ADB Financial Intermediation Lending

ADFIAP 6th International Forum for

Chief Executives of Development Finance Institutions

29 October 2009

by Dr. Claudia Buentjen

Philippines Country Office Asian Development Bank

Financial Intermediation Lending (FIL)

To finance specific development projects whose individual financing requirements are not large enough to warrant direct supervision of ADB (ADB Charter)

Key Modalities

ADB funds are on-lent to final borrowers by eligible participating Financial Intermediaries (FIs) at the FI’s credit risk (credit lines to individual FIs)ADB funds are on-lent to apex financial institutions which make funds available to participating FIs, including commercial banks (development finance loans)

Objectives of Public Sector Credit Lines

expand access to credit for sectors and groups of borrowers that would otherwise be excluded from borrowingenable new technologies, expand access to infrastructure, help create employment strengthen the capacity, governance, and sustainability of participating FIs

Volume of ADB Lending for Public Sector Credit Lines

Volume of lending (in million US $)1968–1990 1991–2007 1968–2007

Credit Lines 3,498.6 (11.3%) 1,075.0 (1.2%) 4,573.6 (3.8%)

Total public sector lending

31,075.4 88,947.4 120,002.8

Downward trend since the early 90s

Success Factors of Public Sector Credit Lines

stable macroeconomic conditionssolid management capacities of FIsstronger financial sectors, including

competition policiesgood legal and regulatory regimes for financial institutions mostly market-determined interest rates

Safeguard Policy New Provisions for FIs

Dab's new safeguard policy statement June 2009) replaces the

Involuntary Resettlement Policy (1995)Policy on Indigenous People (1998)Environmental Policy (2002)

includes special provisions for FIs to ensure that ADB’s safeguard standards are met

Safeguard Policy, cont. ADB assesses

the potential of environmental and social impacts and risks associated with the FI’s existing and likely future portfolioFIs commitment and capacity in social and environmental management

If social or environmental risks are identified, FIs will have to document and agree with ADB an environmental and social management system (ESMS) and submit periodic reports to ADB

Safeguard Statement, cont.FIs will apply the prohibited investment activities list to subprojects financed by ADB and ensure that their investments are in compliance with applicable national laws and regulationsFor subprojects with significant environmental or social impacts FIs will refer these subprojects to ADB early. ADB will assist the FI with the appraisal for these subprojects.

Recent Trends use of other modalities such as program-based lending to strengthen industrial and financial sectorslimit use of credit lines for countries that have acute shortages of long-term resources for funding investment use credit lines solely on the provision of long-term local currency resources preferably to the private sector

Thank youwww.adb.org/philippines/

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