Central Elements of the Investment Lending Reform Process
Reform is organized around five pillars:

• 1. Greater focus on results and risk, and differentiating processes and resources to take the risk level into account
• 2. Enhancing supervision and implementation support
• 3. Revising the menu of lending options for IL and designing a new instrument to support government programs and that links disbursements more directly to results
• 4. Creating an enabling environment for teams to implement the reform (tools, training, templates)
• 5. Revising the policy framework for IL to a simpler, principled-based one.

| Pillar 1 | Pillar 2 | Pillar 3 | Pillar 4 | Pillar 5 |

Pillar 1: Risk-Based Approach

One of the first activities was to develop a way to focus formally on the risks to achieving an IL project’s development objectives—a risk framework that is to be used from the project’s earliest stages throughout implementation.

With the new risk framework, the Bank and its clients can design operations that better take into account the operating environment and link risks to achievable results and development objectives. Assessing risks early in the operation allows the Bank to differentiate processing by risk—lower-risk projects can be processed in a more streamlined fashion, while higher-risk projects can receive greater management attention. Similarly, repeating the risk assessment periodically during implementation can help identify emerging problems and allow the Bank and the client to devote greater attention to these aspects.

Timetable. The Operational Risk Assessment Framework (ORAF) was introduced in October 2009. Its use was piloted in all Regions during the first half of 2010, and the feedback from those pilot experiences was used to fine-tune the ORAF and its procedures. At the same time, new templates were developed for the project processing documents. Use of the ORAF will be mainstreamed to all IL operations on July 1, 2010.

Pillar 2: Implementation Support

Once the Bank’s Board of Executive Directors approves the commitment of funds to support an IL project, it is the borrower’s responsibility to carry out the project. During implementation, the Bank has traditionally taken a supervision role—that is, overseeing the project activities to ensure compliance with the legal agreements and with the Bank policies and procedures that are incorporated in those agreements. IL reform involves a culture shift—from a culture of just supervision to a culture of implementation support, in which Bank teams spends a greater proportion of available resources helping clients support implementation and build capacity.

In addition, as we introduce the risk-based approach, it is important to provide more flexibility to respond to the risks and changes during implementation. To this end, the Bank has introduced two important changes to its internal practices.

• Project restructuring. The Bank has modified its procedures so that, if a project is not on track to achieve its objectives, it is easier for Bank and client staff to restructure it to improve its chances of achieving the intended results.
• Recommitment of IDA resources. When carrying out such restructuring, IDA countries can now use cancelled balances from such operations for other operations in the country within a specified time period.

With this greater flexibility, the Bank and client can work together to restructure projects to adapt to changing circumstances, using scarce development resources as effectively as possible.

Pillar 3: IL Financing Menu

As one element of a consolidated and rationalized lending menu, management is developing a new approach to results-based lending—the Program-for-Results (P4R) lending instrument that would support a government’s program in particular sectors or subsectors.   P4R would focus Bank support directly on improvements in sectoral or other development programs and would place more direct emphasis on results by making them the basis for disbursement. With its program-level orientation, the new instrument would complement the Bank’s two existing lending instruments—investment lending (IL), which supports specific projects and disburses against specific transactions, and development policy lending (DPL), which supports policy and institutional reforms. The P4R concept note was discussed at the Bank's Board of Executive Directors on February 22, 2011 and the Bank is now in the process of embarking on broad-based global consultations on the proposed new instrument, seeking feedback from external partners, client countries, civil society organizations and other stakeholders.

This pillar also involves a simplification of existing financing options to better match the demand from clients. This will be closely related to Pillar 5.

Timetable. The Bank’s management and Board are discussing the parameters of the proposed new instrument during 2011. IL Reform is also reviewing the overall financing menu for IL.

Pillar 4: Enabling Environment

The pillars of IL reform can be successful only if the work is supported by a broad range of related activities.

• Training. Training in the risk-based approach is being delivered, as well as on restructuring guidelines. Training in other components will be designed and delivered as each component is rolled out. Moreover, a core curriculum for task team leader is being designed and will be implemented in the calendar year 2011.
• IT. The Bank is developing IT platforms to support the new processes and documents.
• Budget. The Bank is examining the resource implications for project preparation and implementation support.
• Accountability. The Bank is exploring the role and importance of its staff incentive system and clarifying lines of accountability.
• Communications. The Bank has an extensive program of internal and external communications, including consultations with clients and development partners.

Pillar 5: Policy Framework

Once the other pillars are largely in place, the Bank will turn its attention to the policy framework for IL. The plan is to simplify and rationalize these policies, basing them on principles rather than prescribed actions, and providing detailed guidance to staff on these. This will primarily focus on policies related to IL projects and not on fiduciary and safeguard policies that govern current IL projects.

Timetable. It is expected that the work will be carried out in the second half of 2010 and early 2011.

This page will be regularly updated as soon as new materials become available.