What to know about ADB's new financing facilities

MANILA — The Asian Development Bank’s board of directors has approved a set of new financing facilities and modalities as part of ongoing bank efforts to “build a stronger, better, and faster ADB,” said bank President Takehiko Nakao. Each of the new funding modalities are meant to speed up project preparation and implementation, a change many of the bank’s developing member countries have been pushing for for years. The Project Readiness Financing Facility is designed to support project preparation and design activities. This includes any infrastructure project, such as road or water supply projects, that requires detailed engineering designs prior to the construction bidding process. For faster approvals, documentation for small-scale projects under the PRFF — those worth $15 million or less — “has been simplified significantly,” ADB Senior Planning and Policy Specialist Allison Woodruff told Devex. Project approvals for these small-scale projects will also be handled by ADB management. Projects costing more than $15 million, however, will still require approval of the ADB board. Woodruff said the PRFF is the replacement for the bank’s project design facility, a financing modality launched in 2011 to support project preparation. The board approved it on a pilot basis, initially only until December 2013, but the pilot was extended until December 2017 with some modifications to its original design to increase uptake of the instrument by developing member countries. During its first pilot phase, the facility encountered several issues, including regulatory hurdles at country level, “limited familiarity” by ADB staff and developing member countries, and a ceiling cost for each individual project — the time only $5 million or 1 percent of estimated cost for an ADB loan. The Small Expenditure Financing Facility, meanwhile, is described by Woodruff as an “innovative multipurpose fund” that will also support preproject costs such as detailed engineering design and feasibility studies, but also other expenditures such as operations and maintenance support, and rehabilitation. “[Rehabilitation projects] can include investments that have been financed by ADB, but which after project completion may require emergency financing. An example would be if infrastructure is damaged by a natural hazard. In such a case, the SEFF can provide quick financing for rehabilitation work up to $15 million,” Woodruff said, adding that financing under SEFF must be linked to an ADB-financed project. Both PRFF and SEFF are meant to speed up the start of ADB-financed investment projects following approval, and “increase the likelihood of projects being implemented on schedule,” said the ADB senior planning and policy specialist. For PRFF, for example, the bank estimates assistance can be delivered within 4-6 months, depending on size and complexity. The board also approved the PPP Standby Financing Facility, which will help support “bankable” public-private partnership projects. It’s being introduced on a five-year pilot basis to allow for modifications in the facility’s design as needed during implementation. The bank is also now offering developing member countries policy-based guarantees, which covers commercial lenders against risk of debt default by borrowing governments for general budget support. Woodruff says conditions for ADB’s standard guarantee products apply, with the main difference being that guarantee for the latest one is conditional on the borrowing government meeting an agreed set of policy reform actions. The bank plans to do outreach to developing member countries to raise awareness about these new facilities and explore opportunities for their application. All facilities are now operational, and Woodruff said projects are being prepared “in a couple” of ADB developing member countries. “ADB plans to review its product offering on a more regular basis to ensure that we are effectively meeting the changing needs of our borrowers, so it’s likely that other financing modalities could be introduced in the future,” she said.