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 details ADB’s multitranche financing facility, an investment lending modality for the public sector. This supports complex projects that require a larger investment and longer commitment than other types of ADB loans 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.
Transcript
When a country takes on a complex project—like a wide-range road network or a comprehensive energy program—it would need a larger and longer commitment than a typical ADB investment loan could offer.
ADB’s multitranche financing facility—or MFF—supports such an endeavor. It could be one standalone project with sizeable components; multiple projects under one program; or slices of a long-term contract.
Under an MFF, ADB provides a series of tranches when the investments are ready for financing and the borrower requests a tranche. Country borrowing is timed more closely with actual funding needs, so resources are used more efficiently. ADB and the borrower have multiple entry points for policy dialogue, since lessons from an earlier tranche can be applied to a succeeding one.
There are six preconditions for the use of MFF, in addition to ADB’s general requirements for loans and grants:
- A road map defining strategic directions,
- a policy framework to ensure an enabling environment,
- a fitting context for MFF within ADB’s strategy for the borrowing country
- an investment program clarifying the scope of the MFF
- a financing plan specifying amounts, timing, and sources of finance, and
- undertakings outlining borrower commitments over the term of the MFF.
A framework financing agreement sets out the main features of the investment program and the undertakings made by the client to ADB.
The ADB Board of Directors approves the MFF amount and specific terms and conditions under the MFF. After this, the facility is converted into tranches. Each tranche is approved by the ADB President.
With the MFF, ADB is able to provide greater funding predictability and continuity to its clients.
Source: Asian Development Bank