Do Lines of Credit attain their Development Objectives? An Evaluation Synthesis 2010-2017

Independent Development Evaluation (IDEV) at the African Development Bank (AfDB or "the Bank") conducted an evaluation synthesis of Lines of Credit (LOCs) in response to a request of the Board for an independent review of the effectiveness of the Bank’s LOCs.

The objectives of the synthesis were to: (i) Identify good practices from the experience of the AfDB and peer institutions on the achievement of LOCs development objectives, and (ii) Draw lessons that could inform design, implementation and use of future LOCs.

LOC represent 10 percent of the Bank’s total portfolio, which stayed almost constant over time.  Until 2004, they represented 90% of the amount approved for the private sector. This percentage has drastically decreased given the increase of amount approved for equity funds and guarantees.

The synthesis found that:

• LOCs are relevant for International Financial Institutions (IFIs) and client Financial Intermediaries (FIs), but the relevance to the end beneficiaries is open to debate.
• The design of LOCs is often not underpinned by sufficient analytical work.
• The effectiveness of LOCs is often questionable because of the lack of reliable information at the end-beneficiary level for analyzing the development results.
• The efficiency of LOCs is satisfactory when measured in terms of their  profitability for the IFIs and FIs, disbursement rates, and time.
• The sustainability of LOCs is not well investigated in the literature.
• The enforcement of environmental and social standards considerations is problematic.

The synthesis underscored that  IFIs need to be more: i) accountable and transparent in their reporting on LOC effectiveness; and ii)  proactive in holding FIs to account for reporting on LOC development objective obligations.