The Bank has two basic types of lending instruments: investment loans and development policy loans. Investment loans have a long-term focus (5 to 10 years), and finance goods, works and services in support of economic and social development projects in a broad range of sectors. Development policy loans provide quick-disbursing external financing to support a government's policy and institutional reforms.
The nature of investment lending has changed over time. Originally focused on hardware, engineering services, and bricks and mortar, investment lending has come to focus more on institution building, social development, and improving the public policy infrastructure needed to strengthen private sector activity.
Eligibility. Investment loans are available to International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA) borrowers who are not in arrears with the Bank Group.
Disbursement. Funds are disbursed against specific foreign or local expenditures related to the investment project, including pre-identified equipment, materials, civil works, technical and consulting services, studies, and incremental recurrent costs. Procurement of these goods, works, and services is an important aspect of project implementation. To ensure satisfactory performance, the loan agreement may include conditions of disbursement for specific project components.
Instruments. The large majority of investment loans are either Specific Investment Loans or Sector Investment and Maintenance Loans. Adaptable Program Loans and Learning and Innovation Loans were recently introduced to provide more innovation and flexibility in how funds can be used. Other instruments tailored to borrowers' specific needs are Technical Assistance Loans, Financial Intermediary Loans, and Emergency Recovery Loans.
DEVELOPMENT POLICY LOANS
Development policy loans were originally designed to provide support for macroeconomic policy reforms and adjustment to economic crises. Over time, they have evolved to focus on longer-term structural, financial sector and social policy reforms. Loans seek to address complex institutional issues such as strengthening education and health policies, improving a country's investment climate, and addressing weaknesses in governance, public expenditure management and public financial accountability.
Eligibility. Development policy loans are available to IBRD and IDA borrowers who are not in arrears to the Bank Group. Eligibility for a development policy loan also requires agreement on policy and institutional reform actions that can be monitored and satisfactory macroeconomic management. Coordination with the International Monetary Fund (IMF) is an essential part of the preparation of a development policy loan.
Disbursement. Funds are disbursed in one or more stages (tranches). Tranches are released when the borrower complies with stipulated release conditions, such as the passage of reform legislation, the achievement of certain performance benchmarks, or other evidence of progress toward a satisfactory macroeconomic framework.
Instruments. The policy OP/BP 8.60, adopted in 2004, applies uniformly to all development policy lending, replacing the previous different types of lending (Rehabilitation Loans, Structural Adjustment Loans, Sector Adjustment Loans, etc.). Development policy operations in low-income borrowing countries may continue to be called "PRSCs" (Poverty Reduction Strategy Credits) because the term has become a well-established "brand name."