Quick Reference Guide Loan Handbook for World Bank Borrowers. February 2017

Transcription

1 Quick Reference Guide Loan for World Bank Borrowers February 2017

2 Abbreviations and Acronyms ARM ASD BSA BTF stg CPL CTF DDO DLI DPF DSA EEC Euro FEF FSL GNI HIPC Initiative IBRD IDA IFL Average repayment maturity Authorized signatories designation Basis swap adjustment billable trust fund British pounds sterling Currency pool loan Clean Technology Fund Deferred Drawdown Option Disbursement-linked indicator Development Policy Financing Debt sustainability analysis European Economic Commission Front-end fee Fixed spread loan Gross national income Heavily Indebted Poor Countries Initiative International Bank for Reconstruction and Development International Development Association IBRD Flexible Loan IFR Interim unaudited financial reports IMF International Monetary Fund IPF Investment Project Financing Japanese yen LIBOR MDA MDRI PforR PPA PPF SBL SC SDPF SDR SIDC SWIFT UN UNSC US$ VSL London Interbank Offered Rate Master Derivatives Agreement Multilateral Debt Relief Initiative Program-for-Results Project/Program Preparation Advance Project Preparation Facility Single borrower limit Special commitment Special Development Policy Financing Special drawing rights Secure Identification Device Credentials Society for Worldwide Interbank Financial Telecommunication United Nations United Nations Security Council U.S. dollar Variable spread loan 2

3 Outline of the Loan Volume 1 - World Bank-Financed Operations and Financing Products Section 1. Section 2. Volume 2 - Disbursements Section 3. Section 4. Section 5. Section 6. Volume 3 - Debt Service Section 7. Section 8. Section 9. Section 10. World Bank-Financed Operations World Bank Financing Products Disbursement - Withdrawal of Financing Proceeds Disbursement - Investment Project Financing Disbursement - Program-For-Results Financing Disbursement - Development Policy Financing Debt Service - Billing Debt Service - Overdue and Sanctions Policy Debt Service - Partial Waiver of Loan Charges Debt Service - Prepayments 3

4 Introduction The Quick Reference Guide (QRG) is supplemental to the Loan for World Bank Borrowers, January 2017 (the ) and provides a concise introduction to the disbursement arrangements and debt services for loans or financing provided or administered by the World Bank The QRG includes an overview of the World Bank s lending instruments, financial products and terms, disbursement for three financial instruments (investment project financing, program-for-results, and development policy financing), overdue payments and sanctions, partial waiver of loan charges policy, and billing procedures The QRG makes references, as appropriate, to the new Disbursement Guidelines for Investment Project Financing (IPF), January 2017 (the Guidelines) 4

5 Section 1 World Bank-Financed Operations 5

6 Financing Instruments Section 1.2 The World Bank (the Bank) provides financing to its borrowers through three financing instruments Investment Project Financing (IPF) Program-for-Results (PforR) Development Policy Financing (DPF) Disburses for eligible expenditure Disburses for results achieved Disburses for policy action implementation Section 4 Section 5 Section 6 6

7 Loan Cycle Section 1.3 Bank-financed operations follow a standard loan cycle 1. Preparation 2. Appraisal 3. Negotiation 4. Approval 5. Signing 6. Effectiveness 7. Disbursements, restructuring, refunds, cancellations, and loan closing 8. Billing receipts and overdue management 9. Final Maturity 7

8 Loan Cycle Description Table 1 Stage 1. Preparation 2. Appraisal 3. Negotiation 4. Approval Description Comprises identification and concept review. This stage involves identifying programs/projects that support the Country Partnership Framework, the government agency responsible for preparation, key stakeholders, and target beneficiaries. Following this stage, a concept note is created; the design is determined; economic, technical, social, and environmental feasibility are assessed; and potential risks and safeguard issues are identified. Involves confirming the expected outcomes of the program/project; reviewing economic, technical, environmental, social, and fiduciary aspects; and agreeing on the institutional arrangements to implement the program/project and timelines. The program/project appraisal document and draft financing agreements are prepared. Involves resolution of any outstanding issues from the appraisal stage, agreement on the procurement strategy and procurement plan for Investment Project Financing (IPF), financing and disbursement arrangements (including disbursement letter for IPF), and terms and conditions. Involves review and approval of program/project and financing documents by the Bank s Board of Executive Directors or by the management. 5. Signing Involves signing of legal financing agreements by the Bank and client representatives. 8

9 Loan Cycle Description (continued) Table 1 Stage 6. Effectiveness 7. Disbursements, restructuring, refunds, cancellations, and loan closing 8. Billing receipts and overdue management Description Involves determination by Bank officials that predetermined and agreed conditions have been met to begin disbursements. Involves disbursements to borrowers based on valid withdrawal applications for program financing and eligible expenditures related to program/project activities up to the closing date. Refunds of ineligible expenditures and unused advances, cancellations initiated by the Bank or the client, final disbursements, and loan closure are handled at this stage. Involves support to borrowers for debt service, by means of billing statements after signing in certain cases and after effectiveness in all cases (loans, credits, and guarantees). Debt service of charges by borrowers starts once disbursements are made under the loan or credit. In certain cases, debt service of charges begins after the signing date of the agreement. Principal repayments start after the agreed grace period ends. Applying borrowers debt service payments to dues and following up on overdue cases, according to Bank policies and procedures, are the other activities carried out at this stage. 9. Final maturity Represents the final repayment date as specified in the financing agreement. 9

10 Section 2 World Bank Financing Products 10

11 Financing Products Section 2 The Bank offers various financing products, including: IBRD loan products IBRD offers eligible member countries access to a flexible and low-cost set of tools for borrowing, hedging, and enhancing credit (see slides12 to 18) IDA products - IDA provides concessional lending to the poorest developing countries by providing credits at little or no interest and grants (see slides19 and 20) Guarantees to all member countries (see slide 21) Other products administered by the World Bank include guarantees, and Project Preparation Facility (PPF) and loans offered through Trust Funds or other special arrangements with donors (see slide 22) 11

12 IBRD Loan Products Section 2.1 The World Bank (the Bank) provides financing on IBRD terms through three products IFL IBRD Flexible Loan (IFL) Table 2 Slides 14 to 16 DDO Regular and Catastrophic IFL with Deferred Drawdown Option (DDO) Slides 17 and 18 Table 3 SDPF Special Development Policy Financing (SDPF) (offered to countries in crisis and on special terms) Section

13 IBRD Loan Products Key Terms and Conditions Section 2.1 Loan currencies: USD, EUR, Yen, GBP and other currencies subject to liquid swap market Lending rate: reference rate (ex LIBOR, EURIBOR) + spread Lending rate spreads: fixed or variable spread Repayment terms: grace period, final maturity, average repayment maturity Repayment schedules: commitment or disbursement-linked Amortization patterns: level, annuity or bullet repayments Fees: front-end-fee (billed or capitalized), commitment fees and single borrower limit fees. Regular DDOs also have stand-by fees and CAT DDOs have renewal fees Embedded options: currency and rate conversions, automatic conversions Repayment dates: every six months, monthly, 1st or 15th 13

14 IBRD Flexible Loan (IFL) Terms Table 2 Terms Loan currencies Lending rate Lending rate spread Details Currency of commitment: Refers to the denomination of the loan as noted in the loan agreement. IFLs are generally offered in the major currencies: euro ( ), British pound ( stg.), Japanese yen ( ), and U.S. dollar (US$). Other currencies may be available, subject to the existence of a liquid swap market. Currency of disbursement: Disbursements may be made in various currencies as requested by the client. Currencies are acquired by IBRD and passed on to the client. The loan obligation, however, remains in the currencies in which the loan is denominated. Currency of repayment: The loan principal, interest, and any other fees are normally payable in the currencies of commitment unless a currency conversion has been executed. The lending rate consists of a variable reference rate plus a spread. The lending rate is reset semiannually on the loan s interest payment dates and applies to interest periods beginning on those dates. The reference rate or base rate is normally the six-month London Interbank Offered Rate (LIBOR) or Euro Interbank Offered Rate (EURIBOR) at the start of an interest period. For loans that have been converted to a local currency, the reference rate may be a recognized commercial bank floating rate. The current lending rates can be found on the World Bank Treasury website. Borrowers have the choice between a fixed or variable spread. Variable Spread = Contractual Lending Spread + Maturity Premium + Actual Funding Spread The Actual Funding Spread comprises the Bank s average margin relative to LIBOR for the preceding six months. Fixed Spread = Contractual Lending Spread + Maturity Premium + Market Risk Premium + Projected Funding Cost + Basis swap adjustment for non-us$ loans Projected Funding Cost refers to IBRD s projected funding cost margin relative to US$ LIBOR. The fixed spread is determined at the time the loan is signed and is fixed for the life of the loan. It is the spread that is applicable the day before signing. The Bank adjusts the fixed spread when market movements for basis swaps and/or changes in the projected US$ funding spread warrant such adjustments. 14

15 IBRD Flexible Loan (IFL) Terms (continued) Table 2 Terms Repayment terms Repayment schedules Amortization patterns Details Borrowers have the flexibility to tailor repayment terms to meet their program or project, asset, and liability management needs. They can select the grace period (time during which only the interest is paid), repayment period, and amortization structure as long as they are within these two limits: o Final maturity of loans is limited to 35 years, including the grace period. o Average repayment maturity (ARM) cannot exceed 20 years. Repayment terms are fixed at loan negotiation. Once the loan is signed, the repayment schedule cannot be changed for the life of the loan. Borrowers can choose from these repayment schedules: Fixed at commitment. Commitment-linked repayment schedules are fixed at the outset when the loan is signed. Principal repayments are calculated as a share of the total loan amount disbursed and outstanding. Linked to disbursements. Disbursement-linked repayment schedules are tied to actual disbursements. Each semester s group of disbursements is similar to a tranche or a subloan with its own repayment terms that is, grace period, final maturity, and repayment pattern which must be the same for all tranches within the loan. For repayment schedules linked to disbursements, the 20-year limit is the sum of the ARM and the expected average disbursement period. Amortization patterns may be level, annuity, bullet (one-time payment), or customized. With level repayments, the principal is repaid in equal installments over time. With annuity repayments, the principal is repaid with increasing installments over time to keep the payments of principal and interest even across all periods. 15

16 IBRD Flexible Loan (IFL) Terms (continued) Table 2 Terms Fees Embedded options Details The front-end fee (FEF) is a one-time up-front fee currently set at 0.25% of the amount of the loan. At the option of the borrower, the FEF can be paid out of the financing or loan proceeds upon loan effectiveness or can be billed separately. The borrower must settle the FEF bill no later than 60 days after the effectiveness date, and the receipt is required before the first withdrawal from the loan. Commitment charges accrue on the loan s undisbursed amount 60 days after signing of the loan and become due only after loan effectiveness. They are currently set at 0.25%. A single borrower limit (SBL) surcharge applies to specific exposure of large borrowers. In FY14 the Board approved increasing the SBL for a small number of large borrowers, with the provision that any exposure above the original limit would be subject to a surcharge of 50 basis points (bps Borrowers have the following options to manage the currency and/or interest rate of their loan. These options are embedded in the loan agreement and can be executed at the borrower s request. Interest rate conversions Interest rate caps and collars Currency conversions 16

17 IBRD DDO and Cat DDO Terms Table 3 Key terms/ conditions Purpose DDO Provides immediate liquidity when the borrower needs it Grants access to long-term IBRD resources to maintain ongoing structural programs Provides a formal basis for continued policybased engagement with the Bank when the borrower has no need for immediate funding but values the Bank s advice and access to immediate liquidity Cat DDO Develops and enhances the capacity of borrowers to manage hazard risk Provides immediate liquidity to fill the budget gap after a natural disaster while other sources for example, concessional funding, bilateral aid, or reconstruction loans are being mobilized after a natural disaster Safeguards ongoing development programs Eligibility All IBRD-eligible borrowers who meet the preapproval criteria Preapproval criteria Currency Appropriate macroeconomic policy framework Satisfactory implementation of the overall program Same as regular IBRD loans Appropriate macroeconomic policy framework Preparation or existence of a disaster risk management program Drawdown Drawdown requirements An amount up to the full loan amount is available for disbursement at any time within three years from signing the financing agreement. The drawdown period may be renewed for an additional three years. Funds are disbursed immediately upon request, unless the borrower has received prior notification from the Bank that one or more drawdown conditions are not met. An amount up to the full loan amount is available for disbursement at any time within three years of signing the financing agreement. The drawdown period may be renewed up to a maximum of four extensions for a total of 15 years. Funds are disbursed immediately upon occurrence of a natural disaster resulting in declaration of a state of emergency, unless the borrower has received prior notification from the Bank that one or more drawdown conditions are not met. 17

18 IBRD DDO and Cat DDO Terms (continued) Table 3 Key terms/ conditions DDO Cat DDO Repayment terms Lending rate Lending rate spread May be determined either upon commitment or upon drawdown within prevailing maturity policy limits (the ARM and the final maturity are determined based on the drawdown date). The repayment schedule will start from the date of drawdown. Similar to regular IBRD loans, the lending rate consists of a variable reference rate plus a spread. Borrowers have the choice between a spread fixed for the maturity of the drawdown or a spread that is variable and reset semiannually. The spread is the prevailing spread for regular IBRD loans at the time of each drawdown, with the exception that the maturity premium component of the spread is based on the effective date of the loan and not on the drawdown date. Fees Embedded options FEF: 0.25%b Renewal fee: Nil Standby fee: 0.50% per annum charged on undisbursed balances, accruing from the date of effectiveness of the loan Same as regular IBRD loans FEF: 0.50% Renewal fee: 0.25% Other features Not applicable Country limit: Maximum of 0.25% of GDP or the equivalent of US$500 million, whichever is less. Revolving features: Amounts repaid by the borrower will be available for drawdown, provided the closing date has not expired. 18

19 IDA Products Section 2.2 & 2.3 IDA is the World Bank s concessional lending window, extending funds to the poorest developing countries. IDA provides financing through these products: IDA Regular Credits IDA Blend-term Credits IDA Hard-term Credits IDA Scale-up Facility (SUF) IDA Transitional Support Credits IDA Grants Section

20 IDA - Key Terms and Conditions Section 2.2 Lending currency - normally SDR. Borrower can select single currency in the SDR basket IDA provides credits (the term used for its loans) at little or no interest, and repayments are stretched over 25 to 40 years, including a 5- to 10-year grace period Rates and charges for IDA credits (do not apply to IDA grants) include: Service charge Commitment charge Interest charge (only for IDA blend, hard terms, transitional and scale-up) Repayment terms: grace period, final maturity Acceleration clause of credit repayment terms Policy framework for voluntary repayments Current IDA terms are: Service Charge Commitment Charge Interest Acceleration Clause Maturity Grace Period (Years) Regular 38 6 Blend term 25 5 Hard term 25 5 Transitional support n.a

21 World Bank Guarantee Products Section 2.4 The World Bank offers the three types of guarantee support to all member countries as outlined below: 21

22 Other Products Administered by IBRD Section 2.5 Climate Investment CTF Loan Maturity Grace Period Principal Repayments Years Principal Repayments Years MDB Fee Service Charge Grant Element Harder concessional % n.a. 0.18% 0.75% ~45% Softer concessional % 4% 0.18% 0.25% ~75% Billable Trust Funds lent on IBRD and IDA terms. Funds come from donors, Bank income. Bank serves as administrator. EEC credits: the Bank administers loans made by the EEC. Project Preparation Facility (PPF) Project/Program Preparation Advances (PPAs) The Bank may make a Project/Program Preparation Advance (PPA) from the PPF to a borrowing country to finance eligible activities. PPAs are usually refinanced by a loan or repaid by the borrower. PPAs that do not get refinanced carry interest on IBRD fixed spread terms or IDA credit terms. PPAs to IDA grant-only countries do not get repaid because they are converted under grants. Repayable PPAs are to be paid in 10 equal semiannual installments. However, if the amount of the PPA is less than USD 50,000, it needs to be repaid within a period of 60 days from the date of the Bank s notice. PPAs are made in U.S. dollars only. Section

23 Conversion Options for IBRD Loan Section These are hedging options built into the loan. They include: Interest rate conversions From Variable Spread to Fixed Spread From Variable Spread to Fixed Rate From Fixed Spread to Fixed Rate Automatic Rate Fixings (by disbursement, period or threshold) Currency Conversion Automatic Currency conversions (available for some currencies) Caps and Collars Some older loans may require Master Derivative Agreement (MDA) to be signed 23

24 Freestanding Swaps and non-ibrd Hedges Section These are stand alone products to help clients manage their financial risks. They include: Interest rate swaps Currency Swaps Interest rate cap or collars Commodity swaps 24

25 Debt Relief Initiatives Section 2.7 Debt Service Trust Fund: trust funds established for settlement of borrowers debt service to the Bank HIPC - set up to reduce eligible countries debt burdens Enhanced HIPC Debt Initiative Provides partial debt relief on eligible credits Normally delivers debt relief through a reduction on the bill, starting after the country reaches the decision point MDRI Multilateral Debt Relief Initiative (MDRI) Provides full debt relief on eligible credits Starts on first day of the fiscal quarter following the date when the completion point is reached under the HIPC Initiative Further details, including dates for applicability, are provided in section of the 25

26 Section 3 Disbursement - Withdrawal of Financial Proceeds 26

27 Withdrawal of Financing Proceeds Section 3 Withdrawal applications to be provided in such form as is required and include such information as the World Bank may reasonably request Guidelines Section 3 Requests for withdrawals of funds should be initiated electronically on the Bank s Client Connection web portal The Bank may permit the borrower to complete and submit applications manually in paper form. Paper applications forms can be found in the Client Connection website at or may be obtained from the World Bank upon request For IPF, additional information can be found in Section 3.3 and 3.4 of the Disbursement Guidelines for Investment Project Financing 27

28 Withdrawal of Financing Proceeds Section Financing Agreement - Approval of program/project and financing documents by the Bank. - Bank and the borrower sign the financing agreement. - Bank declares effectiveness. 2. Client Connection Registration by Borrower/Recipient (see section 3.1.2) - New organization registers online. - Organization liaisons grant access to new users. 3. Authorized Signatures (see section 3.1.3) - Borrower submits Authorized Signatures Designation 4. Activation of Secure Identification Credentials (SIDC) (see section 3.1.4) - Users who have been designated as signatories activate their SIDC. 5. Creation of Withdrawal Application in Client Connection (see section 3.1.5) - Submit Beneficiary Registration Form (BRF). - Select application type (see table 8) and enter application reference. - Enter or select existing beneficiary details and payment instructions. - If applicable, select category, add contract, and attach supporting documents. - Submit withdrawal application for signature. 6. Submit Withdrawal Application in Client Connection (see section 3.1.6) - Electronically sign withdrawal application using SIDC to submit to Bank. 28

29 Steps for Manual Submission of Withdrawal Applications Section Financing Agreement - Approval of program/project and financing documents by the Bank - Bank and the borrower sign the financing agreement. - Bank declares effectiveness. 2. Authorized Signatures - Borrower submits authorized signatures designation to the Bank 3. Prepare Manual Withdrawal Application - Obtain a paper application form from the Client Connection or from the portfolio staff in the Bank. - Select application type (see table 8) and enter application reference. - If applicable, enter beneficiary details and payment instructions. - If applicable, enter category details and contract details and attach supporting documents. - Manually submit withdrawal application to the authorized signatory for signature. 4. Submit Withdrawal Application - Mannualy submit the original signed withdrawal application and copies of supporting documentation to the Bank (address specified in the disbursement letter). 29

30 Currency of Payments Section 3.4 The Bank will purchase such currencies as the borrower shall reasonably request to meet payments for eligible activities/expenditures The Bank will purchase such currencies if it is feasible to do so with a counterparty of its choice, without undue effort, cost, or risk related to market, counterparty, or operational issues For reimbursements and direct payments, the Bank normally disburses in the currency of the expenditure, but it can make payment in the currency of commitment, U.S. dollar (if U.S. dollar is not the currency of commitment), or the local currency 30

31 Section 4 Disbursement - Investment Project Financing 31

32 Disbursement Arrangement for Investment Project Financing(IPF) Section 4 Disbursement for IPF include: Disbursement Arrangements (slides 33 to 34) Withdrawal of funds for IPF (slide 35) Disbursement methods (slides 36 to 46) Project restructuring (slide 47) Ineligible expenditures (slide 48) Refunds (slide 49) Noncompliance with audit covenants (slide 50) Loan closure (slide 51) 32

33 Assessing IPF Disbursement Arrangements Section 4.1 Guidelines Section 1.1 The disbursement arrangements are established taking into consideration the following: Assessment of the Borrower s financial management and procurement arrangements The cash flow needs of the project Disbursement experience 33

34 Disbursement Arrangements for IPF Section 4.1 Disbursement arrangements may include the following information: Identify eligible expenditures Define expenditure categories Agree disbursement percentages Identify projection preparation advances Identify retroactive financing Define disbursement conditions Determine disbursement methods and supporting documentation requirements 34

35 Withdrawal of Funds for IPF The Bank establishes the following arrangements for withdrawal of funds for IPF: Authorized Signatures The borrower must send the names of the officials authorized to sign and submit applications for withdrawal and applications for a special commitment, and (b) to receive SIDC Section 3 Guidelines Section 3 Terms and Conditions of Use of SIDC to Process Applications. By designating officials to use SIDC and by choosing to submit the applications electronically, the borrower confirms its agreement to abide by the terms and conditions of use of SIDC Applications Must be sent in such form as is required to access funds and must include such information as the World Bank may reasonably request Minimum Value of Applications Loan Disbursing Period Disbursement Conditions Established for applications for reimbursement, direct payment, and special commitment The World Bank reserves the right not to accept applications that are below such minimum value Applications are processed after the Financing Agreement has been declared effective (expenditures must be paid and incurred) The loan disbursing period ends on the final date established by the World Bank for receipt by the World Bank of applications for withdrawal and supporting documentation If the Financing Agreement contains a disbursement condition for a specific expenditure category, the World Bank will disburse funds for that category only after the disbursement condition has been fulfilled and the World Bank has notified the borrower to that effect 35

36 Disbursement Methods Section 4.2 The disbursement methods are: Guidelines Section 2 Reimbursement Advance Direct Payment Special Commitment The World Bank may reimburse expenditures that the borrower has prefinanced from its own resources Slide 37 The World Bank may advance funds into a Designated Account to finance expenditures for which supporting documents will be provided at a later date Slides 38 to 40 The World Bank may make payments, at the borrower s request, directly to a third party Slide 41 The World Bank may pay amounts to a third party under special commitments entered into, in writing, at the borrower s request and on terms and conditions agreed between the World Bank and the borrower Slides 42 to 45 These arrangements are stated in the Financing Agreement and additional information is provided in the Disbursement Letter 36

37 Reimbursement Method Section The Bank may reimburse the borrower for expenditures eligible for financing that have been pre financed from the borrower s own resources Guidelines Section 2 Supporting documentation may be in the form of statements of expenditure or interim unaudited financial report Suppliers and Contractors 1. Raise Invoice 2. Pay Borrower 3. Request Reimbursement 4. Reimburse World Bank 37

38 Advance Method Advances are made to the designated accounts of the borrower Designated accounts may be pooled or segregated Ceilings may be fixed or variable Supporting documentation requirements are stated in the disbursement letter Borrowers are expected to report/document on the advances received All advances have to be accounted for by the closing date/ disbursement deadline date Process chart for advance and documentation of advance in designated accounts Section Guidelines Section 2 World Bank 1. Request advance 2. Pay advance Borrower 3. Raise invoice 4. Pay Supplier and Contractors 5. Report Expenditure 38

39 Guidelines Advance Method Designated Account Section 2 The borrower may open one or more accounts into which the World Bank will deposit amounts to pay eligible expenditures: Type Currency Financial Institution Determined and notified by the World Bank Segregated Account: An account into which only proceeds of the loan may be deposited Pooled Account: An account into which the funds from the loan and funds of other financing for the project may be deposited Acceptable to the World Bank. May be held in the currency of the borrower or any currency that are freely convertible The borrower bears all risks associated with foreign exchange fluctuations associated with the operation of the designated account Accounts must be opened and maintained in a financial institution selected by the borrower & acceptable to the Bank Guidelines Section

40 Terms & Conditions Applicable to Advances Guidelines Section 6 Ceiling. Either (a) a fixed amount, or (b) an amount that is adjusted during project implementation based on cash flow forecasts Applications for Advances. An amount up to the ceiling less the aggregated amount of those advances previously received not yet documented. Normally advance are not provided after the closing date Frequency of Reporting Expenditures. The borrower reports at intervals specified in the disbursement letter Withholding Advances. No advance if any of the following conditions apply: Payment would result in exceeding the ceiling Borrower s planned project expenditures do not justify the advance Borrower fails to take the required actions with respect of ineligible expenditures Borrower fails to provide any of the audited financial statements in line with the legal agreement The Bank decides all further withdrawals of funds should be made directly from the Financing Account The Bank has notified the borrower of its intention to suspend in whole or in part the borrower s right to make withdrawals 40

41 Direct Payment Method Section Payments made directly to third parties for Bank s share of eligible expenditure Guidelines Section 2 Payment instructions of the payee is an important aspect Process Chart Borrower 1. Raise Invoice 2. Request Direct Payment Supplier World Bank 3. Pay Supplier 41

42 Special Commitment Method Section An irrevocable commitment by the Bank, made at the request of the borrower, when the Bank undertakes to reimburse a negotiating bank for payments it makes to a supplier against a letter of credit Guidelines Section 2 Special commitments are issued to negotiating banks based on withdrawal applications submitted by the borrower Payments under special commitments are made to the negotiating bank based on receipt of SWIFT messages from the negotiating bank The negotiating bank must advise the Bank through SWIFT regarding any amendments to the letters of credit 42

43 Process Chart for Special Commitment Section Ship goods Supplier 7. Present documents 1. Negotiate contract 9. Claim from WB 8. Pay supplier Borrower 4. Request SC World Bank 10. Pay 5. Issue SC Negotiating Bank 2. Request LC 3. Issue LC Opening Bank 43

44 Special Commitment Issuance Section How to Apply for a Special Commitment Form to be used Special commitment issuance form in Client Connection Special commitments involving multiple currencies require separate applications. World Bank confirmation of special commitment issuance Following Bank approval of the application, the Bank sends the special commitment through a SWIFT message or a letter to the negotiating bank, with a copy of the proposed letter of credit. The special commitment issuance can be viewed in Client Connection. Time limit for requesting special commitment According to the provisions of the contract signed with the supplier, the request must be made before the loan closing date. 44

45 Special Commitment Payment Section How to apply for a Payment under Special Commitment Format of request The negotiating bank sends an authenticated SWIFT message (preferably MT 742) to the Bank. Frequency of requests After each payment or negotiation of documents by the negotiating bank Time limit for requesting payments The requests are made no later than 30 days after the letter of credit expiry date or at the loan closing date, whichever is earlier. To facilitate orderly loan closing, the Bank may accept special commitment payment requests up to 30 days after the loan closing date. 45

46 Disbursement Methods - Supporting Documentation The borrower provides documentation to show that funds have been or are being used to finance eligible expenditures Section 4.2 Guidelines Section 4 Reimbursement Advance Direct Payment Special Commitment Interim Financial Reports Statements of Expenditure Interim Financial Reports Statements of Expenditure Records such as copies of supplier invoices Copy of the Letter of Credit (with valid expiry date) that the commercial bank, known as the opening bank, has issued Records Records A bank guarantee for advance or retention payment For payment, a SWIFT message must be sent by the commercial bank 46

47 Managing Project Restructuring Section 4.4 During implementation, if priorities or circumstances change, it may be desirable to introduce suitable changes in the project, its design, or its implementation arrangements. Disbursement changes may include: Amendments to financial agreements Reallocation among expenditure categories Expenditure category overdraw Other changes in disbursement arrangements 47

48 Disbursement Guidelines Ineligible Expenditures Section General If the Bank determines that any amount was used to pay ineligible expenditures, the Bank may require the borrower to take one of the following two disbursement-related actions: (a) Refund an equivalent amount (b) Exceptionally, provide substitute documentation evidencing other eligible expenditures Guidelines Section Paid from Designated Account If the Bank determines that any payment out of the Designated Account was not justified or was made for an ineligible expenditure, the Bank may require the borrower to take one of the following actions: (a) Provide additional evidence (b) Deposit an equivalent amount into the Designated Account (c) Refund an equivalent amount (d) Exceptionally, provide substitute documentation evidencing other eligible expenditure 48

49 Refunds Section 4.6 Guidelines Borrower Decision to Refund Consequence of Refunds Other Rights and Obligations Unaffected by Refunds Section 8 The borrower may, upon notice to the World Bank, refund all or any amount of the loan on deposit in the Designated Account to the World Bank for credit to the Financing Account The World Bank shall determine whether refunds made to the World Bank with respect of advances, ineligible expenditures or regular return of advances will be credited to the Financing Account. Refunds of loan amounts do not affect other legal rights and obligations of the parties under the Financing Agreement. Refunds may result in on the following: (a) swap termination fees (b) unwinding costs for amounts for which the interest rate basis or currency has been converted or hedged, (c) both. 49

50 Noncompliance with Audit Covenants Section 4.7 Audit requirements are specified in the financing agreement Remedial measures for noncompliance are shown in the table below: Guidelines Section 4.5 Type of Noncompliance Failure to maintain acceptable financial management arrangements; failure to submit interim unaudited financial reports; audited financial statements not received by due date or considered unacceptable (ineligible expenditures, unreliable financial statements, deficiencies in internal controls, unacceptable scope or findings) Acceptable audited financial statements four months overdue Acceptable audited financial statements nine months overdue or evidence that there are major deficiencies in internal controls or that funds have not been used for eligible purposes Actions the Bank may take May refuse to extend the closing date of the affected loan. May delay negotiations and/or board presentation of any new loans benefiting the noncompliant entity. All of the above and the following actions: May withhold further advances of amounts of the loan. May discontinue disbursements based on summary reports (interim unaudited financial reports and statements of expenditure). All of the above and this action: May suspend disbursements on affected loan in accordance with Bank policies. 50

51 Loan Closure Section 4.8 Closing date is stated in the financing agreement All expenditure must be incurred on or before the closing date- all project activities must be completed Borrowers have to request the Bank for any extension of the closing date Disbursement deadline date - the date up to which the Bank will accept applications for withdrawal from the loan proceeds. Normally up to four months from the closing date Mentioned in the disbursement letter or in a separate notification from the Bank 51

52 Designated Account Management and Closure Section DA balance recovery starts prior to closure No further deposits are made after the closing date All outstanding balances in the DAs must be utilized and documented by disbursement deadline date Any outstanding balance in the DAs must be refunded to the Bank 52

53 Lapsed Loans Section Financing accounts are closed immediately after the disbursement deadline date Financing accounts cannot be closed if there are pending refunds of balances in the DAs or ineligible expenditure Open accounts pending closure two months after the disbursement deadline date are classified as lapsed loans The Bank may not permit the use of D As for new projects of the borrower if lapsed loans are not resolved 53

54 Payment of Final Audit Fees after Closing Section Final audit fee is eligible for financing from loan proceeds Special arrangements (e.g. escrow account) if audit is completed after disbursement deadline date Contract for the final audit is signed before the closing date Contract is a lump-sum or fixed price Payment may be made into an escrow account with a commercial bank before the disbursement deadline date 54

55 Payment of Final Audit Fees after Closing (continued) Section Procedures for establishing an escrow account include: Letter of agreement between borrower and escrow agent Deposit of agreed amount into escrow account by borrower, or direct payment by the Bank (at borrower s request) into the escrow account Application for withdrawal accompanied by audit contract, must be received by Bank at latest by disbursement deadline date Commercial bank makes payment to the auditor upon completion of the audit and the borrower s acceptance of the audit Borrower maintains copy of invoice and receipt provided by auditor Any amount unutilized in escrow account is refunded to borrower and borrower refunds the same amount to the Bank If audit report not received within the time stipulated, Bank may request a refund of the fee 55

56 Section 5 Disbursement - Program-For Results Financing 56

57 Program-for-Results Financing (PforR) Section 5 Disbursement for PforR include: PforR overview (slide 58) PforR disbursement overview (slide 59) Disbursement Linked Indicators (slide 60) Prior Results and Advances (slide 61) Disbursements (slides 62 and 63) Closing and Refunds (slides 64 and 65) 57

58 PforR - Overview Section 5.1 Key features of PforR operations: Disburses funds on the achievement and verification of specific program results Uses a country s own institutions and processes Finances and supports borrowers programs of expenditure and activities Focuses on strengthening the institutional capacity and systems needed for programs to achieve their desired results Provides assurance that Bank financing is used appropriately and that the environmental and social impacts of the program are adequately addressed 58

59 PforR - Disbursement Overview Section Overall Steps for Disbursements Design Disbursement of funds is based on disbursementlinked indicators (DLIs), therefore, the identification, selection, and structuring of DLIs play a critical role in PforR operations Financing Agreement A limited set of DLIs should be identified from the program s results framework and program action plan, and are included in the operation s DLI matrix, and into the financing agreement Achievement During implementation, the Bank and the recipient monitor the achievement of DLIs, among other aspects of the operation Disbursement Once DLIs have been achieved and verified, financing proceeds are available for disbursement 59

60 PforR - Disbursement Linked Indicators Section The amount allocated for the achievement of each DLI is not attributed to specific program expenditures, nor does it need to be commensurate to program expenditures that are necessary to achieve the DLI. The financing agreement specifies the nature of each DLI. Time-Bound DLIs Scalable DLIs Nonscalable DLIs A DLI maybe defined as time bound if disbursement can be made only if the DLI is achieved by a specific date. When disbursement of financing proceeds is proportional to the progress toward achievement of DLIs, such DLIs are considered scalable. Where the DLI refers to an action, which is either done or not done, the DLI is usually not scalable. Table 14 60

61 PforR - Prior Results and Advances Section Prior Results and Advances Prior Results Financing (PRF) PRF refers to results that may need to be achieved before the signing of the financing agreement Amount and covered Period The Bank may agree to disburse up to 25% of the amount of the financing against results achieved between the date of the program s concept review and the date of the financing agreement Financing Agreement The starting date of expenditure incurrence is agreed during appraisal and is stated in the financing agreement Requirements -Results are within the scope of the program -Systems considered acceptable to the Bank -PRF agreed during negotiations Advances The Bank may make an advance payment of up to 25% of the financing for one or more DLIs, which have not yet been achieved. Operation -Funds are advanced -When results are achieved, the amount of the advance is recovered from the amount due to be disbursed under such DLIs -Recovered amount is then available for additional advances -The advance is always recovered first -If the amount allocated to a DLI that has been achieved and verified is larger than the advance, then the Bank will disburse the amount in excess of the advance -Recipient must refund any advances if the DLIs have not been achieved by the closing date 61

62 DLI Achievement Process Section Notification When a DLI has been achieved (or partially achieved in the case of scalable DLIs), the borrower informs the Bank The borrower provides evidence in accordance with the verification protocol as justification that the DLI has been achieved Confirmation The Bank reviews the documentation submitted by the borrower and decides if the DLI has been achieved, partially achieved, or not achieved Country director sends an official communication to the borrower informing the borrower of the Bank s decision as to the achievement of the DLI and the level of PforR financing proceeds available for disbursement This confirmation must be attached to the withdrawal application Disbursement Scalable DLIs - It is possible that partial achievement of the DLI can lead to disbursement of an appropriate portion of the amount allocated to the DLI The amount to be disbursed will depend on how the DLI is described in the financing agreement and the Bank s assessment of the partial achievement. The country director s notification will inform the borrower of the amount available for disbursement against progress achieved toward the particular result 62

63 PforR - Withdrawing Financing Proceeds After effectiveness the withdrawal applications are submitted, based on provisions of the financing agreement and disbursement letter. Borrowers should attach a copy of the official communication to the withdrawal application that confirms that the Bank has accepted the achievement of the results Section 3 & Prior Results and Achievement of Results DLI payment application type to be used in Client Connection Withdrawal application and Bank s results achievement notification required Advances DLI advance application type to be used in Client Connection Withdrawal application and borrower s request for advance required Recovery of Advance A withdrawal application is not required Bank s results achievement letter required 63

64 PforR - Closing Section & Closing date. For program expenditures to be eligible for financing, results must be achieved and corresponding expenditures must be incurred on or before the loan closing date Disbursement Deadline Date. The Bank may decide to allow borrowers to submit withdrawal applications after the closing date. These withdrawal applications must be received within six months after the closing date for results achieved by the borrower before the closing date Closing of Loan Account. The Bank closes the account within two months after (i) the Disbursement Deadline Date, or (ii) the closing date, if no additional period is granted 64

65 PforR - Refunds Section Refunds may be required in the following cases Reconciliation. If the Bank s financing exceeds the total amount of program expenditures, the borrower is required to refund the difference to the Bank Unused advances. The borrower must refund any advances (or portion of advances) if the results have not been achieved (or have been only partially achieved) by the closing date 65

66 Section 6 Disbursement - Development Policy Financing 66

67 Development Policy Financing (DPF) Section 6 Provides rapidly disbursing finance to help borrowers address actual or anticipated development financing requirements Disbursed in single or multiple tranches Based on compliance of tranche release conditions and satisfactory macroeconomic policy framework Withdrawal requests duly authorized can be submitted electronically Borrowers are required to submit all withdrawal applications electronically using the e-disbursement function in Client Connection, then selecting tranche type withdrawal application for DPF. On an exceptional basis, manual applications can be submitted to the Bank. 67

68 Section 7 Debt Service - Billing 68

69 Billing Section 77 Billing statements are prepared two months prior to the due date and charges are estimated based on the disbursed outstanding balance, rate and exchange rates at that time. The actual amount due is recalculated on the due date. Differences between amounts billed and due are carried forward or deferred to the next billing. Funds received for IDA are applied as follows: Overdue amounts Deferred amounts Current receivables Funds received for IBRD are applied as follows: Interest on overdue swap, receivable Commitment fees Interest on overdue principal Interest Transaction Fees Principal 69

70 Billing Section 77 Billing Advice Notices are sent about 45 days before the due date and summarize the amounts due from a borrower. When the payment date falls on a weekend or holiday, the debt service is due on the very next business day. For this reason the date payable may vary from the payment date. If payments are received late, late charges begin to accrue from the payment date not the date payable. When a cancellation takes place the maturity schedule is updated on a pro rata basis to reflect the cancellation. If this occurs after a bill has been sent, there is no revision to the bill and the adjustments will be reflected on the following billing statement. ebilling is the electronic delivery of billing statements. Many borrowers have taken advantage of this feature. Borrowers not already signed up can do so by contacting loanclientservices@worldbank.org. Many debt service management reports are available to clients through Client Connection. This includes the billing statements, statement of loans and credits and estimated debt service reports. 70

71 Billing Statement Components Table 15 Payment instructions Payment activity Fees Interest accruals/ service charges Principal Carry-forward receivables Current dues Determination of definitive amounts due for previous billing Loan receivable application Principal activity Contains details of the payment instructions in the cover letter, including the depository bank account, currency amount, and payable date Contains details of amounts billed from previous period and the application of any payments Contains details of commitment fee billed (Gross fees and waivers are shown separately.) Contains details of interest or service charge amounts (Computations of interest and waivers, if any, are shown separately for International Bank for Reconstruction and Development loans.) Contains amounts due according to the amortization schedule for the loan or credit Contains amounts carried forward from the prior billing cycle, if applicable Contains the total amount due for the current period (This amount is the sum of fees, interest/service charges, principal, and carry-forward receivables, less any applicable debt relief and carry-forward credits.) Contains the total amount actually due for the previous period (Details are presented by category of charges and/or credits.) Contains the billed amount, due amounts, and the application of funds received from the borrower and/or other sources for the previous billing cycle, by loan category (Details include any overdue and deferred amounts.) Contains the calculation of principal recall on reference date 71

72 Section 8 Debt Service - Overdue and Sanction Policy 72

73 Debt Service Overdue Section 8 The Bank s practice is to follow a graduated approach using reminders, incentives and sanctions when dealing with clients with overdue debt service Section 8.1 In addition, the Bank charges late payment charges on overdue principal. For IBRD loans there is a 50bps late payment charge applied to principal payments received after 30 days Section

74 Bank and IDA Graduated Overdue Sanctions Policy Table 16 Trigger 5 to 15 days (reminder) 30 days overdue (sanctions) 35 days overdue (waiver loss notification) 45 days overdue (sanctions) Action The Bank notifies the borrower of the amount overdue and the actions that may apply if the amount is overdue for more than 30 days after the due date. The Bank informs the borrower that if the payment becomes 30 days overdue, these actions will apply: The borrower will become ineligible for any applicable interest waiver. No new loans will be presented to the Board for approval. No agreements related to previously approved loans will be signed. The Bank informs the borrower that it has lost its eligibility for any partial waiver of interest in eligible International Bank for Reconstruction and Development (IBRD) loans. The loss of waiver occurs when payments are 30 days overdue but the notice is sent on the 35 th day. The Bank informs the borrower and the country that unless all outstanding payments are made, including those falling due by that date, the following will apply: No new loans to or guaranteed by the country will be presented to the Board for approval. Agreements related to previously approved loans to or guaranteed by the country will not be signed. The guarantor becomes ineligible for any applicable interest charge waiver. 74

75 Bank and IDA Graduated Overdue Sanctions Policy (continued) Table 16 Trigger 50 days overdue (notification) 53 days overdue (notification) 60 days overdue (sanctions) 90 days cancellation following suspension Six months overdue (nonperforming status) Action The Bank informs the guarantor that it has lost eligibility for any partial waiver of IBRD interest on all loans guaranteed by it. The Bank informs the project cofinanciers and relevant regional development banks of the impending suspension. The Bank informs the borrowers and country that a suspension of disbursements is in effect and notifies the Board. At the discretion of the Bank, the notice may specify items that are exempted from the suspension. After 90 days of continuous suspension, the Bank prepares a notice recommending cancellation of all undisbursed balances. When service payments on a loan or development credit become six months overdue specifically, on the date that the second consecutive service payment is missed the Bank sends a notice to the member country. A formal notice is also sent to the Board within two days of that date, known as the trigger date, and a news release may be distributed. Information on borrowers with loans for which payments are more than six months overdue is included in the Bank s financial statements. 75

76 Section 9 Debt Service - Partial Waiver for Loan Charges 76

77 Partial Waiver of Loan Charges Section 9 All borrowers are eligible for the commitment fee. Interest waiver is only available on older loans and is conditional to clients who pay on time. IBRD Loans Signed Before September 27,2007 a IBRD Loans Signed On or After September 27,2007 Table 17 With invitation to negotiate before July 31, 1998 With invitation negotiate on or after July 31, 19 With invitation to negotiate on or before June 30, 2014, and approved on or before September 30, 2014 With invitation to negotiate on or after June 30, 2014, and approved after September 30, 2014 Interest Waiver 0.05% for borrowers paying on time 0.25% for borrowers paying on time Not applicable Not applicable Commitment Fee Waiver 0.50% p.a. waived unconditionally on a yearly basis to all borrower 0.50% p.a. waived unconditionally on a yearly basis to all borrower Not applicable Not applicable Note: IBRD = International Bank for Reconstruction and Development; p.a. = per annum a - Loan signed before May 16, 2007, or signed between May 16 and September 27, 2007, on which the borrowers elected not to convert the terms of their loans to the terms for new loans introduced on September 27,

78 Section 10 Debt Service - Prepayments 78