India, has increased its loans from the Asian Development Bank (ADB) in the past couple of years, more than any of its Asian neighbors, after being introduced to the bank’s new financing modalities [such as the] multitranche financing facility (MFF), with its reduced commitment fees and flexible long-term management set-up.
Already ongoing are four MFFs for urban development investment programs in North Karnataka (US$862 million), Jammu and Kashmir (US$1,260 million), Rajasthan (US$450 million), and Uttarakhand (US$1,589.2 million). Included in these MFFs are major investments for the development of urban water supply and sanitation services.
[T]o address the burgeoning water problems of the Asia-Pacific [...] ADB launched the Water Financing Program (WFP) to double investments in the sector between 2006 and 2010. ADB aims to invest roughly $12 billion [in] drinking water, sanitation, irrigation, flood management, integrated water resources management, and water governance.
ADB’s new financing products, which include the MFF, subsovereign and nonsovereign public sector lending, local currency financing for the public sector, refinancing, and others, complement this drive to increase water investments.
[...] The MFF is a flexible financing framework that allows ADB to finance, using future loans and guarantees, an agreed and interrelated investment program. In India’s case, the investment program is derived from a sector roadmap designed by the local or state government, and these roadmaps identify the most urgent investment requirements.
MFF’s loans and guarantees are spread over time in “slices” or tranches. The tranches are committed only as programmed investments become ready for financing. As such, commitment fees are only applied on committed amounts, rather than on the total value available under the facility. To avail of MFF, a country requires:
- an existing policy framework
- a client-owned sector roadmap
- an investment program and financing plan
Countries that have availed of the MFF to date include, besides India, Afghanistan, Bangladesh, Pakistan, and the People’s Republic of China.
[Three years after its creation] the first MFF, or even an individual MFF tranche, has yet to be completed [but] lessons are being learned from each MFF that moves to the next stage, or the next tranche.
Source: Cezar Tigno, ADB, Dec 2008