Development Inrastructure - financing

Development Inrastructure - financing

Which funding systems can deliver a long term systems approach to value?

If you think standardisation as the best that you know today, but which is to be improved tomorrow; you get somewhere" – Henry Ford

Funding from external sources

  • Funds from external sources for development projects mainly come from bilateral/multilateral donor agencies. The funds come as loans, grants or credits

  • In many instances, donor agencies have different eligibility criteria for accessing their funds. Most of the donors develop their own Country Assistance Strategies for selecting projects that they intend to fund

  • Funds to undertake key poverty-alleviating development projects are sometimes not provided, due to misalignment of donor and country goals

  • Donor agencies are generally reluctant to fund asset maintenance projects. In many projects, provisions are not made for the transfer of knowledge to selected local people in the areas of monitoring, operations and maintenance

Co-funding of projects

Co-funding is a way of funding projects where different donors (sometimes involving the borrower) fund different aspects of the project, or pool resources in one basket for the purpose of funding a particular project.

Co-funding options have not been exploited fully by donors due to differences in their eligibility criteria for assessing funds and their acceptable procurement regulations. These differences can be in turn translated into their Loan Agreements with borrowers.

The Loan Agreement
  • The Loan Agreement usually refers to a procurement schedule which specifies special rules stating the method and guidelines of procurement and the exceptions to those rules, domestic preference, etc

  • The Loan Agreement for a specific project is mostly subject to International Law and takes precedence over domestic law. Procurement rules for the Loan Agreement will apply even where domestic laws indicate differently

Co-funding of projects can deliver value, through a long-term systems approach

The case for co-funding...

  • Co-funding advocates a long-term systems approach to value. It stimulates transfer of knowledge to selected local people, thus facilitating monitoring, operations, maintenance, and a sense of ownership locally

  • Co-funding reduces the financial commitment from each donor and hence, the risk involved in participating

  • Funds which could have been obtained as loans by borrowers may be written off as grants/credits, due to the reduced risk involved for the donors

  • Co-funding does not necessarily "enslave" the borrower to the foreign policy of one donor. It also engenders a self-help attitude among borrowers

  • Donor agencies must commit to engage in co-funding, while they seek to improve on its flaws and challenges. Standardising Loan Agreements and procurement regulations will greatly facilitate co-funding of projects

How can borrowers attract more co-funding opportunities?

  • Engage development partners more in the criteria for project selection and requests for funding
  • Include the synergy from Project Impact Assessments of co-funded projects in future negotiations for loans/credits
  • Communicate success stories from co-funded projects and highlight their contribution to the attainment of the MDGs
  • Show more commitment to asset maintenance and improvement during its service life
  • Include areas of mutual benefit in project planning through technical exchange programmes, study tours, etc

Further reading
Procurement under IBRD Loans and IDA Credits (October 2006)