ADB’s Multitranche Financing Facility, 2005–2018: Performance and Results Delivered
The multitranche financing facility (MFF) was introduced by the Asian Development Bank (ADB) in 2005 in the aftermath of the 1997 Asian financial crisis when ADB lending had stagnated because of both supply constraints and weak demand. At the time, member countries were concerned about the high costs of ADB lending, limited choice of instruments, and the perception that there was a deteriorating quality of service associated with ADB financing. The MFF was seen as a key financing innovation that would make ADB more responsive, efficient, and able to deliver results on the ground over an extended period of time. By the end of 2018, ADB had provided over $52 billion through 105 MFF programs to 16 member countries, almost one third of ADB’s total sovereign financing during the period.
This evaluation is intended to shed light on the modality’s performance and results delivered to date as an input for ADB Board and Management discussions to further improve its design, operation, and development results going forward.
The evaluation finds that the MFF modality has partially met the objectives of its creation. As expected, MFF operations have provided predictable and large financing over extended periods, helping member countries address critical development financial gaps. Clients have been satisfied with the MFF. On the other hand, the expected value addition in the areas of efficiency, portfolio performance, and development results was not clearly evident. The development contribution was found to be generally comparable with those of stand-alone investment projects, which suggests an under-utilization of the MFF potential to deliver transformational changes commensurate with the larger scale and longer term of engagement promoted by the modality.
At the same time, the evaluation finds that the delegation of MFF tranche approval authority to ADB Management, combined with periodic monitoring and advance reporting, did not, in general, compromise the quality of MFF operations. However, changes in the operational context and the introduction of additional regulatory requirements for MFFs over time have gradually reduced some of the modality’s initial advantages, and the demand for MFF financing has declined from the rapid expansion following mainstreaming of the modality. Several countries that have used MFFs in the past are now taking a more balanced approach when choosing from the available ADB financing instruments.
The evaluation notes that, provided some changes are made, the MFF can be a powerful instrument for ADB to serve its client countries and promote transformational development in the region. The evaluation recommends that ADB should review the use of MFF modality and update the policy as necessary to ensure it is aligned with the corporate Strategy 2030 to deliver integrated solutions and realize its transformational development potential. It also recommends that ADB should introduce measures to ensure that all operations envisaged under the MFF program are completed; that learning from prior tranches is captured and applied in subsequent tranches; and that transaction costs of MFF operations are reduced to restore the modality’s attractiveness to ADB operations and client countries.