The Asian Development Bank’s (ADB) multitranche financing facility (MFF) has helped member countries in addressing critical development financing gaps and played a major role in scaling up ADB’s investments in several countries, says a report released by ADB’s Independent Evaluation Department (IED). MFF is a financing modality that supports a medium- to long-term investment program of a developing member country through a series of tranches provided over time up to the maximum amount and period approved by ADB’s Board.
The report, ADB’s Multitranche Financing Facility, 2005–2018: Performance and Results Delivered, assesses the relevance, efficiency, and results of the use of MFF by ADB over 2005 to 2018. During this period, ADB approved 105 MFFs totaling $52.3 billion to 16 countries, which was equivalent to nearly one-third of its total sovereign financing. Bangladesh, India, Pakistan, and Viet Nam accounted for nearly two-thirds of the approved MFF financing, with South Asia, and Central and West Asia receiving 80% of the approvals and the financing envelope.
ADB introduced the MFF modality in 2005 to be more responsive and efficient, and to deliver results on the ground. MFFs provide governments with a secured investment flow over the facility period (up to 10 years) to finance multiple projects in tranches to address large infrastructure needs of the country with amounts often exceeding $500 million. Long periods and large amounts are also meant to incentivize the borrower to implement a sector strategy more systematically and to improve its institutional capacity.
The evaluation found that MFFs have been well aligned with country and ADB strategic priorities where large funding is required, supporting sector programs and national strategies and medium-term plans, where present. The facility also supported ADB’s key development agenda on promoting inclusive and sustainable growth to achieve poverty reduction through addressing infrastructure gaps. According to the report, MFFs have been well received by several stakeholders. The 2019–2022 operations pipeline includes 22 new MFFs for $14.3 billion in 16 countries, including seven newcomers to the modality.
“The larger size and longer term of MFF compared to stand-alone projects mattered as they allowed governments to pursue investment on a scale not previously possible,” said ADB Director General of Independent Evaluation Department Mr. Marvin Taylor-Dormond. “MFF operations provided viable investments to ADB member countries. If their potential is fully capitalized, they will be a powerful instrument for ADB to serve its client countries and promote transformational development in the region.”
The report states that the MFF modality also performed better than stand-alone projects in raising cofinacing from other sources, and in shortening project processing time. “Cofinancing raised by MFF operations was 27.5% of the ADB approved amount, almost twice the average raised by stand-alone projects,” said ADB’s IED Director Mr. Walter Kolkma. “Processing time for projects under an MFF are also substantially shorter than the time taken by multiple stand-alone projects.”
The evaluation notes that the modality did not always achieve the desired transformational changes at the sector level. It was mainly because components on capacity and institutional development often received less attention in the effort to complete the generally large and complex program of civil works. Also, some MFFs were found not addressing cross-sectoral issues in a more comprehensive way.
The report also notes that some of the MFF’s initial comparative advantages had eroded as the business environment changed. Over the years, in response to evolving conditions in the region, ADB has substantially lowered the commitment fee rates of all its loans, increased its lending capacity significantly, and gradually offered a wider choice of financing instruments. In addition, rules and procedures guiding MFF have been tightened in recent years, making this instrument less flexible.
The evaluation recommends ADB to review the use of the MFF modality and update the policy as necessary to align with its Strategy 2030 to deliver integrated solutions and realize its transformational development potential. It also recommends that ADB introduce measures to ensure that operations under the MFF program are completed during its specified time limit; that learning from prior tranches is captured and applied in subsequent tranches; and that transaction costs of MFF operations are reduced.