Results-Based Lending for Programs
In the Spotlight
President Nakao met with Indonesia President Joko Widodo on 12 February in Jakarta. He announced that ADB will boost lending to the country from $740 million annually to as much as $2 billion a year, or $10 billion over the next 5 years. He commended the government's acceleration of infrastructure and social service delivery. Read the news release.
Results based lending or RBL, which is a new performance based form of financing, changes the way ADB works with external agencies who implement its projects.
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?
Results-based lending, a new approach to project financing where disbursement is linked to project results, supports vocational education in the Guizhou region of the People's Republic of China, helping provide a skilled workforce for the region's growing economy.
Results-based lending (RBL) is a performance-based form of financing, where disbursements are linked to the achievement of results rather than to upfront expenditures, as is the case with traditional investment lending.
Results-based lending in ADB
RBL was approved in March 2013 as a new ADB financing modality that on a pilot basis for an initial six years. Once approved, RBL programs are implemented using the borrowing country’s program systems while ADB and client countries focus more on policy dialogue. RBL has quickly became a popular financing modality in ADB.
RBL is important to ADB for a few reasons. First, developing member countries (DMCs) and shareholders have asked ADB to reduce transaction costs, response times, and make program administration more efficient. Slow loan processing and administration means high transaction costs to client countries, high administrative costs for ADB, and lost developmental opportunities. RBL provides an additional tool to better meet these requests while improving development effectiveness. Second, ADB has been working in the region for about 50 years now and the development finance landscape in Asia is rapidly changing. Countries now have much stronger systems and capacity. ADB also has to adjust accordingly. By using country systems and principle-based approaches effectively, RBL gives our DMCs a stronger sense of ownership of ADB-financed development programs
Mid-term Review of RBL
In piloting the RBL modality, ADB has adopted a learning-by-doing approach. ADB will learn from its experiences and also exchange experiences with other development agencies. Around 3 years after initial implementation, ADB Management will carry out a mid-term review (MTR) to take stock of the experiences with RBL. The review will examine the demand for this modality, sector and country distribution of operations, results delivery, ways of managing fiduciary and safeguard risks, approaches to capacity development, transaction costs for ADB and the DMCs, emerging issues, and lessons learned. The review will also look into whether there are areas to fine-tune the modality based on the initial experience, and if so, will make recommendations for the improvements needed. To support the MTR, the Strategy and Policy Department, in coordination with other departments and offices, will carry the consultations with DMCs.