Asian Development Bank undertakes major overhaul to streamline lending

The Asian Development Bank is embarking on a massive reform of its operations, streamlining all its public and private lending through a single financing window, and also shifting toward greater decentralization by deploying more staff to the field in an effort to work more closely with clients on the ground.

The move was endorsed by the bank’s board on Friday and is being reported by Devex first.

The new model will be rolled out in phases, starting in the second quarter of 2023.

The bank’s multi-pronged reform includes breaking down internal silos and making decisions in closer cooperation with its clients, rather than through a top-down approach devised in its headquarters. A key part of this is moving all its lending from five regional departments to one financing window.

Another key plank is to run all public and private sector lending through the same single window, to make the process smoother and more effective, the bank says. This would also help the bank’s broader efforts to be a “driver” for private sector development.

ADB Managing Director General Woochong Um, in comments emailed to Devex, said the restructuring will make the bank more responsive to clients while strengthening its ability to mobilize new private investments.

Um added that the reforms “will enable us to increase our capacity as the region’s climate bank,” which will be a strategic cornerstone of the overhaul. The review paper sent to the board argued that Asia is pivotal on the environmental front. “The battle against climate change will be won or lost in Asia and the Pacific,” the document said.

The bank is aiming to reach $100 billion in climate financing on its own books by 2030, and have 100% of its sovereign operations aligned with the 2015 Paris climate agreement by next year.

“Achieving these and other climate-related objectives will require significant changes,” the paper said.

While the five regional departments will continue to exist in the reshuffle, the country offices will take on a greater role and be more at the forefront, in what the bank hopes will make it easier to be more in tune with the needs of its clients. The ADB, which is based in Manila, Philippines, currently has 40 field offices.

“ADB may expand its decentralization approach to cover finance, risk and other functions, as needed,” the Operational Review document submitted last week to the board said, looking into the longer-term horizon.

The move will likely mean changes for many of the bank’s 3,500 staff, including more deployments from headquarters and regional departments to be on the ground in borrowing countries.

One person with knowledge of the matter told Devex there was a certain level of nervousness among staff. Um insisted, however, that this is “not a cost-cutting exercise” and pledged a phased rollout to minimize disruptions. Some vice presidents will be getting their titles and remits reworked.

Of note, the reforms also call for a greater role for economists at the bank “to establish closer connections between economic research and operations,” and align projects with countries’ needs.

The shift to a more in-the-field model means the bank would increase its consultancy role, transferring skills and knowledge and offering clients its expertise on issues ranging from strategy to the nitty-gritty of infrastructure development — which could be particularly useful for developing nations. Having private and public lending go through one window will also ensure skills and knowledge move between sectors.

The bank has not updated its operating model since 2001, and in documents sent to the board, staff called the current system “effective but dated.” Part of the big change in the Asia region is the fast pace of economic development. That’s why the bank says its role has to be more about “economic resilience” and not “pure poverty fighting.”

One outside expert said the moves, if implemented well, could help achieve the bank’s objectives of being more effective and responsive, while also leading to decentralization over the longer term. This would likely be welcomed by clients, the person noted.

The ADB has more than $130 billion in outstanding loans, with China and India as its largest borrowers, followed by Pakistan and Bangladesh. Its largest shareholders are the United States and Japan, with the latter traditionally getting the presidency.

The shake-up comes amid fierce regional competition, including the expanding Chinese-led Asian Infrastructure Investment Bank, which is not only taking on a greater role in Asia but is potentially seeking to rival the World Bank, the largest of the multilateral banks.

In his comments to Devex, Um acknowledged the economic changes running through the region and argued that the need for financing, especially for the lower-income nations, was more urgent than ever.

“From COVID-19 to climate change, and from gender equality to food security and digitalization, their needs are much greater,” Um said. “At the same time, the development agenda is also more complex, with a greater emphasis on issues that require regional or global action.”

The comments tie into an ongoing debate about the role of the development banks and whether they can move away from a country-led lending approach to one more focused on regional issues, global concerns, and public goods.

Meanwhile, the banks are also under pressure, including from the United States, to be more aggressive with their lending and risk-taking to free up more capital for client countries.