World Bank Lending for Lines of Credit: An Ieg Evaluation

Over the 1993-03 period, $13.4 billion were approved for lines of credit, representing 8.4 percent of total Bank commitments for investment lending. The trend in commitments has been sharply downward, however, from some 10 percent of total Bank commitments in the early 1990s to well under 2 percent in 2002-03. Most lines of credit are in the rural and financial sectors and municipal lending, and involve a wide range of designs, objectives, and arrangements. The main findings of the report are that implementation of Bank guidelines for lines of credit has been poor. In addition, outcomes are unacceptably low, at only 52 percent satisfactory by number and 45 percent by net commitment. Cancellation rates have been high, more than double the cancellation rates of other investment loans over this period. Better outcomes for lines of credit are associated with: (i) stable macroeconomic conditions; (ii) stronger financial sectors, including satisfactory competition policies and good legal and regulatory regimes governing financial institutions, and mostly market determined interest rates, few distortionary credit and tax policies, and limited state ownership of financial institutions; (iii) use of clear eligibility criteria in the selection of participating financial institutions, and (iv) use of only private sector financial intermediaries.