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p. 2 of 3 BACK | NEXT I. Background and Rationale II. The Poverty Reduction Cooperation Fund III. Recommendation

Cooperation with the Government of the United Kingdom and Northern Ireland Poverty Reduction Cooperation Fund

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II. The Poverty Reduction Cooperation Fund

A. Objectives and Scope

7. Purpose and Objectives. The goal of the PRF is to assist ADB in reducing poverty in its DMCs. The PRF will thus augment ADB’s efforts for poverty reduction and, as a result, will (i) assist in policy dialogue and strategy formulation on poverty reduction; (ii) develop new programs and projects with increased focus on poverty reduction; (iii) monitor and assess the poverty reduction impact at the project, meso-, and macro-levels; (iv) launch pilot poverty reduction activities to influence future loan design;11 (v) involve broader stakeholder consultations at all stages of design and implementation; (vi) strengthen ADB’s role as the regional development bank for Asia and the Pacific to promote poverty reduction; and (vii) perform other activities as mutually agreed upon between DFID and ADB.12 Appendix 1 summarizes the PRF Framework.

8. Activities and Scope. More specifically, the PRF will support (i) TA for capacity and institution building; (ii) provision of advisory inputs; (iii) thematic and sector work; (iv) monitoring, evaluation, and impact assessment; (v) public conferences, workshops, and other events; (vi) innovative activities such as micro and pilot projects, with clear demonstration effects; (vii) national experts based in RMs working on poverty analysis, and poverty-related gender, stakeholder participation, and governance issues; (viii) outreach and communication; and (ix) administrative costs of fund management. The PRF will not be used for permanent staffing costs (including salaries and training). It will also not support work that is not country-based (albeit cross-border activities can be supported as long they will have a measurable impact on the poverty situation in a country). Projects supported by the PRF will generally be in the range of $0.1 to $1.0 million.

9. Eligibility. PRF project proposals must meet the following eligibility criteria: All activities financed by the Fund should (i) have a strong poverty reduction focus; (ii) support the relevant ADB CSP 13 and the policies of the government; (iii) be designed to support shared poverty objectives in the existing and pipeline activities of other funding agencies, to enhance effectiveness, avoid duplication, and accelerate learning; (iv) not substitute for activities that would otherwise be financed by ADB (conceptual additionality); (v) make maximum use of local expertise and civil society participation; and (vi) support projects solely based on their merit for systemic poverty reduction, with no specific country allocation or country window within the PRF (unless otherwise specified for the PRC 14 ). The implementation arrangements for the PRF and for the PRF-PRC will further refine these criteria to ensure that PRF funds are used only in support of a strong poverty reduction focus, while not being so prescriptive that they unnecessarily restrict ADB’s programming options.

10. Geographical Scope. The PRF will be open to all poor DMCs classified by ADB as A, B1, or B2 countries, excluding India.15 However, it is expected that particular emphasis will be given to countries with a high incidence of poverty, a large number of poor people, and special dimensions of poverty otherwise not being addressed. India will not have access to the PRF because a separate fund has been set up through DFID-ADB cooperation to finance poverty reduction issues in India.

11. PRC Component. The PRF will also comprise a component for financing PRF activities in the PRC. A separate PRC component is needed because DFID is financing such projects from its country allocations for the PRC, whereas funds are provided through a regional cooperation window for all other eligible countries. Because of the direct link to DFID’s PRC portfolio, it is also expected that such PRF projects for the PRC will be closely linked to and integrated into ADB’s CSP, promote civil society participation in poverty reduction, and make maximum use of local expertise and nongovernment organization (NGO) involvement.16

B. Implementation Arrangements

12. Approval Process for the PRF. The following approval process will guide the selection of projects for PRF countries excluding the PRC:

1. Projects can be proposed at any time by the regional departments and the RMs through a three-page concept paper to RSDD.
2. RSDD will initially screen the proposals and submit them to DFID.
3. After obtaining approval of the concept paper by DFID on a project approval basis for pilot projects 17 and RM support staff, and on a non-objection basis for other activities, the regional departments (including the RMs) will finalize the project proposal, following ADB’s general procedures under its revised business processes.
4. In line with the mandate delegated to RSDD under the new business processes, RSDD will also function as ADB’s internal clearinghouse for policy compliance and quality assurance before the PRF proposal will go to Management or the Board of Directors for approval on a non-objection basis.

The general approval process is summarized in Appendix 2. The special arrangements for the PRC are summarized in Appendix 3. The outline of the concept paper for DFID approval is in Appendix 4.

13. Work Program. Projects will be processed on a regular basis. DFID and ADB will coordinate closely to keep a balance on the country, sector, and thematic allocations. To monitor the implementation, ADB and DFID will have a yearly partnership meeting and additional semiannual stock-taking meetings. A status report on PRF implementation and a work program for PRF financing will be prepared for these meetings. This work program will be arranged according to the PRF input-output matrix as suggested in Appendix 5.

14. ADB Responsibilities. ADB will be responsible for (i) services provided by headquarters and RM staff for designing, preparing, overseeing, coordinating, and managing the projects and activities under the PRF; and (ii) office, secretarial, and equipment support. Within ADB, RSDD will be responsible for managing the PRF and will function as the communication link to DFID on technical matters; it will be responsible for reporting on implementation progress to DFID on the activities financed under the PRF; RSDD will also support the operational departments in project processing. The regional (operational) departments will be responsible for developing, processing, and implementing the individual projects. The Office of Cofinancing Operations will act as the official channel of communications between DFID (and other possible participating donors 18 ) and ADB; it will monitor and report on the financial performance of the PRF. The PRF cooperation will particularly strengthen the role of ADB’s RMs. The PRF will particularly encourage staff from RMs to initiate and implement projects that particularly support innovative action research, and country- or theme-focused poverty analysis, stakeholder coordination, NGO involvement, pilot activities, and monitoring of poverty reduction. It will further strengthen selective RMs by providing additional consultant expertise to ADB’s staff.

15. Central Screening and Coordinating. To have maximum poverty reduction mainstreaming and additionality impact in ADB operations, RSDD will nominate a PRF coordinator who will be responsible for (i) supportingthrough a teamwork approach operational departments and RMs in project processing; (ii) mainstreaming appropriate cross-cutting concerns for poverty reduction; and (iii) overall fund management.

16. Role of DFID. DFID will need to know in advance and agree to the procedures for processing individual proposals. The involvement of DFID will be geared to promote mutual understanding and facilitating partnership, and care will be taken to avoid additional administrative burdens on ADB or DFID staff. A new DFID staff person posted in the British Embassy in Manila will undertake the DFID administration work for PRF. She/he will communicate directly with the PRF coordinator in RSDD. The main vehicle for DFID’s periodic involvement will be an annual review meeting, which will assess the activities under the PRF during the previous year and agree on an indicative allocation of resources for the following year.

17. Procurement. TAs financed under the PRF will be processed and administered under standard ADB procedures. ADB’s Guidelines on the Use of Consultants, will be applied in the selection and engagement of the consultants to be financed under the PRF, and the procurement of goods and other services for TA operations will be in accordance with ADB’s Guidelines for Procurement or any other arrangements as agreed upon between ADB and DFID. Projects will make maximum use of local expertise and civil society involvement.

18. Reporting and Auditing. ADB will maintain all records and accounts, in accordance with its standard procedures, to record contributions, interest, and investment income, as well as expenditures financed by the PRF. ADB will furnish to DFID annual reports on the implementation of the PRF. The annual report will also be made available to the ADB Board of Directors. Upon request, ADB will also make available to DFID all relevant documents and records concerning the PRF and the individual projects. Furthermore, ADB will furnish audit reports from the external auditors as required by DFID. Six months before closing of the PRF, ADB and DFID will jointly initiate an independent external evaluation of its performance and impact. ADB will, in accordance with its usual procedures, inform DFID promptly of any condition that interferes or threatens to interfere with the performance of ADB in the implementation of the PRF. DFID and ADB will consult each other directly on any event determining changes in the implementation of the PRF.

19. Timing. The PRF will commence in July 2002. The final date for approval by ADB of activities financed under the PRF will be 31 March 2006.

C. Financing

20. Contribution from DFID. The Government of the UK has proposed to make an initial contribution to the Fund in the amount of £39 million, comprising (i) £30 million (approximately $42.8 million) from its regional cooperation window for PRF countries, and (ii) £9 million (approximately $12.7 million) from its window for activities in the PRC. At its discretion, the Government of the UK or any other member country of ADB may provide additional resources to the PRF. Within 2 weeks after signing the Memorandum of Understanding (MOU) on the Establishment of the PRF with ADB,19 DFID will deposit an initial £3.25 million (for all countries covered under the PRF) into a US dollar interest-bearing account to be specified by ADB (the ADB account). Subsequent installments will be made semiannually on receipt of a request from ADB together with a financial statement detailing the use of the previous installment. ADB will manage the financial contribution to the PRF. The Table below provides a summary of the indicative DFID contributions. The amount of each tranche may, however, be varied at the discretion of DFID in light of the actual uptake of the funds made available in previous tranches, provided always that DFID undertakes to ensure that ADB has available to it funds sufficient to meet planned disbursements over the 6 months following the planned date of payment of any tranche.

21. Other Donors. The PRF will be open for other donors’ contributions also. Contributions from other donors will be effected through the signing of similar MOUs and respective amendments through appendixes to this Board information paper. These MOUs will be subject to approval by ADB Management and will be sent to the ADB’s Board for information. Contributions from other donors under the PRF will be deposited into separate US dollar interest-bearing accounts to be specified by ADB. Such contributions will finance activities under the PRF in accordance with the agreement reached during the annual review and work program meeting.

22. Service Charge. For administering the PRF, ADB will be paid a service charge in accordance with ADB’s policy on service charges for administration of grant cofinancing from bilateral sources.20 ADB may use part of the Fund (and any interest income and investment and reinvestment income thereon) to cover the administrative costs of up to 5% of the expenditures incurred under the PRF and the costs of external audit.

23. The ADB Account. Interest earned on the ADB account will be used for PRF activities only. The PRF will be deposited into a US dollar interest-bearing account to be specified by ADB. Interest earned on such amount will be used for PRF activities only. The resources of PRF may be freely exchanged by ADB into other currencies as required. Any fees, including the service charge for administering the Fund, and for auditing purposes in accordance with para. 22, and charges related to the purchase of such other currencies, will be paid out of the Fund. If other currencies are required to pay for any eligible expenditures, ADB may purchase the required currencies with the proceeds of the PRF. The PRF will be held by ADB on behalf of the participating donors and will be administered separately form ADB’s own resources.

24. Disbursement. ADB will make withdrawals from the PRF account as necessary to meet expenditures eligible under the PRF for various projects and other expenditures. ADB will administer such project funds on behalf of DFID. ADB may invest and reinvest pending disbursement of the DFID contribution. Any income earned from the investment as well as from the ADB account, will be credited back to the ADB account and used for the purposes of the PRF.

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