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Finance Sector

The financial system is the lifeline of a country's economy. ADB supports general financial sector and capital market development for microfinance, small and medium-sized enterprises, and regulatory reforms in its developing member countries.

Finance Sector in Asia

Amid rising global economic uncertainty, expanding and deepening finance sectors in developing Asia have played a strong role in helping the region face difficult challenges in economic diversification and have increased economic stability.

Finance sector has cross-cutting impact on all sectors, industries, and economic activities

ADB believes that a sound finance sector promotes private sector development, helps create jobs and economic growth, and therefore reduces poverty.

The finance sector has cross-cutting impact on all sectors, industries, and economic activities. It also contributes to global development agendas, including the Sustainable Development Goals of 2030.

Financial support has had positive impact on countries’ economic growth and development and helped reduce poverty, including during the global financial crisis of 2008–2009.

ADB’s finance sector operations have helped broaden and deepen national financial systems throughout the region, including, among others, through projects in Bangladesh, India, the Lao People’s Democratic Republic (Lao PDR), Pakistan, the Philippines, and Uzbekistan.

For meaningful and sustainable impact, ADB uses innovative approaches through new technologies to solve wider economic challenges, as exemplified in the following:

Catalyzing Market Financing for Climate Change Mitigation

India: Solar Rooftop Investment Program: $330 million ordinary capital resources (OCR) multitranche financing facility loan (approved 2016).

  • Funds innovative and bankable business models that catalyze market financing.
  • Supports renewable energy development and climate change mitigation.
  • Funds India meet a 40-gigawatt solar rooftop capacity target by 2022.

Expanding the Base of Growth by Technology Solutions

Uzbekistan: Small Business Finance Project: $100 million OCR loan to expand lending to small businesses (approved 2016).

  • Improves financial inclusion for female-owned and rural businesses.
  • Introduced credit scoring and loan origination facilitated by mobile devices, such as tablet computers.

Supporting Disaster Relief by New Business Line

Pakistan: National Disaster Risk Management Fund: $200 million Asian Development Fund (ADF) and OCR loans to establish and operationalize the National Disaster Risk Management Fund (approved 2016).

  • Facilitates a disaster-resilient Pakistan by reducing socioeconomic and fiscal vulnerability to natural hazards and climate variability and change.
  • Carried out quantitative risk modeling analysis for the primary natural hazards and developed a comprehensive national disaster risk financing strategy.

Supporting a Deeper, Diversified, and Resilient Finance Sector

Philippines: Financial Market Regulation and Intermediation Program: $200 million OCR loan to enhance financial sector stability, strengthen nonbank financial subsector governance, and improve the efficiency of the securities market (completed in 2013).

  • Assisted the government in achieving reform agendas under the national development plan, particularly for financial sector deepening to support economic growth.
  • Improved access to finance and increased the contribution of the finance sector to economic growth after the global financial crisis (Business Constraint Index “access to credit” improved from 31.8 to 17.7 and financial stability index improved from 3.3 to 4.1).

Facilitating Private Sector Development through Nonsovereign Loan

Bangladesh: BRAC Bank Sustainable Projects: Up to $30 million senior loan to BRAC Bank in Bangladesh (approved 2015).

  • Improved safety standards of the ready-made garment industry by financing the upgrade, expansion, or construction of factories that satisfy the safety requirement of the Accord and/or the Alliance.
  • Improved working conditions for 22,000 women ready-made garment workers.
  • Improved environmental standards in the industry sector by financing the construction or expansion of wastewater treatment plants.

Promoting a Sustainable and Market-Oriented Rural Finance Sector

Lao PDR: Rural Finance Sector Development Program

$10 million ADF loan to promote a sustainable and market-oriented rural and microfinance sector (completed in 2013).

  • Supported an enabling policy framework for rural and microfinance and sound prudential regulatory environment for rural and microfinance institutions, and transformed the Agriculture Promotion Bank into a financially sustainable and market-oriented institution.
  • Expanded the microfinance sector in both credit and savings, with a 451% increase in the number of clients during 2006–2011.
  • Facilitated marked improvement in the Agriculture Promotion Bank’s operational efficiency (operating expenses to gross loans decreased from 12% in 2007 to 4% in 2012).
  • Contributed to gender equity by providing loans to women, who comprised 59% of total active borrowers.

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Finance Sector Issues in Asia and the Pacific

Asia has emerged as a dynamic center of global growth with high savings and strong exports. It attracts a high volume of private capital and investment, and has massive potential for domestic markets. Since the Asian financial crisis in 1997-1998, the financial sector of the region has developed significantly. Banks in particular have strengthened their balance sheets, making them more resilient to external shocks. The region’s middle-income economies have also made progress in developing the core of their domestic capital markets and nonbanking sectors.

Despite these achievements, the development of the region’s financial sector still lags substantially behind that of developed economies. Manufacturing also plays a much more dominant role in Asian economies than the financial sector. This section highlights finance sector challenges and trends faced by countries in Asia and the Pacific.

Banking and Non-bank Financial Institutions

The enhancement of risk management and corporate governance of individual financial institutions is vital for economic stability. This topic covers issues related to central bank supervision, trade financing, anti-money laundering, and Islamic financing.

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Finance Sector Development

As the financial sector expands and takes on new risks, it is essential to ensure the sector’s continued stability and integrity. This involves helping countries enhance their abilities to manage and develop the financial sector, as well as instituting policy and regulatory reforms.

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Financial Inclusion and Microfinance

About 90% of the 180 million poor households in the region lack access to institutional financial services. Most formal financial institutions deny the poor their services because of perceived high risks, the high costs involved in small transactions, and the poor’s inability to provide marketable collateral for loans.

Microfinance

Increasing financial access for traditionally underserved population, including women, poor households, vulnerable groups, and micro, small, and medium enterprises is critical to achieving inclusive and balanced economic growth.

ADB has been actively promoting innovation and best practices in this area. The operational priorities of Strategy 2030 recognize that developing the finance sector, with a focus on inclusive finance, is key to enhancing productive opportunities.  Financing remains limited, especially for women and women-led or women owned MSMEs, smallholder farmers, and agribusiness SMEs. Accelerating the use of digital finance technologies can help to address this problem. Further, the Financial Sector Operational Plan details the work ADB will do in the sector, recognizing that financial services should go beyond micro loans to include savings, payments and remittances, insurance, and pensions.

ADB’s support for inclusive finance is provided through loans, credit lines, investments, grants, guarantees, and technical assistance in the following areas (as defined in the 2014 Project Classification System):

  • microfinance
  • credit cooperatives and credit unions
  • agriculture finance and rural microenterprise
  • branchless/mobile banking
  • financial literacy and consumer protection
  • remittance management
  • savings mobilization
  • rural banks

  • Microfinance Development Strategy

    ADB’s Microfinance Development Strategy ensures access to institutional financial services for a majority of poor and low-income households and their microenterprises. It aims to support the development of sustainable microfinance systems that can provide diverse, high-quality services.

    To achieve its objective for microfinance, ADB focuses on:

    • creating a microfinance-friendly policy environment
    • developing financial infrastructure
    • building viable retail institutions
    • supporting pro-poor innovations
    • supporting social intermediation

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Infrastructure and Housing Financing

The region needs to invest aggressively in infrastructure to continue to provide a favorable business environment and improve people’s living standards. Because government resources are far from sufficient, infrastructure needs to access commercial finances, thus calling for public–private partnerships (PPPs).

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Islamic Finance

ADB has 14 member countries that have a majority Muslim population and has 5 of the 10 countries with the biggest Muslim population globally. Asia requires infrastructure investments of an estimate of $747 billion a year to sustain its growth trajectory. Given the demographic composition of its member countries and realizing the region’s vast investment needs, ADB recognizes the potential role of Islamic finance in promoting inclusive growth and achieving sustainable development in the region, through funding infrastructure and green and ethical investments.

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Insurance and Contractual Savings

Financial markets in most of the developing member countries are at various stages of development. They are dominated by banks, reflecting a lack of capacity in the nonbanking sectors and capital markets. A non-diversified finance sector represents a risk in terms of the inability to deal with financial shocks and periods of uncertainty. Insurance can help protect the poor against livelihood risks and catastrophic loss, preventing them from falling back into cyclical poverty. It can also help mobilize long-term domestic resources to finance investments.

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Money and Capital Markets

It is necessary to develop Asian capital markets, including subnational debt markets, and an institutional investor base that generates long-term finances and risk capital. At the same time, low-income and conflict-affected economies need to strengthen public confidence in their financial systems in pursuing the development of financial markets.

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Regional Economic and Financial Integration

The Asia and the Pacific region includes large net savings countries as well as large net borrowers. The region as a whole is also simultaneously a large exporter and importer of capital. The financial sector and markets in the region need to be integrated to allow the channeling of savings from net saving developing countries to net borrowing ones.

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Small and Medium-Sized Enterprise Financing

The expansion of small and medium-sized enterprises (SMEs) is crucial for inclusive growth and poverty reduction. SMEs’ access to finance can be improved not only through credit institutions, but also leasing, credit guarantees, factoring, insurance companies, and capital markets.

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Trade Finance

ADB's Trade and Supply Chain Finance Program provides guarantees and loans to partner banks in support of international trade.

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Empowering Women Entrepreneurs in Sri Lanka – Ruchirani Munasinghe's story

ADB's Women Entrepreneurs Finance Initiative (We-Fi) has been instrumental in providing know-how and much-needed capital to encourage women-led small and medium entrepreneurs in Sri Lanka to thrive.

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