ADB offers its developing member countries different types of financing modalities to support governments in boosting economic growth and solving development challenges. Responding to the evolving needs of countries and the Asia and Pacific region as a whole, ADB’s range of public sector loans and grants differ in purpose, focus, financing and disbursements, and implementation arrangements. This video provides an overview of ADB’s investment lending modalities for the public sector. These include the project loan, sector loan, financial intermediation loan, emergency assistance loan, and multitranche financing facility. Investment lending pays for goods, works, and services related to specific projects.
Transcript
The Asian Development Bank provides financing and knowledge to its developing member countries to boost their economic growth and address development challenges. ADB’s most common type of financing support is investment lending.
As its name suggests, it supports specific investments in areas like energy, transport, urban and water, education, health, public sector management, and regional integration.
The loan pays for goods, works, and services related to the specific project. The borrower withdraws from the loan account as needed to fund these expenses.
There are several modalities under investment lending.
The project loan is ADB’s most commonly used modality. It typically supports investments with a clear scope, tangible outputs and estimated cost for the necessary goods, works, and services. ADB is highly involved and uses its own procedures in preparing and administering project loans.
Therefore, it’s most suitable for projects needing capacity building support and for activities that might have adverse environmental and social impacts.
The sector loan finances numerous, smaller subprojects within a sector.
ADB appraises a few subprojects, approves the sector loan, and then allows the borrower to select and appraise additional ones during implementation. The government should have a sector development plan and appropriate policies in place to effectively implement a sector loan.
The financial intermediation loan provides funding to target sub-borrowers through financial intermediaries. Under this modality, the borrower or government onlends ADB funds to eligible financial intermediaries, like local banks or other financial institutions. These then provide smaller loans at their own credit risk to sub-borrowers. FILs may target certain types of sub-borrower beneficiaries like micro, small and medium sized enterprises, women entrepreneurs, and low-income groups.
The emergency assistance loan—or EAL—helps rebuild high-priority physical assets and restore economic, social, and governance activities after disasters and emergencies. ADB quickly processes and approves the loan to be able to respond faster. EAL also supports countries in building back better, improving resilience to future emergencies.
The multitranche financing facility—or MFF—supports complex projects that require a larger investment and longer commitment than a regular project loan could provide. ADB provides a series of tranches when the investments are ready and the borrower requests financing. It fosters a deeper relationship between ADB and the borrower, ensuring that a large-scale endeavor will have long-term support.
Knowing which modality to use is important and requires knowledge of the country situation, the nature of the development challenge that needs to be solved, and how to best address it.
Source: Asian Development Bank