Published September 2022
Box: International Fund for Agricultural Development counts on forty years of lending success — high credit rating and unique replenishment funding model benefits the rural poor
By Alvaro Lario, Advit Nath and International Fund for Agricultural Development (IFAD)

As an international financial institution (IFI) and United Nations specialised agency dedicated solely to agriculture and rural development, the International Fund for Agricultural Development (IFAD) is uniquely positioned for resource mobilisation. Its primary role is supporting people living in poverty in rural areas through the provision of loans and grants to member countries.These are no-strings- attached loans with favourable financial terms, such as long lending periods (eg a 40-year repayment timeline) and concessional interest rates. Repayment terms depend on the borrower’s capacity to service the loan, while great care is taken to ensure loans are not taken by countries that are unable to repay the principal back. Moreover, borrowers must meet internationally recognised debt distress indicators and projections criteria.

Loan repayments or reflows have, over time, become a key source of renewed financing for IFAD, which can afford to offer favourable loan terms due to the AA+ credit rating – one of the highest possible – it has been granted by two of the global credit rating agencies, Standard & Poors Global Ratings and Fitch Ratings.This rating enables the organisation to borrow funds cheaply by issuing bonds, for example in a private placement offering, then on-lending these funds at slightly higher interest rates.

Another reason that IFAD can offer competitive loans is its preferred creditor status. Globally, IFIs with this highest level of creditor status operate under the widely accepted principle that multilateral entities should be prioritised for debt repayment when borrowers experience financial stress. As such, IFAD is allowed to provide financing lifelines to countries that cannot borrow from domestic or international capital markets because they find it too expensive or have a poor (or no) credit rating.

IFAD was established in 1978, with its current high credit rating testament to the support it has received from the 177 member countries. Contributions
are replenished every three years, alongside policy reviews in support of beneficiary countries, rural people and farmers. The replenishment process involves a year-long consultation in which operational and institutional performance is reviewed, new commitments are made and past commitments are assessed.To date, the replenishment sessions have spanned 12 cycles, resulting in more than US$ 10 billion of paid-in capital.The 2021 financial statements show an equity balance of US$ 10.2 billion, making it one of the largest UN agencies in terms of assets.

This resource base gives IFAD a unique opportunity compared to other UN agencies, as it can leverage its assets to benefit its clients.Another unique feature of the organisation is the recent expansion of its charter to encompass investment in the private sector.This means IFAD can now operate its lending business and use risk-management instruments such as guarantees and equity investments to support small- to-medium enterprises, farmer organisations and financial intermediaries.

The 2021 replenishment – the largest to date – is expected to total US$ 1.3 billion, with 25 countries increasing their contributions by 40% or more, 16 countries doubling their contributions and 15 countries that skipped the previous cycle contributing. This has further secured IFAD’s strong financial profile, which will ultimately result in more funding reaching the agricultural sector and those living in poverty in rural areas.