RBL is a new performance based form of financing, where disbursements are linked to results rather than expenditure. So how does it work and how does it differ from ADB's traditional lending?
Transcript
Title: What is Results-Based Lending (RBL)?
Description: RBL is a new performance based form of financing, where disbursements are linked to results rather than expenditure. So how does it work and how does it differ from ADB's traditional lending?
VO: ADB has been tackling poverty in Asia and the Pacific for almost 50 years. It does this primarily by providing low cost loans to developing countries mainly for infrastructure. But the development finance landscape in Asia is rapidly changing and countries now have much stronger systems and capacities. ADB has to adjust its way of doing business accordingly.
ADB’s traditional investment lending focuses on project inputs, such as the construction materials bought with the loan money. These inputs may or may not contribute to overall project objectives. The loan is often seen as doing its job if a school or power station gets built, regardless of the impact on the lives of those who use it.
ADB has introduced a new form of funding its project work. It’s called Results-Based Financing. Results-Based Financing covers several instruments such as Results-Based Lending (RBL) and Output-Based Financing. Both instruments do not require proof of payment, such as invoices, for loan disbursement but directly links loans to program results. This fresh take on financing will further enhance the development benefits of ADB’s loans and grants.
How does RBL work? Well for example, on an education support program in Sri Lanka, loan disbursements are triggered by improved student learning, better school leadership, and improved curricula. A component of RBF that is particularly useful for helping the very poor is Output-Based Financing. So how does that work? Kate’s home does not have a water supply. Every day Kate has to help her mother fetch water from a well far away. She gets tired and often skips school due to the need to collect water, her family’s health is suffering. Under OBF, , a condition of a larger utility project could be for a water company to connect houses like Kate’s to a piped water supply at no cost to her family.
What are the other advantages of RBL and OBF?
- They increase government ownership of the program.
- They cut bureaucracy - it's the result, not the process that’s key.
- They promote accountability for achieving program results.
- There’s less staff time and paperwork and this reduces transaction costs.
- And they can both play a key role in reducing the gaps between the rich and poor.
ADB is currently working on 15 RBF pilot loans in the education, energy, health, transport and urban sectors.
