ADB’s Work in the Private Sector
Harnessing Asian Entrepreneurship
ADB has been supporting the private sector since the 1960s, and over the years its work has intensified and expanded. Today, support for the private sector is a core function of ADB.
The Philippines sits on a massive source of clean geothermal power, but developing these resources has been a challenge. In 2016, ADB backed the issuance of the first Climate Bond in Asia and the Pacific through a credit enhancement transaction in the Philippines. The $225 million bond comes in addition to a direct loan of $37.7 million for the Tiwi–MakBan geothermal energy facilities. “This transaction validates the successful rehabilitation program of the Tiwi–MakBan facilities,” said Liza Montelibano, first vice-president and chief financial officer of Aboitiz Power. “The deal opens a new avenue for financing and refinancing our various projects, allowing Aboitiz Power to redeploy capital toward our large pipeline of new power investments that include renewable energy.”
Programs like this illustrate why ADB supports the development of a vibrant private sector, covering a wide range of operations from cutting-edge infrastructure to helping local businesses gain access to credit.
ADB supports the private sector because it plays a critical role in driving economic growth and sustainable development.
It was not long after ADB was formed that it began supporting the private sector. In 1968, ADB extended a line of credit to a development finance institution in Thailand to help it lend to small and medium-sized enterprises. In the early years, ADB also helped finance private companies by providing government-guaranteed loans to development finance institutions.
In 1983, ADB began to provide direct assistance to private companies by introducing an equity investment facility. During the same year, ADB made its first equity investments in private companies with $960,000 going to the Korea Development Investment Corporation to help fund technology-intensive small businesses, and $2 million going to Bankers Equity in Pakistan.
In 1986, ADB launched a new lending program designed to enlarge and diversify its support for private enterprises in developing member countries by introducing direct lending to private sector enterprises and financial institutions without government guarantees. Its first loan to a private company without government guarantee was to Pakistan’s National Development Leasing Corporation, in 1986. The assistance stimulated growth of the leasing industry and had a demonstrative role that paved the way for the establishment of private and commercial banks.
In the same year, a new Private Sector Division was established in the Industry and Development Banks Department to facilitate such lending and act as a focal point to all private sector activities in developing member countries.
The lesson learned from that experience was that effective private sector transactions require specialized skills and expertise and different operational processes and procedures. As a result, ADB-wide private sector operations became the responsibility of a dedicated Private Sector Group in 1995.
That year also saw the approval of a more focused strategy on private sector operations, which accorded high priority to infrastructure and finance—two sectors in which ADB had had long experience through its public sector operations. Then, in 2001, ADB adopted a strategic direction paper for private sector operations. While maintaining its focus on infrastructure and capital markets, the Bank sought to extend and deepen private sector operations’ reach of countries and sectors and to expand mobilization of cofinancing in response to evolving market needs.
ADB’s renewed commitment to private sector development and new challenges presented by the changing environment signified that upgrading the Private Sector Group to a Private Sector Operations Department was a natural progression for private sector operations within ADB. The Private Sector Operations Department was established in 2002 with responsibility for project finance, capital markets, investment fund management, and risk management. ADB staffed up to support expanded private sector operations by bringing in legal and risk management specialists.
" Ending poverty without further exacerbating climate change will only be possible if the private sector takes a leading role in supporting green economic growth and creating quality jobs."
Under this new framework, ADB was able to scale up its engagement in key sectors. ADB’s $37.3 million loan to the New Bong Escape Hydropower Project—the first private hydroelectric power generation project in Pakistan—illustrates the power of demonstration in helping address an electricity shortfall. Developing a bankable framework for this run-of-river plant developed by Pakistan’s first independent power producer paved the way for the subsequent rapid development of the country’s hydropower potential.
Telecommunications is another area where ADB has engaged. In Afghanistan, ADB helped the country’s largest telecom operator develop a nationwide mobile phone infrastructure and expand cellular services and coverage to all of the country’s provinces. Innovative services, such as telemedicine, mobile trade, mobile banking, public call offices, and a mobile wallet system, have improved lives and livelihoods.
From 2008, ADB was focused on private sector development and private sector operations as “drivers of change” in developing member countries in Asia and the Pacific in its long-term planning document, Strategy 2020. This included promoting public–private partnerships in all of ADB’s operations.
Today, ADB is deepening its work to support private sector projects that have clear development impacts or demonstration effects that go beyond profit.
Projects include supporting Credo, a microfinance organization that is expanding banking services for small businesses and farming households in Georgia. ADB is lending the company $23 million.
In Bhutan, ADB has made a $3 million equity investment, and is providing a $1.5 million technical assistance grant, to Mountain Hazelnuts, a firm that is developing an inclusive and environmentally sustainable hazelnut value chain in Bhutan. The company is training thousands of farmers, including women, to grow a totally new crop and to use farm practices that will help minimize crop losses including from climate change.
Both companies were recipients of the ADB Private Sector-Consumer News and Business Channel (CNBC) Awards for providing ground-breaking, high-impact private sector solutions to key development challenges in 2015.
“Ending poverty without further exacerbating climate change will only be possible if the private sector takes a leading role in supporting green economic growth and creating quality jobs,” observes Diwakar Gupta, ADB vice-president for private sector and cofinancing operations. “Private capital and expertise will be needed to address poverty in all its dimensions—from food security through the effective and efficient delivery of social services and infrastructure. ADB recognizes this and continues to place its private sector operations at the heart of its long-term strategies.”
This article was originally published in a special edition of Together We Deliver, which tells 50 stories highlighting the importance of good partnerships in Asia and the Pacific in meeting the complex development challenges of this dynamic region.