procurement Plan approved

54. IFAD

55. East & Southern Africa Division, including Nairobi regional loan administration unit & Country ProgrammeManager

56. Loans Unit (Financial Services Division)

57. Treasury

60. Explained to the Implementing Agency during Start-up mission

61. For new projects subject to revised General Conditions, Disbursement Handbook is an annex to revised Letter to the Borrower

63. Disbursement Procedures

64. Designated Accounts

65. Instructions for Withdrawal

66. Annual Work Plan & Budget & Procurement Plan

67. Allocation of Financing Proceeds

68. Procurement of Goods, Works & Consulting Services, including Methods

69. Review of Procurement Decisions by IFAD

70. Programme Reviews & Periodic Assessments

71. Financial Reporting & Auditing

72. Project Completion/ Financing Closure

74. Instructions for Withdrawal

75. Disbursement Procedures

76. Statement of Expenditure

78. Direct payment procedure

79. Special commitment procedure

80. Reimbursement procedureSOE provision & eligibility Project Checklist – Form & Instructions in completing form Register of Contracts Status of Financial Statements & Audit Report

81. Disbursement Procedures

82. Disbursement Procedures Withdrawal of Loan Funds (Explained in the Letter to the Borrower) Special Account Procedure 1 Direct Payment Procedure 2 Disbursement Procedures Reimbursement Procedure 4 Special Commitment Procedure 3

84. Initial Deposit/Advance – paid in USD or other freely convertible currency

86. Article II/Section B provides bank where Special/ Designated Account should be opened, amount & currency of Authorized Allocation/ Advance, mode of payment (e.g., full amount or tranches) & designated personsor office authorisedto operate Special Account

87. Article IV deals with Loan Account & Withdrawals - Withdrawals from loan & grant accounts, special commitments, WAs, transfers, allocation & reallocation of financing proceeds, value dates of withdrawals, eligible expenditures & refund of withdrawals

88. There are 3 stagesin operation of the Special Account during project life:Payment of Authorized Allocationor Initial Deposit Replenishment to Special Account Recovery of AuthorisedAllocation

90. Ensure receipt of evidence of opening of SPA/ DA& Letter on authorized persons to operate account

91. Check if opening of SPA is condition for effectiveness

92. After IFAD payment, issue SPA letter

93. The financing agreement may provide that authorisedallocation/advance is paid in 2 or more tranches

95. Frequency of submission of WAs

96. Adequacy of supporting documentation

97. Correct use of summary sheets

98. Replenishment during recovery period – should equal the balance of the agreed percentage of expenditures duly justified

99. Exercise care in reviewing WA to determine which expenditures are eligible under SOE& which are subject to supporting documentation

101. Percentage of recovery: to be confirmed by CPM

102. Exchange rateto be used is historic rate at value date of payment of initial deposit

103. Maintenance of SPA/ DA Initial Deposit/ Advance Recovery Control& reconciliation of unjustified balance with LGS

104. At start of recovery – issue SPA/ DA Recovery Letter

105. Amount for refund to IFAD

106. Unjustified balance per IFAD records; not balance in bank

107. Unjustified balance should be reconciled with LGS

108. When the initial deposit is fully justified, any balance in bank should remain with Borrower & should not be refunded to IFAD; all future replenishments are processed as reimbursements to Government

110. Eligibility applies to all categories

111. Relates to the submission of prescribed form in lieu of required supporting documentation

115. Initial or advance payments, progress payments on contract (as recorded on the contract monitoring form), progress certificate & invoice/ purchase orderNote: Payment instructions in WA must be clear & complete

117. IFAD sends SC Letter to bank of supplier as guarantee of payment (Form 302)

119. This WA is processed & reviewed using Checklist 3 for Special Commitment

121. The value of the Special Commitment (the amount requested in WA Form 301) is converted into SDR using prevailing IMF rate as of preparation date & small percentage added to cater for exchange rate fluctuations

122. SCLs that are issued for each loan/ grant are numbered sequentially

124. Treasury sends SWIFT message of negotiating bank to Nairobi Office

125. After completion of checking process, Payment Order (PO) to pay the negotiating bank is prepared using prescribed format for Special Commitment payment

127. Reimbursed by IFAD in currency of expenditure

130. Application Summary Sheets

131. Statement of Expenditure Forms.

132. Register of Contracts

133. Special/ Designated Account Reconciliation Statement

134. Project WA Checklist

136. All sections should be completed

139. Copy of contract(for 1st progress payment) or contract monitoring form

140. Copy of purchase order

141. Copy of bank guarantee, for advance payment &/ or performance

142. Copy of delivery receipt for goods

143. Copy of certification for works completed on civil works

144. Copy of consultant’s report, if required, for final payment to be madeNote: Since original copies of above documents are retained by PCU for audit purposes, a photocopy is accepted as supporting documentation

146. Summary Sheet Form 101A with copy of above documents (as applicable) plus evidence of payment (receipt or bank statement), for expenditures not eligible under SOE

149. Summary Breakdown by Category that adds up to WA amount

151. SOE arrangements specified in LTB

153. The interpretation of the SOE coverage as provided in: (i) Financing agreement; (ii) Minutes of Loan Negotiation;or (iii) Agreement reached during Start-up Mission– giving particular attention to financial ceiling (usually $20,000)

155. SOEForm 102B for reimbursement of pre-financed expenditures

156. Certification text is required for each SOE form

158. Proper filing systemin PCU to enable audit trail during supervision missions

160. Banking Instructions, including correspondent bank

161. Complete Supporting documentation

162. Statement of Expenditure eligibility

163. Procurement Procedures

164. Terms of payment (contract payment terms)

165. Currency of expenditure

167. Withdrawal Application Size:Direct Payment: usually minimum approximately $20,000 Repl. to SPA/ DA: 20% of AuthorisedAllocation/ Advance (or more)

168. Exchange Rate correctly calculated

170. Withdrawal Application Amount

171. If final WA amount approved is lowerthan WA submission, PO can be released & Project is advised on reductions made

172. If the final WA amount approved is higher than WA submission, Project should be advised on findings & corrections made (in practice WAs may be processed in reduced (not increased) amounts from what is indicated in Form 100. If amount payable is more than what is in Form 100, project is advised to claim in subsequent WA)

173. A WA can be authorisedfor partial payment & balance paid in separate PO

175. The Project is required to submit prescribed Form 100signed by designated WA signatory

176. WA without authorized signatureswill not be processed

178. When PO already issued& payment was made on WA, Project’s request for adjustment in WA submitted – Original signed letter from Project Coordinator

179. Confirmation on increase in WA amount as result of review

180. Change in bank where Special Account is maintained

181. Change of account number, in same bank, due to changes in bank’s system

183. Information on correspondent bank or change in correspondent bank

184. Any other relevant informationprovided by project relating to claim in WAProject should complete allsections in WA

185. Foreign Exchange Translation

186. Foreign Exchange Translation Usage of Exchange rates The usage of exchange rates in IFAD loans applies to one of the following areas: Conversion of IFAD financing in US Dollars (USD) to Special Drawing Rights (SDR) Conversion of withdrawals from loan accountbased on approved WAs submitted in various currencies into SDR For replenishment to Special Account, conversion of local currency expenditures funded from Special Account into currency denomination of Special Account, e.g. USD, Euro Conversion of amounts submitted through WAs as justification of authorisedallocation(initial deposit) to Special Account

188. During financing negotiationsbetween representatives of Borrower & IFAD, US Dollar loan amount is converted into SDR using prevailing USD/ SDR rate at the end of month preceding loan negotiation

189. Likewise, amounts allocated to each category are converted into SDR using same exchange rate

190. Financing amount is fixed & is reflected in relevant sections of financing agreement

191. If the project is partially financed from a grant, known as project-component grant, grant amount is also denominated in SDR

193. Disbursements from loan/ grant accountare made in currencies in which expendituresto be financed from loan/ grant proceeds have been paid or are payable

194. Each withdrawal applicationthat is submitted by Borrower is paid in currency requested in WA& approved by IFAD

195. The payment made is converted into SDR using prevailing rate as of value dateof payment, i.e., date of debit of IFAD’s bank account for equivalent amount of disbursement

200. Review procurement plan

201. Check table on physical & financial execution of contracts

202. Propose solutions that facilitate complete execution of works

203. Cancel contractsthat cannot be executed in allotted time

204. Review inventory of fixed assets

205. List of assets detailing: type, date of purchase, purchase value, residual value, recommended assignment or disposal

206. Back-up of files and documents for 10 years

207. Create database in-country

208. Secure files – keep under lock & key!

210. Review staff rosternoting provisional dates of contract termination

211. Calculate staff compensation

212. Verify availability of financing & national resources

213. Positions generally maintained until financing closing date (6 months after project completion date):

214. Project Coordinator

215. Financial & administrative officer/accountant

216. M&E Officer

217. Person in charge of follow-up/evaluation

218. Secretary

220. CPM informs Project of approaching PCD & remind of eligibility requirements

221. 6 months before PCD:

222. Start recovery of Special Account initial deposit

223. Determine rate of recovery

224. All activities must be completed by PCD

225. On or after PCD:

226. Monitor payments on contracts – determine eligibility

227. Between PCD and Loan Closing Date (LCD)= winding up period:

228. Project must send letter to CPM explaining plan of action & projected expenditures

229. Monitor payments on contracts - only those completed by PCD are eligible

231. Winding-up Expenditures (between PCD & LCD)

232. Salaries & allowances of key project staff

233. Operating Costs

234. Project Completion Report costs

237. closely review all goods are delivered/ works completed/ services rendered by project completion date:

238. monitor final procurement plan& progress reports during last year of project

239. take measures to facilitate completion of physical execution of contracts

240. cancel contractsthat cannot be executed within completion date

241. Ensure only contracts executed by project completion date are paid

242. Ensure procurement files are complete& obtain missing documents from project

244. is not a disbursement from loan account

245. is used as justification only

246. is converted into SDRat rate used at value date of payment of initial deposit, i.e., historic rate

247. Any amount of initial deposit that remains unjustified at closing date of Financing, is promptly refunded to IFADin currency used by IFAD for purpose of withdrawal from Loan Account

249. Last WA is confirmedby Project Authority to IFAD

250. Project ensures all eligible expenditures are claimed for payment

251. Final Audit Reportsubmitted

252. Project Completion Report accepted by IFADUndisbursed balance of financing is cancelled by IFAD

253. Thank You