Results-based lending is gaining widespread use in the development field as a means to improve results on the ground with the funds made available by each donor. While all World Bank lending operations focus on results, some in particular link disbursements to the achievement of specified results; and to facilitate implementation, the fiduciary and safeguard policies that apply to these operations have evolved in recent years.
This paper reviews the legal framework and policy requirements for investment lending in general and, in particular, for: (a) investment projects financed through various types of results-based approaches such as output based aid and disbursements and sector wide approach support operations; and (b) programs financed under the new program for results financing policy.
This paper addresses especially the disbursement, procurement, fraud and corruption and other fiduciary-specific features of such lending operations, as well as the environmental and social safeguard policy requirements, illustrating with specific projects in various regions of the world and sectors, similarities and differences between the different approaches. It focuses on the obligations undertaken by member countries or other agencies implementing the investment projects or programs under the required legal agreements and supplementary documents.
Traditionally the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA), (jointly referred to as "the Bank") finance specific expenditures (goods, works and services) required for implementation of projects, against contracts evidencing such expenditures, and results of the project are monitored during its execution following project performance indicators agreed for the purpose. In the last ten years, selected operations were designed to link disbursements of specific project or program expenditures to the results achieved, and were prepared following guidelines aimed to facilitate implementation through systems closely related to those of the borrower country, and to concentrate on achieving results. Starting in 2012, a new program for results-financing policy was approved delinking the expenditure requirement and further modifying the fiduciary and safeguard requirements. Policy-based lending granted by the Bank to assist the borrower in "addressing] actual or anticipated development financing requirements" in a short timeframe, is not included in the scope of this paper. (1)
This paper attempts to provide an overview of the legal and policy requirements of results-based lending for investment projects and programs. Included in Part II, as a framework for the analysis in Parts III and IV, is the general legal and policy requirements of all Bank lending operations based on the IBRD and IDA Articles of Agreement (2) and relevant policies, as well as the main provisions of the legal agreements entered into with borrowers and the General Conditions (3) which are a part thereof. Part III includes a definition of results-based lending approaches, an overview of the design, fiduciary and safeguard features of the different mechanisms particularly for output-based aid, output-based disbursement operations, and sectorwide approaches, and illustrates how these features are applied, based mostly on provisions of legal agreements and other documents related to a rural communications project in Papua New Guinea, a health project in Argentina, a water supply project in Brazil, and an education project in Bangladesh. Part IV provides an overview of the design, fiduciary and safeguard requirements of results-based lending under the program for results financing policy; and illustrates how those requirements were applied in a road infrastructure program in Uruguay and a water supply program in Vietnam. (4) Concluding remarks are provided in Part V.
II. GENERAL LEGAL AND POLICY REQUIREMENTS OF LENDING OPERATIONS