Financial Due Diligence: A Methodology Note

The Financial Management and Analysis of Projects guidelines (the Guidelines) provide the framework for ADB's financial due diligence, namely completion of a financial management assessment (FMA) of the executing agency (EA) and/or implementing agency (IA), financial evaluation of the project, and assessment of implementation arrangements (from a financial perspective, including disbursement and auditing arrangements).

This financial due diligence methodology note offers a suggested approach for operationalizing the standard project preparation and loan processing requirements of the Guidelines. This note is to be read in conjunction with the Guidelines and relevant sections of ADB Operations Manual (OM). For financial intermediation projects, it is likely that additional activities will be required and staff should be guided by OM D6. Furthermore, the Guidelines, together with the methodology note, should be seen as a reference guide to assist staff in conducting an appropriate degree of financial due diligence during project preparation and processing, and should guide staff in determining the appropriate level of financial management safeguards required for a given project and/or EA and/or IA. The advice, directions, and recommendations provided should not be regarded as a substitute for the professional judgment of ADB staff.

The methodology note provides specific guidance in four primary aspects of financial due diligence: (i) financial management assessment, (ii) project cost estimates and financing plan, (iii) financial analysis, and (iv) financial evaluation. It also provides guidance on assessing disbursement auditing arrangements.