ADB offers its developing member countries (DMCs) different types of financial products suited for varying needs and situations, all of which support governments in boosting economic growth and solving development challenges. Among these products are loans, grants, technical assistance, guarantees, and debt management products. These are financed from ADB's ordinary capital resources (OCR) as well as special and trust funds, of which the Asian Development Fund (ADF) is the largest. Middle-income countries borrow from ADB at near-market terms, while lower-income countries access loans at reduced rates. A number of DMCs can access the ADF for grants to improve the quality of life of the poor and vulnerable.
The Asian Development Bank (ADB) offers its sovereign and sovereign-guaranteed borrowers a loan product – the Flexible Loan Product (FLP) - based on specified standard 6-month floating reference rates. The FLP also includes an effective contractual spread and a maturity premium (where applicable) that are fixed over the life of the loan. Borrowers may choose to denominate their FLP loans in United States dollar (USD), Japanese yen (Yen), euro (EUR), or in a currency in which ADB can efficiently intermediate. Reference Rate is Secured Overnight Financing Rate (SOFR) compounded over 6-month interest periods determined in arrears for USD or Tokyo Overnight Average Rate (TONA) compounded over 6-month interest periods in arrears for JPY — the new standard reference rates used in the market for pricing of floating-rate loans for both currencies. The 6-month Euro Interbank Offered Rate (EURIBOR) will continue to be the standard reference rate for EUR floating-rate loans. Other recognized commercial bank reference rates would be used in other markets.
The FLP is a market-based loan product that allows ADB’s efficient intermediation on the finest possible terms, provides transparent and market-based pricing, and meets borrowers’ needs to tailor currencies and interest rate basis to suit project needs and external risk management strategies.
To continue meeting borrowers’ evolving financial needs, ADB introduced the local currency loan (LCL) product in August 2005. Private sector enterprises and certain public sector entities including local governments and public sector enterprises may avail themselves of LCLs.
LCLs aim to reduce currency mismatches in DMCs. Under the LCL window, borrowers have the option of changing the interest rate basis of an LCL during the life of the loan by requesting an interest rate conversion to fix or unfix their interest rate, subject to regulatory approvals and relevant swap market opportunities available to ADB in the local market.
ADB offers loans at very low interest rates to help reduce poverty in ADB's poorest member countries, and bridge the development gap in the Asia and Pacific region. Concessional assistance to DMCs is meant to help them overcome development challenges, support inclusive and sustainable development, and make progress on the Sustainable Development Goals. Large unmet development challenges, limited financing options, and the need to provide incentives to increase investment in regional public goods underlie the need for ADB’s continued concessional assistance to eligible DMCs.
ADB offers debt management products to members and entities fully guaranteed by members in relation to their third-party liabilities. In offering debt management products for third-party liabilities, ADB is able to contribute to the economic development of its DMCs by allowing members or guaranteed entities to improve debt management, thereby potentially reducing economic volatility, reducing borrowing costs, improving access to capital markets, and freeing up scarce financial resources for economic development.
Debt management products offered by ADB include currency swaps, including local currency swaps, and interest rate swaps. While currency swaps include the possibility of members or guaranteed entities transforming a foreign currency liability into a local currency liability, the reverse transformation of a local currency liability into a foreign currency liability is not offered.