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Frequently Asked Questions
What is the Asian Development Fund?Established in 1973, the Asian Development Fund (ADF) is the oldest and largest of the ADB's existing special funds. Resources consist mainly of contributions mobilized under periodic replenishments from ADB's members and reflows from ADF loan repayments. Initial contributions to ADF were pledged in 1973 and designated as ADF I. Since then, ADF has been replenished nine times with the current ADF X covering the period 2009-2012. View information on the latest round of discussion with donors at ADF X Donors' Meetings. What is the role of ADF in ADB?ADF is a multilateral source of concessional assistance dedicated exclusively to the needs of the region. ADF is designed to provide loans on concessional terms and grants to those developing member countries (DMCs) with low incomes per capita and limited debt-repayment capacity. Activities supported by the ADF promote poverty reduction and improvements in the quality of life in the poorer countries of the Asia and Pacific region. At the end of 2007, loans from the ADF accounted for around 26% of cumulative ADB lending. What are the terms of loans financed by ADF?In general, the lending terms for ADF loans are the following: 32-year maturity, including an 8-year grace period, 1% interest charge during the grace period and 1.5% during the amortization period, and equal amortization. ADF financed Program loans offer the same terms except have a shorter maturity of 24 years. In the case of ADF-financed Emergency Assistance Loans, the terms are a 40-year maturity, including a 10-year grace period, 1% interest per year, with repayment of principal at 2% a year for the first 10 years after the grace period and 4% a year thereafter. ADF includes a facility with harder lending terms to help cover the foregone interest income from ADF grants. The loan terms are the same as the current ADF terms, i.e., equal amortization, 8-year grace period, 32-year maturity for project loans and 24-year maturity for program loans. The interest rate is 150 basis points below the weighted average of the 10-year fixed swap rates of the special drawing rights component currencies plus the OCR lending spread, or the applicable ADF interest rates, whichever is higher. The interest rate is reset every January and applied to all hard-term loans approved during that year. The interest rate is fixed for the life of the loan. There is no commitment fee associated with ADF-financed loans. How many members of ADB contribute to ADF?As of 31 December 2008, total contributed ADF resources amounted to US$31.5 billion equivalent. Thirty-two members of ADB have provided direct contributions to ADF. The largest contributors are Japan, the United States, Germany, Canada, Australia, France and the United Kingdom. Over time, nonregional and regional members each provided about 50% of total pledged contributions. Why do members contribute to ADF?ADF-financed operations serve many of the economic, strategic, and humanitarian interests of contributing members in a cost-effective manner. No other multilateral fund is as directly and broadly involved in the economic and social development of poor, less creditworthy countries in the Asia and Pacific region. ADB member countries see ADF financing as important for achieving ADB's vision of an Asia and Pacific region free from poverty. In support of this overarching objective, ADF financing is used for (among other things):
Who are the major borrowers of ADF IX resources?There are 28 ADF borrowers that have access to ADF X resources, 26 of which had either borrowed and/or received grants from ADF from 2005 to end-2008. Major borrowers/grant recipients included Bangladesh, Viet Nam, Pakistan, Afghanistan, Nepal, Sri Lanka, and Cambodia. How do donors and ADB assess the performance of ADF?During negotiations for ADF, donors collectively set out detailed activities and/or milestones for implementation. A donors' report, which outlines in detail the major initiatives to be undertaken over the course of the replenishment period, is produced and disseminated at the end of the negotiation process. Built also into the ADF replenishment process is a midterm review meeting. The meeting is generally convened halfway into the four-year ADF period and provides the opportunity for donors to take stock of progress made and challenges ahead facing the ADB and ADF. In addition, the ADB's Board of Directors receives regular reports and updates from ADB management on the operational progress of planned and actual use of ADF resources, as well as evaluations of ADF-financed projects and programs. Lessons learned are then integrated into future operational planning for ADF borrowers. How are ADF resources allocated?The main instrument for distributing ADF resources is the performance-based allocation (PBA) system. The policy, based on a formula that includes a number of key development variables, is intended to support those ADF-eligible countries who are undertaking the necessary initiatives to ensure sustainable development. How are ADF IX resources used?ADF resources, both loans and grants, are allocated to various sectors as follows.
During the period 2005 to mid-year 2008, most of ADF support went to multi-sector (26%); transport and communications (22%); education (11%); agriculture and natural resources (11%); and water supply, sanitation and waste management (9%). In 2008, majority of ADF resources were distributed to the following sectors: multisector (27.9%); law, economic management, and public policy (20.9%); energy (13.7%), water supply, sanitation and waste management (7.4%); and health, nutrition, and social protection (7.4%). ADF grant financing was introduced in ADF IX, and the framework was subsequently revised. Under the current framework, the proportion of assistance provided as grant financing is contingent on the country's risk of debt distress. High-risk countries will receive 100% of ADF funding as grants and moderate-risk countries 50%, while low-risk countries will receive only loans. To avoid rewarding poor performance, a 20% volume discount will be applied to the grant portion of a country's performance-based allocation. Under the revised framework, the grant shares of the ADF programs in many countries will increase, but no limit has been placed on the amount of such assistance ADB will provide. For the period 2005 to mid-year 2008, there were 54 grant projects totaling US$1,120 million provided to 17 DMCs and 2 regional cooperation projects. |
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