Lending Terms for IFAD Projects

Donor support for agriculture development is not keeping pace with developing country demand or the need for finance implied by Sustainable Development Goal 2. In order to increase the overall volume of resources available for these needs, IFAD is pursuing a reform agenda that considers providing loans on harder terms to its client countries. This study assesses whether this hardening of lending terms will affect country demand for projects. Using the World Bank experience as a proxy, this paper examines whether graduation from the International Development Association to the International Bank for Reconstruction and Development affects the sector portfolios of countries and the types of investment demands within agriculture through both statistical and qualitative country case study analysis. We find that as countries graduate, there is a relative shift away from “soft” sector investments and a different mix of investments within the agricultural sector. We argue that IFAD’s consideration of harder lending terms should also include consideration of how to respond to a different mix of country demand within the agricultural sector. Specifically, the fund should consider some scaling up of projects, increased emphasis on capital investments, and a greater emphasis on policy engagement with client countries.