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Fifth Line of Credit to the East African Development Bank

PN10071 | Project Completion Report Review Note | 16-Mar-2006

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2) Adopting appropriate disbursement method could minimize delays associated in response time. This lesson was applied for the LOC VI, which opted for Special Account Method of Disbursement since most of the sub-projects are from the private sector that call for quick disbursement

3) Lack of adequate equity capital in the selected sub-projects could significantly affects the sustained performance of the projects since much of the earnings would be used for debt servicing

4) Sub-projects that are export oriented and /or dependent on local raw materials have high degree of success and sustainability since they will not be threatened with shortage of foreign exchange and exposure to exchange risk

6) Timing of the Operation: By the time LOC V was granted, EADB’s existence was being threatened due to poor performance of its portfolio. The Bank intervention helped EADB to strengthen its operations and financial position. The lesson from this experience is that the AfDB should continue to assist DFIs, if they are potentially viable, instead of just abandoning them

7) Capital adequacy: The Bank Group’s Industrial Sector Policy requires the promoters of subprojects to put up at least 30% of equity for medium to large enterprises and up to only 20% of equity for smaller enterprises whose total investment cost is less than UA 1 million (or about US$ 1.45 million). The policy was applied to LOC V and the lesson learnt from this operation is that some enterprises have working capital inadequacy resulting from loan/credit repayments. In many cases, the cash flows from operations, due to loan repayments, especially during the initial years of the project are inadequate to meet the debt service obligations. In order to minimise this problem, investments financed from LOCs should have a minimum equity capital that could sustain the project operations during and after the servicing of its debts