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Public Sector (Sovereign) Financing

ADB offers a range of financing instruments, products, and modalities to provide developing member countries with flexibility in determining how they can achieve development results.

Lending and Grant Modalities

Responding to the evolving needs of DMCs and the Asia and Pacific region as a whole, ADB offers a range of public sector loans and grants that differ in purpose, focus, financing and disbursements, and implementation arrangements.

These first five modalities fall under the investment lending category, which pays for goods, works, and services related to specific projects.

Project Loan

The project loan is ADB’s most commonly used modality. It typically supports investments with a clear scope; tangible outputs; and the estimated cost of goods, works, and services needed to complete the project. ADB is highly involved and uses its own procedures in preparing and administering project loans. It is most suitable for projects needing capacity building support and for activities that might have adverse environmental and social impacts. 

See: Operations Manual D11: Business Processes for Sovereign Operations (2017)

Sector Loan

The sector loan finances numerous, smaller subprojects within a sector. ADB appraises sample subprojects before the sector loan is approved. The borrower then selects and appraises additional subprojects during implementation. This makes the sector loan more cost-efficient than a project loan. It is also more flexible and adaptable to changes in situation, needs, and priorities.

See: Operations Manual D3: Sector Lending (2003)

Financial Intermediation Loan

The financial intermediation loan (FIL) provides funding to target sub-borrowers through financial intermediaries. Under this modality, the borrower onlends ADB funds to eligible financial intermediaries, like local banks or other financial institutions. These then provide smaller loans at their own credit risk to sub-borrowers. FILs may target certain types of sub-borrower beneficiaries like micro, small- and medium-sized enterprises, women entrepreneurs, and low-income groups.

See: Operations Manual D6: Financial Intermediation Loans (2003)

Emergency Assistance Loan

The emergency assistance loan (EAL) helps rebuild high-priority physical assets and restore economic, social, and governance activities after disasters and emergencies. Designed for quick response from ADB, the modality allows for abbreviated business processes. In most cases, EAL operations are processed within 7 to 12 weeks. A quick-disbursing component allows for more flexible fund usage by the recipient. EAL also supports countries in building back better, improving resilience to future emergencies.

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Multitranche Financing Facility

The multitranche financing facility (MFF) supports complex projects that require a larger investment and longer commitment than a regular project loan could provide. ADB provides a series of tranches when the investments are ready and the borrower requests financing. The MFF can finance multiple projects under an investment program in a sector or in various sectors, as well as large standalone projects with substantial and related individual components with long-term implementation plans. It can also finance slices of long-term contract packages. This modality fosters a deeper relationship between ADB and the borrower, ensuring that a large-scale endeavor will have long-term support.

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Policy-Based Lending

The policy-based lending (PBL) modality transfers loan amounts to the government’s general budget instead of paying for explicit project costs. This helps countries that may be facing a financing gap in their annual budget, and may need additional funds to pay for general development expenditures. PBL is disbursed only when the borrower completes policy reforms or actions that have been agreed with ADB (for example, reforms to improve revenue collection and management of public resources, create a more business friendly investment climate, or improve governance and performance of state-owned enterprises).

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Sector Development Program

The sector development program (SDP) combines PBL with an investment loan, responding to occasions when a country has both an investment requirement and a need for policy reform in a given sector. SDP finances a country’s reform program along with a specific investment project linked to the program, providing an integrated solution to a country’s sector needs.

See: Operations Manual D5: Sector Development Programs (2003)

Results-Based Lending

The results-based lending (RBL) modality focuses on the positive change brought about by ADB's support rather than direct project expenditures. Because it finances government-owned programs and the delivery of their intended results, RBL relies on country systems for financial management, procurement, safeguards, and monitoring and evaluation. This increases government ownership, accountability, efficiency, and effectiveness. Under RBL, funds are disbursed when agreed program results are achieved and have been verified. RBL helps align the efforts of various government agencies toward a common set of results. It allows development partners to pool resources and share the same set of targets, coordinating their development assistance.

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Project Readiness Financing

Project readiness financing (PRF) is a fast and flexible modality that supports activities expected to generate at least one ADB-funded project. It can pay for project preparation consulting services like detailed engineering design, capacity building, limited project startup support, and project design pilot-testing. Such work ensures high project readiness and minimizes startup delays during the initial phase of project implementation. PRF is generally limited to project preparation and design activities for follow-on investment projects expected to be financed by ADB.

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Small Expenditure Financing Facility

The small expenditure financing facility (SEFF) provides quick and responsive support to DMCs' small financing needs that are linked to ADB-financed projects. The total estimated contract value of each activity should not exceed $15 million. Once the SEFF has been established, individual activities are processed as and when needed up to the maximum approved facility amount. The SEFF’s availability period is 5 years with a possible extension of another 5 years subject to approval by the ADB Board of Directors. The SEFF typically supports low-risk activities across the project cycle—covering preparation, implementation, pilot testing, and even post completion activities including operations and maintenance, rehabilitation, and post-disaster early recovery.

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Technical Assistance

Technical assistance (TA) is generally grant-based and helps DMCs improve their capacities and make better use of their development resources. There are two types of TA: Transaction TA supports a specific ADB-funded project. It may help to prepare an ensuing project, help deliver outputs or mitigate project risks under an ongoing project, or develop a specific public–private partnership project under transaction advisory services. Knowledge and support TA is not directly linked to an ADB funded project.  It focuses on knowledge sharing to build capacity, providing policy advice, and undertaking research and development. It can help develop a sector strategy, an investment master plan, a pipeline of future projects. 

See: Operations Manual D12: Technical Assistance (2017)

Public–Private Partnership Standby Financing Facility

The public–private partnership standby financing facility (PPPSFF) supports timely government payments to private PPP concessionaires. PPPSFF consists of a framework agreement covering up to 15 years. It can cover one project or a bundle of projects. The government can withdraw funds from the facility when needed, such as during a cash shortage because of revenue fluctuation. PPPSFF is suitable for governments wishing to expand PPP projects, particularly in non-energy sectors such as water and transport where projects are often not commercially viable without government financial support. The modality can support government obligations that are made over a long period and are contingent on the concessionaire’s performance.

See: Proposal for ADB’s New Products and Modalities: Policy Paper (2018)