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p. 33 of 53 BACK | NEXT Classification of Developing Member Countries in Bank Operations Bank Operations in Pacific Island Developing Member Countries Lending and Relending Policies (Ordinary Capital Resources) Lending and Relending Policies (Asian Development Fund) Sector Lending Program Lending Assistance to Private Enterprises Financial Intermediation Loans/Credit Lines Financing of Interest and Other Charges During Construction Financing of Indirect Foreign Exchange Cost of Projects Lending Foreign Exchange for Local Expenditures on Projects Retroactive Financing Supplementary Financing of Cost Overruns of Bank-Financed Projects Use of Surplus Loan Funds Foreign Exchange Risk in Bank Operations Sector Development Programs Technical Assistance Guarantee and Security Arrangment for Bank Loans Environmental Considerations in Bank Operations Gender and Development in Bank Operations Project Performance Management System The Bank's Cooperation with NGOs Emergency Rehabilitation Assistance Loan for Small DMCs Rehabilitation Assistance After Disasters Cooperation Arrangements with International Organizations and Bilateral Sources Coordination with Aid Agencies Regional Cooperation Cofinancing Japan Special Fund Guarantee Operations Bank's Operational Missions Communication with Members of the Board of Directors Processing of Loan Proposals Project Financial Management Systems, Financial Analysis and Financial Performance Indicators Economic Analysis of Projects Procurement of Goods and Works Use of Consulting Services Formulation and Implementation of Loan Convenants Effectiveness of the Loan Agreement Loan Disbursement and Loan Closing Project Accounting, Financial Reporting, and Auditing Post Evaluation Country Planning and Programming Incorporation of Social Dimensions in Bank Operations Poverty Reduction ADB Accountability Mechanism Involuntary Resettlement Internal Audit Confidentiality and Disclosure of Information Indigenous Peoples Governance Anticorruption Enhancing the Asian Development Bank's Role in Combating Money Laundering and the Financing of Terrorism

Operations Manual

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This OM has been superceded by OM D11

OM Section 34: Issued on 13 January 1997
Processing of Loan Proposals

Bank Policies (BP)

Introduction

1. The processing steps are similar for proposals of loans to projects in the public sector and to projects in the private sector with government guarantee, of sector loans, of credit lines to development finance institutions (DFIs) and of multiproject loans. This OM Section deals with the Bank policies and procedures relevant thereto. Technical assistance loans, disaster rehabilitation loans and direct loans to the private sector without government guarantee are processed differently; policy issues and capacity-building aspects play a relatively larger role in the processing of program as well as sector loans.¹

2. It is the Bank's policy to fully involve the developing member country (DMC) government, the borrower, the executing agency, and the project beneficiaries at all stages of the project cycle beginning from project identification.

Programming and Concept Clearance

3. The Bank assists its DMCs in the formulation and, if necessary, reformulation of projects so that viable projects may eventually result. A project loan is normally not taken up for processing unless it forms part of the Bank's country assistance plan (CAP) for the DMC. In exceptional cases, a loan proposal not included in the CAP can be taken up for processing if Management's clearance is obtained for the basic concept of the proposed project. Such concept clearance will, however, require sufficient information to enable Management to make a prima facie judgement whether the project should be included in the CAP, and loan processing started.

4. As an integral part of the country planning and programming cycle, Bank loan projects² in the public sector are classified at the project identification stage; the classification indicates how projects are linked to the Bank's strategic development objectives³ and what their primary and secondary objectives are. The classification system enables Management to assess whether the mix of pipeline projects is consistent with the Bank's development agenda and the DMCs' priorities, and to make appropriate adjustments.

Publicity

5. It is the policy of the Bank to list every loan to be processed, after its inclusion in the CAP or after concept clearance for it is obtained, in appropriate detail in the Bank's publication ADB Business Opportunities (ADBBO). A project or program profile (PP) of two pages will be initially prepared to coincide with the listing in ADBBO of the project or program. The PP will be updated each time major changes occur in the project design (including at each stage in which significant changes are made in ADBBO) up to the appraisal stage. A more complete PP will be prepared following appraisal and updated annually thereafter during project/program implementation. The purpose of the PP is to provide as much information as possible to the public and as early as possible to ensure adequate debate, dialogue, and participation by all parties concerned, including affected populations, at the formative stages of the project.

Scrutiny of Projects under Process

6. An Operations Review Meeting (ORM) chaired by the President meets every quarter to review the implementation of the country operational program (loan and technical assistance (TA) processing and administration, including policy support and capacity building) as presented in the CAP and to seek Management guidance on specific issues relating to the programs of loan and TA processing and administration.

7. It is the policy of the Bank to examine different aspects of a project in distinct stages in increasing detail and to involve the DMC government and project beneficiaries at key stages of the project cycle. These stages include project identification; project preparatory technical assistance (PPTA); fact-finding; the Management Review Meeting (MRM), chaired by the President, to obtain Management guidance on specific aspects of the loan proposal; pre-appraisal⁴ and appraisal of the project in the DMC; and, finally, loan negotiations.

Project Documentation and its Review

8. A project brief (PB) must be prepared prior to loan fact-finding. Towards the end of the loan fact-finding stage and project appraisal stage, normally a memorandum of understanding (MOU) is prepared and agreement of the DMC government obtained. The MOU records the understandings reached between the borrower and executing agency on the one hand and the Bank on the other in respect of project objectives, scope, cost estimates and financing plan, implementation schedule, procurement arrangements for goods and services, retroactive financing, conditions, if any, for further processing, etc. A draft Project Administration Memorandum (PAM) forms part of the MOU signed at appraisal. The PAM includes the project (logical) framework and incorporates details of procurement, contract packaging, consultant selection, activity schedule of implementation, quantified output elements, targets and indicators necessary for benefit monitoring and evaluation, and the like. It is finalized during the inception mission.

9. Based upon the work done by the fact-finding mission, a draft Report and Recommendation of the President (RRP) is prepared for consideration by the MRM. The MRM is chaired by the President and is devoted primarily to receiving Management guidance on key project design features and issues. Together with the draft RRP (MRM), the minutes of the MRM constitute the main source of guidance for the appraisal mission.

10. After return of the appraisal mission, the next stage in project processing is the preparation by Bank staff of consistent documentation, including revised draft RRP (SRC) and legal documents. This set of draft documents is reviewed by the Staff Review Committee (SRC) chaired by the Projects Director concerned.

11. In case there are issues still outstanding for resolution the Regional Vice President will request the President to chair a Loan and Technical Assistance Coordination Committee (LTACC). In this meeting all required decisions and guidance of the Management are obtained.

Loan Negotiations

12. Loan negotiations follow, normally at the Bank's Headquarters. A notice of loan negotiations is issued to the Board. When the loan negotiations are substantially completed, a report on the status of the negotiations is prepared by the Programs Department and issued by the Secretary to the Board.

13. It is also necessary that a Project Office be set up and a Project Manager be appointed by the DMC prior to approval of a loan by the Board.

Supply of Documents to Borrowers and the Public

14. Prior to loan negotiations, on specific request from the DMC by or through the Bank's official channel of communication⁵ in the DMC, the draft loan documents including the draft RRP, approved by the SRC (or LTACC), may be provided to the DMC with prior Management approval. The borrower is advised to treat the documents as confidential and restrict their circulation at this stage. The borrower is also advised that the documents are essentially for internal use of the Bank, do not commit the Bank to finance the project/program, and could undergo changes prior to the actual loan negotiations.

15. Upon loan approval by the Board, the RRP and the legal documents are sent to the borrower and to the executing agency. The RRP will be made available to the general public on request following its approval by the Board. This policy of the Bank will be intimated to all concerned parties before loan negotiations; during the negotiations the borrower's negotiating team will have an opportunity to indicate any information or data that is of a sensitive or confidential nature. Such information or data will be circulated separately to the Board in a cover memorandum for the RRP. In exceptional cases, availability of RRPs carrying information of a highly sensitive nature may be fully restricted at the request of the Head of Department or Office and with the approval of the Vice President concerned.

Summary Procedure

16. Under the summary procedure, although full documentation is submitted to the Board, a loan not exceeding $20 million may not be discussed in the Board (unless requested by the Board members). This summary procedure may be adopted only when, in any calendar year, at least one loan proposal in the DMC in any amount has been discussed previously in the Board.

Operational Procedures (OP)

Concept Clearance

1. The initiative for processing of a loan proposal not previously included in the CAP may come from the Bank or from a DMC government. In either case, after concept clearance is obtained, the DMC government should be duly informed by the Programs Manager.

Management Review Meeting

2. As a broad guideline, to which the President may occasionally make an exception, projects for which MRMs are held after 30 June of any year will not be presented to the Board for consideration in the same year. However, special project implementation assistance (SPIA) loans, engineering loans, TA program loans, and emergency and disaster rehabilitation loans are not subject to this guideline.

Pre-Appraisal/Appraisal

3. Following approval at the MRM, pre-appraisal/appraisal of the loan proposal may be undertaken. A pre-appraisal mission is sent when major issues relating to the design, justification or implementation of a loan proposal and/or policy or institutional issues remain to be resolved and a full appraisal mission is unlikely to be effective without their resolution.

Intimation to the Borrower

4. After Board approval of the loan proposal, the Programs Department, in consultation with other concerned departments/offices, is responsible for matters pertaining to loan signing and loan effectiveness. The Programs Manager will inform the borrower and the executing agency by fax or cable or telex of the Board's decision and furnish the name of the Projects Department staff directly responsible for the administration of the loan.

Signing of Loan Agreements

5. A staged procedure is adopted by the Bank with respect to signing of loan agreements which is as follows:

(i) Bank approvals of loans are on the basis that the validity of the approval would lapse automatically after 12 months, unless within that period, the loan agreements are signed or the validity is extended specifically for a further period. This condition would be indicated to the borrower/beneficiary concerned in the routine communication sent by the Bank after the approval of the loan;

(ii) if a loan agreement remains unsigned three months after approval of the loan, the Bank will issue a formal reminder to the DMC concerned, requesting early signing of the loan;

(iii) if the loan agreement continues to be unsigned six months after approval of the loan, the Bank will undertake more intensive follow-up to expedite signing (through the Programs and Projects Departments concerned, Bank missions visiting the DMC, the Bank's resident mission, etc.);

(iv) at the expiry of 12 months, if the loan agreement remains unsigned, the Programs and Project Directors concerned will recommend to the President, in a joint memorandum, either to:

(a) allow the validity of the loan approval to lapse, or

(b) extend its validity for a further period which, except in very special circumstances, would be a maximum of three months;

(v) in the event of an extension under (iv) (b) above, the validity of the approval would lapse on the expiry of the extended period.

6. The decision taken by the President in the context of (iv)(b) above will depend on an assessment of the circumstances of the case, including whether by further delay there would be a significant impact on costs and benefits, and the commitment of the DMC authorities to the project or its priority. This judgement will be based largely on the responses received from the DMC or the recipient of the loan during the phase of intensive follow-up under (iii) above.

7. In cases where the validity of a loan approval is allowed to lapse, a formal communication to this effect will be sent to the DMC or the loan recipient. A brief Board Information Paper will also be circulated, explaining the circumstances of the case and the fact that the approval has lapsed. Where the validity of the loan approval is extended, the Board will be informed through the Semi-Annual Report on Project Administration and Technical Assistance Implementation.

8. As indicated earlier, the procedure outlined above is implemented by including a stipulation about the validity period of the approval of the loan in the routine communication sent by the Bank to the borrower/beneficiary concerned after such approval.

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