Operations Manual

OPERATIONS MANUAL
BANK POLICIES (BP)
OM Section A1/BP
Issued on 22 November 2011
Page 1 of 4
These policies were prepared for use by ADB staff and are not necessarily a complete
treatment of the subject.
CLASSIFICATION AND GRADUATION OF DEVELOPING MEMBER COUNTRIES
A.
Introduction
1.
Article 14 (v) and (vi) of the Agreement Establishing the Asian Development Bank (the
Charter) provide that, in financing the development of its developing member countries (DMCs),
the Asian Development Bank (ADB) will pay due regard to the ability of the borrower to obtain
financing elsewhere on terms and conditions that ADB considers reasonable for the recipient,
and that ADB will pay due regard to the borrowers capacity to service ADB loans. Article 2 (ii) of
the Charter provides that ADB should have special regard to the needs of smaller or less
developed member countries in Asia and the Pacific.
B.
The Graduation Policy1
2.
ADB employs a classification system for its DMCs that meet the requirements of the
Charter (para. 1) by establishing criteria to determine their eligibility to borrow from the Asian
Development Fund (ADF) and their access to ordinary capital resources (OCR). As economic
conditions in a DMC change over time, its classification may also change. Once a DMC has
reduced its dependence on official assistance and has reliable access to commercial capital, it
may graduate from regular ADB assistance.
C.
Scope of the Policy

1.
Classification
3.
The two main criteria adopted to classify DMCs are (i) gross national income (GNI) per
capita, and (ii) creditworthiness. Under the graduation policy, regarding GNI per capita, ADB
uses the World Banks GNI per capita estimates based on the Atlas method. Creditworthiness of
DMCs is assessed by a creditworthiness assessment committee in accordance with the
graduation policy. 2 The creditworthiness assessment committee consists of representatives of
the Office of Risk Management, 3 the Treasury Department, the Economics and Research
Department, and the Strategy and Policy Department; it is chaired by the Strategy and Policy
Department.
4.
A review of country classification would normally take place at the same time as the ADF
replenishment exercise. ADB may undertake country classification of a new DMC, or a review of
1
2
ADB. 2008. Review of the 1998 Graduation Policy of the Asian Development Bank. Manila; and ADB. 1998. A
Graduation Policy for ADBs DMCs. Corrigendum 1. Manila.
ADB's Public Communications Policy (2005) presumes the disclosure of information, but provides for specific
exceptions. Para. 126 (6) of the policy provides that the analysis of country creditworthiness and credit ratings shall
not be made publicly available.
The original creditworthiness assessment committee included representation from the Risk Management Unit (ADB.
2008. Review of the 1998 Graduation Policy of the Asian Development Bank. Manila). The Risk Management Unit
has been upgraded to the Office of Risk Management.
OM Section A1/BP
Issued 22 November 2011
Page 2 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
individual country classification if economic conditions in that country warrant it. Country
classifications of DMCs will be submitted to the Board for approval, generally on a no-objection
basis. Country classification papers submitted to the Board would normally contain modified or
condensed information on the assessment of creditworthiness, which would not be made
publicly available (footnote 2). However, country classification of DMCs will be made publicly
available upon approval by the Board (see Section E below).
2.
Graduation from ADF
5.
ADB adopts the International Development Associations (IDA) operational cutoff for
eligibility as the income threshold. IDAs current GNI per capita operational cutoff is $1,135 in
2008 US dollars, which is updated periodically (usually annually). Graduation from ADF
resources is normally triggered when a country exceeds the per capita GNI operational cutoff
($1,135 in 2008 US dollars) and achieves adequate creditworthiness for OCR or market-based
resources. Graduation from ADF resources involves close consultation with the borrower. The
process of graduation normally takes about 4 years to complete, after crossing the income
threshold.
3.
Graduation from Regular ADB Assistance
6.
The criteria for graduation from regular ADB assistance are (i) GNI per capita,
(ii) availability of commercial capital flows on reasonable terms, and (iii) attainment of a certain
level of development by key economic and social institutions. ADB uses the International Bank
for Reconstruction and Developments (IBRD) benchmark of $6,725 in 2008 US dollars to
trigger the graduation process. The benchmark is updated periodically (usually annually).
7.
When a country reaches the GNI per capita benchmark, ADB will then analyze a
countrys readiness for graduation, applying the criteria set out in para. 6. Recognizing that
countries reaching the graduation threshold may differ in the extent of their progress toward
developing key institutions for economic and social development, ADB will take a flexible
approach to determining the pace of graduation. Graduation from regular ADB assistance will
also involve close consultation with the borrower. Graduation from new OCR lending normally
occurs within 5 years after a country crosses the graduation benchmark, with variations
according to country-specific conditions. Direct private sector investment by ADB in graduated
DMCs would cease.
8.
A developing member country graduating from either ADF or OCR resources may be
eligible for these resources again if its economic conditions deteriorate.
D.
Application of the Policy
9.
Reliable macroeconomic information is a prerequisite for classifying a DMC. Normally,
ADB prepares an economic report before classifying a new DMC. A Board paper on the
classification of the new DMC is prepared only after the economic report has been completed.
In some cases, however, it is sufficient to rely on reports prepared by the World Bank, the
International Monetary Fund, or United Nations agencies.
OPERATIONS MANUAL
BANK POLICIES (BP)
E.
OM Section A1/BP
Page 3 of 4
Classification of DMCs
Group A
(ADF-only):
Afghanistan, Bhutan, Cambodia, Kiribati, Kyrgyz Republic, Lao Peoples

Democratic Republic, Maldives, Myanmar, 4 Nauru, Nepal, Samoa,
Solomon Islands, Tajikistan, Tonga, Tuvalu, Vanuatu
Group B
(Blend):
Armenia, Azerbaijan, Bangladesh, Georgia, India,4 Marshall Islands,

Federated States of Micronesia, Mongolia, Pakistan, Palau, Papua New
Guinea, Sri Lanka, Timor-Leste, Uzbekistan, Viet Nam
Group C
(OCR-only):
Cook Islands, Peoples Republic of China, Fiji, Indonesia, Kazakhstan,

Malaysia, Philippines, Thailand, Turkmenistan
10.
ADB lending on OCR terms and ADB guarantees with counter-guarantees from a
government can be considered on an exceptional basis for Group A DMCs for projects that are
foreign exchange earning and are able to fully service their foreign debt from their net foreign
exchange earnings.
F.
Relationship between Graduated DMCs and ADB
11.
Currently, four DMCsHong Kong, China; the Republic of Korea; Singapore; and
Taipei,Chinahave graduated from regular ADB assistance.
12.
Graduation from regular assistance is not linked to the DMC status of the country, nor
does it signify termination of a DMCs relationship with ADB. Graduated DMCs and ADB can
cooperate in this phase in a number of ways. Among others, ADB may provide expert services
and technical assistance (on a reimbursable basis) as requested and if available. ADB may also
contribute to the development of capital markets of its graduated DMCs through its borrowing
activities. Transfer of technology may be arranged between graduated DMCs and other DMCs.
Cofinancing opportunities with ADB may arise. ADB may promote private-to-private flows from
graduated DMCs to other DMCs. Graduated DMCs may be involved in subregional cooperation.
In the event of an economic crisis, emergency assistance is available to graduated DMCs.
Currently with no access to ADF.
OM Section A1/BP
Issued 22 November 2011
Page 4 of 4
Basis:
OPERATIONS MANUAL
BANK POLICIES (BP)
This OM section is based on

ADB. 2011. Doc. 172-11. Review of the Classification of Timor-Leste under
the Asian Development Banks Graduation Policy. Corrigendum 1. Manila.
ADB. 2011. Doc. 115-11. Review of the Classification of Mongolia under
the Asian Development Banks Graduation Policy. Manila.
ADB. 2008. Doc. R71-08. Review of the 1998 Graduation Policy of the
Asian Development Bank. Manila.
ADB. 1998. Doc. R204-98. A Graduation Policy for ADBs DMCs.
Corrigendum 1. Manila.
Compliance:
This OM section is subject to compliance review.
For inquiries:
Questions may be directed to the Director of the Operations Planning and

Coordination Division, Strategy and Policy Department.
This supersedes OM Section A1/BP

issued on 11 March 2010.
Prepared and issued by the

Strategy and Policy Department
with the approval of the President.
OM Section A1/OP
Page 1 of 1
OPERATIONS MANUAL
OPERATIONAL PROCEDURES (OP)
These procedures were prepared for use by ADB staff and are not necessarily a complete
CLASSIFICATION AND GRADUATION OF DEVELOPING MEMBER COUNTRIES
This OM section does not contain operational procedures.
This supersedes OM Section A1/OP

issued on11 March 2010.

OPERATIONS MANUAL
BANK POLICIES (BP)
OM Section A2/BP
Issued on 1 February 2013
Page 1 of 2
COUNTRY PARTNERSHIP STRATEGY

1.
The Asian Development Bank (ADB) aims to deliver its strategic agenda through
demand-based, country-owned, and results-oriented partnership strategies and related
technically viable programs of assistance to its developing member countries (DMCs). ADB's
overall strategic approach is determined by Strategy 2020, which guides all country partnership
strategies (CPSs).1 ADBs strategic priorities consider global and internationally accepted goals
and development practices.
2.
ADB and its DMCs are partners in development, working together to reduce poverty and
achieve sustainable economic growth and development effectiveness. ADB pursues its vision
and mission by focusing on three complementary strategic agendas: inclusive growth,
environmentally sustainable growth, and regional integration.
3.
Under Strategy 2020, ADB is committed to achieving inclusive and environmentally
sustainable growth of the region to promote equitable development, improve the quality of life,
and reduce poverty in keeping with the Agreement Establishing the Asian Development Bank
(the Charter). 2 A balanced integration of these objectives, as key strategic agenda, is
emphasized in an individual CPS. The CPS is based on high-quality analytical work and
includes a results framework.
4.
A CPS should be in place for all DMCs with planned lending and non-lending
operations. 3 The CPS defines ADB's strategic approach in the country that is aligned with
Strategy 2020, the country's own development strategy, and ADB's comparative strengths; and
complements efforts by its development partners. ADB will consider its country operations in
five core areas specified in Strategy 2020: (i) infrastructure; (ii) environment, including climate
change; (iii) regional cooperation and integration; (iv) finance sector development; and (v)
education. ADB will continue operations in three other areashealth, agriculture, and disaster
and emergency assistance selectively in close partnership with other agencies.
5.
In its country operations, ADB seeks to mainstream the five drivers of change under
Strategy 2020: (i) private sector development and private sector operations, including promoting
public-private partnerships; (ii) good governance and capacity development; (iii) gender equity;
(iv) knowledge solutions; and (v) partnerships.
1
2
3
ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank 20082020.
Manila.
ADB. 1966. Agreement Establishing the Asian Development Bank. Manila.
ADBs regional strategy for Pacific countries (ADB. 2009. Pacific Approach 2010-2014. Manila.) and succeeding
regional strategies will serve as the CPS for each of the 10 smallest DMCs in the Pacific region, namely the Cook
Islands, Kiribati, Marshall Islands, Federated States of Micronesia, Nauru, Palau, Samoa, Tonga, Tuvalu and
Vanuatu.
OPERATIONS MANUAL
BANK POLICIES (BP)
OM Section A2/BP
Page 2 of 2
Basis:
This OM section is based on:

ADB. 2004. Review of the Asian Development Banks Policy on the
Performance-Based Allocation of ADF Resources. Manila.
ADB. 2004. Review of the Asian Development Banks Poverty Reduction
Strategy. Manila.
ADB. 2011. Review of the Public Communications Policy of the Asian
Development Bank Disclosure and Exchange of Information. Manila.
ADB. 2005. Cost Sharing and Eligibility of Expenditures for Asian Development
Bank Financing: A New Approach. Manila.
ADB. 2006. Second Governance and Anticorruption Action Plan (GACAP II).
Manila.
ADB. 2006. Further Enhancing Country Strategy and Program and Business
Processes. Manila.
ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian
Development Bank 20082020. Manila.
ADB. 2009. Country Partnership Strategy: Responding to the New Aid
ArchitectureReport of the Country Partnership Strategy Working Group.
Manila.
This OM section is to be read with OM Section A2/OP.
Compliance:
For inquiries:
Questions may be directed to the Director of Strategy, Policy and Interagency

Relations Division, Strategy and Policy Department.
This supersedes OM Section A2/BP

issued on 1 January 2010.

OPERATIONS MANUAL
OM Section A2/OP
Page 1 of 5
COUNTRY PARTNERSHIP STRATEGY

A.
Introduction
1.
The objective of the country partnership strategy (CPS) is to formulate the strategic
approach of the Asian Development Bank (ADB) in a developing member country (DMC),
aligned with both the country's development strategy and the corporate strategic priorities of
ADB. Thus, the CPS identifies operational areas from the menu of options provided in Strategy
20201 within the framework of a government's national development plan and narrows the focus
further within these areas. It contains a short and focused assessment of how the strategy
supports the five drivers of change in the DMC (private sector development and private sector
operations, including promoting public-private partnerships; good governance and capacity
development; gender equity; knowledge solutions; and partnerships). The CPS addresses each
DMC's unique country contexts and development challenges. In particular, it contextualizes
relevant challenges to inclusive growth and environmentally sustainable growth and adopts
strategies and actions to address these challenges. The CPS also includes a results framework.
B.
Business Processes
1.
Preparation of the Country Partnership Strategy
2.
The major steps in formulating a CPS are (i) initiation; (ii) preparation of a CPS initiating
paper and initiating meeting; (iii) country consultations; (iv) Management Committee Meeting
(MCM) and subsequent confirmation of the CPS with the DMC government; and (v) the
Presidents clearance, followed by consideration and general endorsement by the ADB Board of
Directors. The CPS timeframe is aligned with the client's strategic planning cycle, where
relevant and feasible. Further adjustments in the timeframe can be made if justified by major
economic or political developments.2
a.
Country Partnership Strategy Initiation
3.
The composition of the country team and the peer reviewers is proposed by the country
team leader in consultation with departments and offices concerned and endorsed by the
regional director general as the chair of the regional management team. Peer reviewers are
chosen from among ADB staff and, if required, external experts. External peer reviewers are
engaged as resource persons. In addition to peer review, the concerned regional department
Manila.
When there is considerable uncertainty, an interim CPS with a time horizon of a maximum of 2 years and
abbreviated business process may be considered.
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OM Section A2/OP
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requests the Independent Evaluation Department (IED) to assign staff to comment on CPS
drafts.
4.
The CPS preparation is based on economic, thematic, and sector works made available
by the time of the initiating process. 3 These knowledge products are prepared jointly with
interested development partners and with close involvement of the government. The knowledge
products and other supporting documents4 are stored electronically in the knowledge repository
managed by the concerned regional department for easy use by the country team.
Departmental websites on MyADB can act as electronic knowledge repositories for regional
departments.
5.
Evaluating the existing CPS is essential to preparing a new one. 5 The originating
regional department prepares a final review of the validity of ADB's strategic focus and progress
using the results framework. IED selects countries to conduct country assistance program
evaluations (CAPEs) in consultation with regional departments. Experience and lessons from
evaluations are incorporated into the new CPS, including recommendations of the Development
Effectiveness Committee of the Board. Validation of the CPS final review by IED is required for
preparation of every full CPS, unless there is a CAPE that is not more than 3 years old at the
scheduled commencement of the new CPS. 6 For IEDs validation of the CPS final review,
regional departments are required to complete a supplementary self-evaluation along with the
final review.
b.
Initiating Paper and Meeting
6.
An initiating paper is prepared as a preliminary draft CPS. After the peer review (and
inputs from IED), the initiating paper is reviewed and discussed during the CPS initiating
Knowledge products will inform the preparation of future CPSs. Knowledge products required to be available at the
time of CPS preparation include economic, poverty, and gender analyses, which should contain an assessment of
the challenges to inclusive growth. Other knowledge products required for the CPS include private sector
assessment, environment assessment, priority sector diagnoses, and risk assessment and risk management plan
covering governance priorities (public financial management, procurement, and combating corruption. See OM
Section C4). Opportunities for public-private partnerships should be identified in the private sector assessment and
sector diagnoses. Additional country diagnostic studies, political economy assessments, disaster risk and
vulnerability assessments, and other studies and assessments may need to be carried out. Staff instructions and
guidelines, as may be issued from time to time, provide further clarification on knowledge products for the CPS.
Key supporting documents are referenced in the CPS as an electronic link. These include country and portfolio
indicators; country performance assessment (CPA) ratings (for eligible countries with access to the Asian
Development Fund [ADF]); country cost-sharing arrangements and eligible expenditure financing parameters; a
note summarizing the CPS formulation process, including findings from the CAPE or CPS final review validation;
CPS final review; and COBPs. For eligibility and accessibility to the ADF and CPA, see OM sections A1
(Classification and Graduation of Developing Member Countries) and A3 (Performance-Based Allocation of ADF
Resources). For cost sharing and expenditure eligibility, see OM Section H3 (Cost Sharing and Eligibility of
Expenditures for ADB Financing).
If there is no existing CPS, the concerned operational department prepares a review of country operations. IED
may validate this review.
See OM Section K1 (Independent Evaluation) for the lead time required by IED to conduct a CAPE and a validation
of the CPS final review.
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OM Section A2/OP
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meeting chaired by the relevant operations vice-president. The conclusions of the CPS initiating
meeting form the basis for country consultations through the strategy formulation mission.
c.
Country Consultations: Strategy Formulation Mission
7.
The strategy formulation mission conducts dialogue with DMC stakeholders7 on the draft
CPS and the country operations business plan (COBP), normally for the first 3 years of the
CPS. This concludes with a memorandum of understanding with the DMC. The CPS formulation
mission also coordinates with other development partners.
d.
Informal Board Seminar
8.
The draft CPS is revised based on the findings from country consultations. An informal
Board seminar is organized.8
e.
Management Committee Meeting
9.
After the peer review (and inputs from IED), the draft CPS is presented to the MCM
through the concerned operations vice-president. At the MCM, Management's guidance is
sought on high-level strategic issues that require resolution. Subsequently, a copy of the revised
draft CPS is forwarded to the government to obtain its clearance for publication. If required, a
mission may be fielded to discuss with the government any revisions that may have been made
during ADBs internal review process and to confirm the CPS with the government. Necessary
revisions, if any, are made as a result of this confirmation mission.
f.
Country Partnership Strategy Endorsement
10.
The final draft of the CPS is edited by the Office of the Secretary after the MCM and
government clearance, and submitted to the President for clearance and approval for circulation
to the Board.9 Following Board consideration and general endorsement of the CPS, the chair's
summary, which reflects the major issues during the Board discussion, is prepared for approval
by the President for circulation to the Board. Any major changes to the CPS that may result from
Board consideration and general endorsement are discussed with the DMC.
2.
Indicative Rolling Country Operations Business Plans
11.
CPS implementation is undertaken through the COBP, which focuses on the 3-year
rolling pipeline and the resources needed to implement the pipeline. As with the CPS, inputs to
the COBP are made available in the electronic knowledge repository, and referenced as
7
In-depth discussions are held during the mission with the DMC government, development partners, and civil
society, including nongovernment organizations and the private sector, as appropriate.
8
The regional department, through the Office of the Secretary, informs the President through a memo of the date of
the informal Board seminar and the date when the draft PowerPoint presentation will be circulated. The content of
the presentation is approved by the relevant operations vice-president.
9
The main text will not exceed 10 pages.
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OM Section A2/OP
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electronic links. The first COBP in the strategy cycle is prepared in conjunction with the CPS but
is circulated to the Board and published as a separate document.
12.
During the CPS cycle, the current business plan is reviewed through the annual
programming exercise that is guided by the Presidents planning directions. The COBP is
prepared by the country programming mission, approved by the President, and usually
submitted to the Board for information by 31 August each yearwell before Board consideration
of the Work Program and Budget Framework.10
3.
Disclosure
13.
The CPS, interim CPS, COBP, and relevant knowledge products (footnote 3) and key
supporting documents (footnote 4) are disclosed in conformity with the requirements of the
Public Communications Policy (2011).11
4.
Country Partnership Strategy Retrospective Stocktaking
14.
ADB may collectively undertake a biennial retrospective stocktaking of approved CPSs
to assess if the quality at entry has improved and whether they are progressively more resultsbased. The Management designates the department or office that coordinates this exercise.
5.
Roles and Responsibilities
15.
The primary responsibility for managing the CPS process and the annual preparation of
the COBP rests with the regional management team at the department level and the country
team at the country level.
16.
The country team is established for each DMC. The country team comprises staff of the
concerned regional departments and the Private Sector Operations Department. The regional
department may call for participation of other departments and offices, as needed.
17.
As the chair of the regional management team, the regional director general decides if
and when a new CPS is required. 12 The country team prepares the CPS. Internal peer
reviewers of the CPS include staff from the Economics and Research Department, the Regional
and Sustainable Development Department, and the Results Management Unit of the Strategy
and Policy Department among other departments and offices as required. The Office of
Cofinancing Operations is consulted on financial partnership issues. A reviewer from IED is
invited to give comments. The MCM for the CPS is chaired by the President and attended by
the vice-presidents, managing director general, regional director general, country director (or
director of operations coordination division), country team leader (if not country director), and
10
When substantial variations emerge in indicative financing envelopes specified in the CPS in disaster and
emergency situations (e.g., tsunami, earthquake), the changes in a country operations program are normally
discussed with the Board.
11
OM Section L3 (Public Communications).
12
As required, a regional management team meeting may be held at the initiating stage of CPS preparation.
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other staff who may be called upon by the chair. If discussions at the MCM involve internal
resource requirements or ADB-wide strategic issues, representatives of the Budget, Personnel
and Management Systems Department and/or the Strategy and Policy Department may attend,
as appropriate.
18.
The Office of the Secretary is responsible for editing the final draft of the CPS and
COBP, and for circulating them to the Board. The public is informed of the CPS, COBP, and
relevant assessments through their uploading on ADBs website by the Department of the
External Relations.
Basis:
This OM section is based on OM Section A2/BP and the documents cited

therein.
Compliance:
For inquiries:
Questions may be directed to the Director of the Strategy, Policy, and

Interagency Relations Division, Strategy and Policy Department.


OM Section A3/BP
Issued on 26 March 2013
Page 1 of 7
OPERATIONS MANUAL
BANK POLICIES (BP)
PERFORMANCE-BASED ALLOCATION OF
ASIAN DEVELOPMENT FUND RESOURCES
A.
Introduction
1.
Aid has not been equally effective in all circumstances in supporting growth, improving
social outcomes, strengthening governance, or reducing poverty. Differences in country policies
and institutions can partly explain this mixed record. Usually the benefits of aid are muted if
policies are poor and institutions are weak. Other things being equal, aid is most effective where
policies and institutional performance are strong. The policy on the performance-based
allocation (PBA) of ADF resources prioritizes performance as the basis for allocation of Asian
Development Fund (ADF) resources.1
2.
For some countries, an accumulation of foreign borrowing has made their external debt
levels unsustainable. In such cases, providing additional loans, even on concessional terms,
might not be prudent. The introduction of ADF grants allows the Asian Development Bank
(ADB) to adjust its assistance mix and continue to support a countrys development efforts even
when its capacity to take on new debt is limited. Under the ADF grant framework, the level of
debt distress determines what proportion of a countrys PBA is to be provided in the form of
grants.
B.
The Policy
3.
ADBs graduation policy determines eligibility for ADF resources.2 For eligible countries
that have access to ADF, the PBA policy defines the principles and criteria to guide allocations.
The policy also specifies how PBAs are to be adapted to country needs, as measured by per
capita income and population size. Other things being equal, lower per capita income attracts
additional resources, as does a larger population. Changes in performance are the most
powerful influence on changes in allocations.
4.
The ADFs purpose, as stated in the regulations governing the fund, is to provide
resources on concessional terms for the economic and social development of the developing
member countries of ADB, having due regard to the economic situation of such countries and to
the needs of the less developed members.3 While the PBA system provides a strong link
between performance and allocation, it is recognized that such allocations may need to be
modified to meet the needs of less developed members more effectively. Modifications include
special considerations for post-conflict situations, disasters, emergencies, and weakly
1
2
3
See OM Section D2 (Lending and Grant Policies [Asian Development Fund]).

See OM Section A1 (Classification and Graduation of Developing Member Countries).
ADB. 2006. Regulations of the Asian Development Fund. Section 1.01. Manila (1 January).
OM Section A3/BP
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performing countries. In addition, allocations to blend countries4 may be adjusted to ensure
sufficient concessional funds are available for countries lacking access to other financing
sources. Separate eligibility and allocation criteria guide the allocation of ADF resources to
support subregional projects.
C.
The Scope of the Policy
5.
The policy covers ADF-eligible countries that have access to ADF; earmarks separate
pools for ADF resources for Pacific developing member countries (DMCs) and for other eligible
countries; and covers the country allocation of all ADF resources, including grants.
1.
The PBA Allocation Formula
6.
Indicative ADF country volumes (loans and grants) are calculated as the product of an
allocation share and the expected ADF commitment authority over that allocation period. The
Treasury Department estimates the expected ADF commitment authority. The resources
distributed according to the PBA formula are equivalent to the expected commitment authority
less the funds earmarked for subregional projects and other special country circumstances
(e.g., exceptional post-conflict allocations). This amount will be divided into two resource pools,
with 4.5% distributed among Pacific DMCs with access to ADF and the remainder distributed
among non-Pacific countries. Country allocation shares (CAS) are calculated as:
CASi = (PIRi1.4 x GRi2.0 x PRi0.6 x Popi0.6 x PCIi-0.25) x scaling factor
Where:
PIR country policy and institutional performance rating
GR country governance rating
PR country portfolio rating
Pop population
PCI per capita income
i is country i within a resource pool (i.e., Pacific DMCs and non-Pacific)
Scaling factor = 1 i ( PIRi1.4 x GRi2.0 x PRi0.6 x Popi0.6 x PCIi-0.25 )
The indicative ADF volume is then:
ADF Volumei = CASi x resource pool for distribution according to PBA formula
7.
The country allocation shares of blend countries will be modified above a certain
threshold. A threshold of 14% of resources distributed under the PBA formula per country will be
set to determine which blend countries will be subject to the modified PBA. Blend countries with
a PBA greater than the threshold will retain half of the amount above the threshold. For
example, a blend country with a regular PBA share of 16% would receive 15% under the
modified PBA; a blend country with a regular PBA share of 20% would receive 17%. The
4
Blend countries are those with access to both ADF and ordinary capital resources loans, as per the graduation
policy. See OM Section A1 (Classification and Graduation of Developing Member Countries).
OM Section A3/BP
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resources freed up will be redistributed among the other ADF-eligible countries outside the
Pacific according to their country allocation shares.
8.
The composite country performance ratings (i.e. country policy and institutional
performance rating, governance rating, and portfolio rating) are derived from country
performance assessments undertaken by country teams. The country performance
assessments are conducted within the framework explained in the operational procedures
section (A3/OP). The formula-based allocation for most grant recipients is reduced by a volume
discount (para.18).
2.
Extra Formula Allocations

a.
Post-conflict Countries
9.
Special allocations to support post-conflict needs are guided by the current International
Development Association (IDA) approach for allocating resources to post-conflict countries.5
The IDA framework provides exceptional post-conflict assistance to eligible countries in three
stages: an initial 1-year allocation, followed by 3 years of exceptional allocations linked to postconflict performance indicators (PCPI), and then a 6-year phased return to regular PBA.
Eligibility for exceptional treatment depends on the duration and intensity of the conflict.6
Decisions on eligibility for post-conflict assistance should be made in consultation with
international partners. A transitional support strategy, which includes staff assessments of
immediate rehabilitation needs and the prospects for social and economic recovery, determines
the initial allocation. The transitional support strategy with a monitorable action plan should
identify the role of ADF assistance and the scope and nature of collaboration with international
partners.
10.
After the initial allocation, Management decisions on exceptional allocations to support
post-conflict needs will be guided by staff assessments of the PCPI and country circumstances.
For post-conflict countries, both the PCPI and the country performance assessment are
prepared to derive the allocation. For the first year of the phase out, the country will receive its
PBA formula-based allocation plus six-sevenths (6/7) of the post-conflict premium. For the
second year, the country will receive its PBA formula-based allocation plus five-sevenths (5/7)
of the post-conflict premium. The 6-year phase out period covers three biennial allocation
periods.7
5
6
IDA. 2001. Adapting IDAs Performance-Based Allocations to Post-Conflict Countries. Washington, DC.
The IDA framework has three types of eligible countries: (i) a country that has suffered from a severe and longlasting conflict that led to a substantially reduced or inactive support program from IDA, (ii) a country that has
suffered a short but highly intensive conflict that led to a disruption in IDA involvement, or (iii) a newly sovereign
state that emerged through the violent breakup of another sovereign entity. In addition, the intensity of the conflict
is considered to determine whether exceptional assistance is needed.
Matching the IDA framework to ADBs biennial allocation cycle, allocations in the first biennium of the phase out
period will be:
(First Biennium Allocation) = (PBA Formula-Based Allocation) + (6/7)(half of the Post-Conflict Premium)
+ (5/7)(half of the Post-Conflict Premium)
or
(First Biennium Allocation) = (PBA Formula-Based Allocation) + (11/14)(Post-Conflict Premium).
OM Section A3/BP
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OPERATIONS MANUAL
BANK POLICIES (BP)
b.
Disaster and Emergency Needs
11.
ADF allocations to support disaster and emergency needs will be guided by the disaster
and emergency assistance policy.8 To the extent possible, disaster and emergency needs will
be met through the reallocation of resources within existing programs, and by drawing on loan
cancellations and savings. If these prove insufficient, any additional country demands will be
met through borrowing against future allocations, or, in exceptional cases, through reductions in
other countries ADF allocations. No ADF commitment authority will be kept in reserve to meet
disaster and emergency needs.
c.
Absorptive Capacity Considerations
12.
The policy adopts a broad interpretation of absorptive capacity that recognizes
macroeconomic (fiscal and debt), sector, and service delivery dimensions. Each of these levels
may have constraints to the absorption of external resources. These constraints may be
institutional, physical, and human; or social, cultural, and political. PBA may be reduced where
analysis points to constraints in any of these areas, but only after careful examination of the
feasibility of reducing these constraints. The resources so released will be reallocated within the
relevant pool prorated according to PBA shares within that pool.
d.
Weakly Performing Countries
13.
Within the framework of the PBA, special consideration may be required to sustain
engagement with weakly performing economies. In general, a cautious approach to lending will
be needed for weak performers that might be facing, among other difficulties, external debt
servicing problems. However, given a coherent engagement strategy aimed at supporting
improved performance and absorptive capacity, limited ADF allocations may be made available.
e.
Subregional Pool
14.
ADF will allocate resources for subregional projects on a project basis rather than by
country. To receive funds from the ADF subregional pool, the following eligibility criteria must be
satisfied.
(i)
Only countries that have access to ADF credits for national projects are eligible
for subregional funds.
(ii)
Regional projects must not have component activities in countries with payment
arrears to ADB.
See OM Section D7 (Disaster and Emergency Assistance).
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OPERATIONS MANUAL
BANK POLICIES (BP)
(iii)
Consistency between the project concept and the regional cooperation strategy,
the OM section on regional cooperation,9 and relevant country partnership
strategies and country operations business plans10 must be demonstrated.
(iv)
Project beneficiaries must include more than one country. The benefits may
derive from complementary national components of a regional project, or a single
project in a neighboring country, with costs allocable to individual beneficiary
DMCs. Where costs are not readily allocable, prior agreement among
participating countries on cost sharing is necessary for ADB participation.
(v)
To demonstrate country ownership, the project must be partially financed from

participating countries PBAs. Of the total ADF financing, two-thirds will come
from the subregional pool and one-third from PBAs. The required contributions
from biennial PBAs will be subject to a 20% ceiling. The 20% ceiling refers to the
maximum share of a countrys PBA that will be required to cover the cost of the
countrys participation in subregional projects. The biennial allocation to be
considered for the purpose of setting the ceilings is net of any discount from the
application of the ADF grant framework.
15.
In the event that eligible project requests exceed the volume of resources, Management
will prioritize projects according to the following criteria.
(i)
Distribution of project benefits. Projects covering more countries will be given

higher priority.
(ii)
Leveraging external resources. Projects with larger shares of external financing

(e.g., ADF from the PBA beyond the required amount, cofinancing from official
development assistance, OCR financing, or private financing) will be given higher
priority.
(iii)
Supporting institutional and policy harmonization. Projects supporting deeper

integration and the lowering of cross-border transaction costs will be given
preference.
(iv)
Consolidating earlier gains. Projects that build on previous successful regional

cooperation efforts will be given priority.
In addition, consideration will be given to ensuring wide geographical distribution of

subregional funds.
9
10
See OM Section B1 (Regional Cooperation and Integration).

See OM Section A2 (Country Partnership Strategy).
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BANK POLICIES (BP)
3.
ADF Grants Framework

a.
Country Eligibility
16.
Eligibility is limited to ADF-only countries. Lending from ordinary capital resources (OCR)
to grant-eligible countries may be considered in exceptional cases for high-revenue-earning
projects that generate net foreign exchange earnings above the foreign debt service
requirement. The grant framework does not affect nonsovereign lending.
b.
Debt-Distress Classification
17.
The risk of debt distress will determine the proportion of grants in the country allocation
according to the following debt-distress classification: (i) low risk of debt distressno grants;
(ii) moderate risk of debt distress50% grants; and (iii) high risk of debt distress100% grants.
The debt-distress risk classification is determined by the outcome of the forward-looking debt
sustainability analysis, when available, or by comparing a countrys latest available external
debt indicators with the policy performance-dependent debt burden thresholds.
c.
Volume Discount
18.
A 20% volume discount will be applied to the grant portion of the PBA. Thus, for
moderate-risk countries, which have access to 50% of their PBA as grants, the discount is
equivalent to 10% of the PBA. The grant allocations of post-conflict countries, which receive an
agreed set-aside allocation rather than PBA, will not be subject to the volume discount. The
resources released by the volume discount will be allocated to a new hard-term ADF facility
(paras. 20 and 21).
d.
Subregional Pool and Loan Savings and Cancellations
19.
For projects financed from the ADF subregional pool, or through the reallocation of loan
savings and cancellations, the grant shares that correspond to the countrys debt-distress
classification will be applied. High-risk countries will receive these funds fully as grants, while
moderate-risk countries will receive half their financing as grants and half as loans. No volume
discount will be applied to these allocations.
e.
ADF Hard-Term Facility
20.
Resources from the volume discount will be retained within each operational group and
made available for allocation through a hard-term ADF facility. Operations group vicepresidents will have the discretion to allocate the hard-term ADF funds to eligible countries,
which will be in addition to regular PBAs. Blend countries with active OCR lending programs
and gross national income per capita that has not exceeded the IDA operational cutoff for more
than 2 consecutive years are eligible for this facility. In addition, access by ADF-only countries
could be considered in individual cases for high-revenue-earning projects that generate net
foreign exchange earnings exceeding the foreign debt service requirement. Unused funds under
this window will be invested as part of the ADF liquidity pool.
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BANK POLICIES (BP)
21.
The interest rate of the hard-term facility will be 150 basis points below the weighted
average of the 10-year fixed swap rates of the special drawing rights component currencies plus
the OCR lending spread, or the applicable ADF rates, whichever is higher. The rate will be
announced annually in January and applied for all loans approved in that calendar year. The
interest rate will be determined based on the interest rates prevailing on the last working day of
the previous year. The interest rate will be fixed for the life of the loan. The rest of the loan terms
will be the same as current ADF terms.11
4.
Disclosure
22.
Numerical performance ratings from the country performance assessments for all
eligible countries with access to ADF will be disclosed in accordance with the requirements of
the public communications policy.12
Basis:

ADB. 2012. Doc. R78-12. Tenth Replenishment of the Asian Development
Fund and Fifth Regularized Replenishment of Technical Assistance Special
Fund. Manila (5 June).
ADB. 2008. R234-08 Refining the Performance-Based Allocation of Asian
Development Fund Resources. Manila.
ADB. 2007. Doc. R143-07. Revising the Framework for Asian Development
Fund Grants. Manila.
ADB. 2004. Doc. R249-04. Review of the Asian Development Banks Policy
on the Performance-Based Allocation of ADF Resources. Manila.
ADB. 2001. Doc. R29-01. Policy on Performance Based Allocation for Asian
Development Fund Resources. Manila.
Compliance:
For inquiries:
Questions may be directed to the performance-based allocation focal point,

Strategy and Policy Department.
11
12
See OM Section D2 (Lending and Grant Policies [Asian Development Fund]).

See OM Section L3 (Public Communications).
26 March 2013
issued on 19 December 2008.

OM Section A3/OP
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OPERATIONS MANUAL
PERFORMANCE-BASED ALLOCATION OF
ASIAN DEVELOPMENT FUND RESOURCES
A.
Introduction
1.
This section describes the implementation of the policy on performance-based allocation
(PBA) of Asian Development Fund (ADF) resources and the ADF grant framework.
B.

1.
Country Performance Assessment Exercise
2.
Country performance assessments (CPAs) will be conducted annually for all eligible
countries with access to ADF and with populations of at least 1 million. For countries with
populations less than 1 million, CPAs may be conducted biennially, unless they are considered
eligible post-conflict countries or weakly performing countries. Ratings for weakly performing
countries and eligible post-conflict countries ideally should be conducted with the World Bank
and other partners. Joint assessments for other countries are not precluded.
3.
Given their expertise, country teams should conduct and be responsible for the CPAs
and initial ratings. To promote quality assurance and accountability, a narrative record should
support ratings on each criterion. The World Banks country policy and institutional assessment
rating guidelines will be used.
4.
To ensure cross-country consistency, the CPA working group will review all country
ratings. The CPA working group members will include staff representing each regional
department and specialists from the Regional and Sustainable Development Department,
Economics and Research Department, Office of Regional Economic Integration, and Central
Operations Services Office. Since the exercise of judgment is unavoidable, rating adjustments
agreed upon by the working group should be recorded appropriately. A staff member of the PBA
focal point (paras. 1820) will chair the CPA working group and coordinate its activities.
5.
The CPA working group will pass recommendations on country ratings to a CPA review
panel comprising regional departments directors general, the director general of the Regional
and Sustainable Development Department, the chief economist, and the head of the Office of
Regional Economic Integration. The head of the PBA focal point will chair the CPA review
panel. If the working group is unable to agree on a country rating, the CPA review panel will
determine the rating. Ratings agreed upon by the review panel will be forwarded to the
operations vice-presidents and to the vice-president, knowledge management and sustainable
development, for final approval.
OM Section A3/OP
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OPERATIONS MANUAL
6.
Country teams should complete CPAs by the end of the second quarter of each year.
The review by the CPA working group and the review panel, as well as the approval of the vicepresidents, should be completed by the end of the third quarter. The head of the PBA focal point
may allow departures from this timetable to accommodate joint country performance
assessments with the World Bank and other partners.
7.
During the country assessments, the country teams should consult with national
authorities about the preliminary performance assessments. The views of national authorities on
assessments should be recorded in an aide-memoire. Country teams may disclose preliminary
ratings to national authorities, but should explain that these preliminary ratings will be subject to
internal review and possible revision.
8.
Final CPA ratings should be shared with national authorities and thoroughly discussed at
the time of country programming. For benchmarking and comparisons, average ratings on all
criteria for Pacific developing member countries and non-Pacific countries (with separate
averages for ADF-only countries and blend countries) should be provided to national authorities.
9.
The annual CPA report will present numerical ratings on all performance criteria for all
countries that are eligible for and have access to ADF.
2.
ADF Allocation Process

a.
Country ADF Allocations
10.
Country allocations will take place biennially1 PBA commitments and approvals should
match within each 2-year period. The following parameters will guide the use of biennial
allocations.
(i)
All proceeds from loan savings and cancellations will be retained within the
originating operations group.
(ii)
At the end of each biennial period, unused country allocations can be carried
forward for 12 months. If still unused, they will revert to the common pool.
(iii)
For countries with biennial allocations of $40 million or more, annual approvals,
consistent with the ceiling on the biennial volume, are expected to be from 37.5%
to 62.5% of the biennial volume.
(iv)
For countries with biennial allocations less than $40 million and populations of
1 million or more, annual approvals, consistent with the ceiling on the biennial
volume, may be from 0% to 100% of the biennial volume.
To ensure that programs are appropriately calibrated to changing circumstances, allocations for eligible postconflict countries and weakly performing countries will be reviewed annually.
OM Section A3/OP
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OPERATIONS MANUAL
(v)
For countries with biennial allocations less than $40 million and populations less
than 1 million:
(a)
Approvals within the biennial period may vary from 0% to 175% of the
biennial volume. Within these limits, annual approvals are unconstrained.
(b)
Unused allocations within the biennial period may be carried forward to

the next biennial period, but not beyond.
(c)
Any approvals exceeding allocations in one biennial period will be

deducted from the following biennial allocation.
(d)
Unused allocations at the end of an ADF replenishment period can be

carried forward for 12 months. If still unused, they will revert to the
common pool.
11.
Based on expected revisions to the ADF commitment authority, significant changes in
country circumstances or performance, and operational considerations, Management may
approve midterm revisions to biennial ADF commitments. Such revisions will be reported to the
Board in an information paper. Within the concerned operations group, increased allocations
may also be funded from loan savings and cancellations.
b.
Subregional Allocations
12.
Management will consider funding proposals for subregional projects on a biennial basis,
alongside decisions on national allocations. Proposals consistent with the eligibility criteria for
subregional projects (A3/BP, paras. 1415) should be submitted to the PBA focal point by the
end of August of the year immediately preceding the biennial period (e.g., for the 20092010
period, proposals should be received by end of August 2008).
3.
ADF Grants Allocation Process
13.
After ADF resources are allocated according to the PBA formula, the level of grant
assistance will be set based on the debt-distress classification. A 20% volume discount will be
applied to the grant portion of the PBA. The proceeds from the volume discount will be
transferred to the hard-term ADF facility.
14.
Country debt-distress risk classifications will be reviewed annually based on the
outcome of the forward-looking debt sustainability analysis (DSA), when available. The DSA
uses policy-dependent external debt-burden indicators because the debt levels that countries
can carry are influenced by the quality of their policies and institutions. Policy performance is
measured by the country performance index. The policy performance category based on the 3year average of the most recent country performance assessment ratings will be used in
determining the debt-thresholds. The policy performance score will be the unweighted average
of the four performance indicator clusters: economic management, structural policies, policies
for social inclusion/equity, and governance. However, these debt-burden thresholds are not to
OM Section A3/OP
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OPERATIONS MANUAL
be seen as rigid ceilings but as guideposts for informing debt sustainability assessments. The
debt-distress categories are:
(i)
High risk: the DSA baseline scenario indicates a breach of policy performancedependent debt or debt-service thresholds over the projection period; this is
worsened by stress testing.
(ii)
Moderate risk: although policy performance-dependent debt or debt-service

thresholds are not breached in the DSA baseline scenario, stress testing shows a
significant rise in debt-service ratios over the projection period or a breach of
debt thresholds.
(iii)
Low risk: all debt indicators are well below policy performance-dependent debt
burden thresholds in the DSA baseline scenario, and stress testing does not
result in indicators significantly breaching thresholds.
15.
When a DSA is unavailable, the static approach will be used. In this approach, a
countrys latest available external debt indicators are compared with the policy performancedependent debt burden thresholds to determine the risk category, as follows:
(i)
Percentage differences between actual debt burden indicators for the net present
value (NPV) debt to gross domestic product (GDP), NPV debt to exports, and
debt service to exports ratios and their respective policy performance-dependent
thresholds are calculated.
(ii)
The percentage differences for the two NPV debt ratios are averaged, and the
average is compared with the percentage difference for the debt-service ratio.
(iii)
The risk rating is determined to be high risk if the higher percentage difference is
more than 10% above the threshold, low risk if it is less than 10% below the
threshold, or moderate risk if it is between the two.
16.
The assessment of the risk of debt distress needs to strike a balance between the
mechanistic use of this classification and a more subjective approach. There may be cases
where staff judge that a mechanistic approach would result in an unreasonable rating. For
instance, the standard DSA could indicate a marginal and temporary breach of debt thresholds,
or could fail to capture an ability to finance additional debt indicated by the level of foreign
exchange reserves. In such cases, qualitative assessments can be applied and explained in the
DSA report. The annual review of country debt distress classifications will coincide with the
country performance assessment exercise. Within a biennial allocation period, a conservative
approach will be taken to reclassification of countries. If the annual review of a countrys debt
distress classification shows an improvement after the first year of the biennial period, the
higher proportion of grants will be maintained to the end of the period (e.g., if a high-risk country
becomes moderate-risk after the first year of a biennial allocation, the allocation will continue to
be on a 100% grant basis). However, if the countrys debt distress situation deteriorates, the
OM Section A3/OP
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OPERATIONS MANUAL
higher grant proportion will be applied to the remainder of the PBA in the second year of the
biennial period.
17.
The use of ADF grants or hard-term ADF loans will not have any sector restrictions. The
processing and fiduciary guidelines for both facilities will be the same as those for regular ADF
loans.
4.
PBA Focal Point
18.
A PBA focal point has been established in the Office of the Director General, Strategy
and Policy Department (SPD). Director general, SPD, is the head of the focal point and
accountable for the implementation of the policy.
19.
Management decisions on ADF allocations will be made based on recommendations by
the head of the focal point. To ensure that allocations are consistent with the institutional
capacity to deliver viable projects and programs, and countries capacities to absorb them, the
operations groups vice presidents will consider them in an allocation review meeting. The head
of the focal point will chair this meeting and will be responsible for final allocations submitted to
Management for approval.
20.
The PBA focal point will support and coordinate the review and accreditation of country
performance ratings. Since these ratings will be disclosed publicly, they should have full
ownership at the operations and corporate levels. The focal point will provide independent
advice to Management on the credibility of the ratings and of the rating process. The operations
group vice presidents and the vice president, knowledge management and sustainable
development, will make the final decisions on ratings.
5.
Implementation Schedule
21.
An annual implementation timetable of the PBA policy and ADF grant framework is in
Appendix 1.
Basis:
This section is based on OM Section A3/BP and the documents cited therein.
Compliance:
For inquiries:
Questions may be directed to the performance-based allocation focal point,

26 March 2013

IMPLEMENTATION OF THE PERFORMANCE-BASED ALLOCATION POLICY
Frequency
Institutional Node
Outputs
Apr
Mar
Feb
Jan
Dec
Nov
Oct
Sep
Aug
Jul
Jun
May
Activity
Country Performance Assessments and Ratings

Start of the CPA exercise
Annual
PBA focal point
Memorandum with
instructions for the
CPA exercise
Initial CPAs
Annual
Country teams
Initial CPA ratings
Annual
Interdepartmental, focal
point coordination
Revised CPA ratings
CPA working group review of ratings
Annual
Interdepartmental, focal
point coordination and
support
vice presidents
approval
Final CPA ratings
Post-conflict and Subregional Projects

Assessments for eligible postconflict countries
Annual
Operations departments
PBA focal point
Transitional support
strategy, post-conflict
performance ratings
Submissions for funding for

subregional projects
Biennial
PBA focal point
Project funding proposals
ADF Allocations and Grant Eligibility

PBA focal point
Country allocations and
allocations for eligible
ADF allocation review
subregional projects
meeting
Determination of grant eligibility

based on published DSAs
Annual
PBA focal point

Grant allocations for grant
eligible countries
meeting
ADF allocation review meeting
Biennial/
Annual
PBA head, operations

group vice presidents
minutes
Final recommended allocations for

management approval
Biennial/
Annual
PBA focal point

Management
Approved allocations
Country Programming Activities

Country programming
Annual
CPA Report
Annual
PBA focal point
Confirmed pipelines and

CPS or COBP
Ratings Disclosure
Annual CPA Report
ADF = Asian Development Fund, COBP = country operations business plan, CPA = country performance assessment,
CPS = country partnership strategy, DSA = debt sustainability analysis, PBA = performance-based allocation.
Source: Asian Development Bank.
OM Section A3/OP
Appendix 1
Page 1 of 1
Biennial/
Annual
Allocations of resources to support

country programs, subregional
projects, and special needs
OPERATIONS MANUAL
CPA review panel and vice

presidents approval of ratings
OM Section B1/BP
Issued on 30 June 2010
Page 1 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
REGIONAL COOPERATION AND INTEGRATION
A.
Definitions
Asia and the Pacific
The geographical area covered by the Asian Development Bank

(ADB).
region
The geographical area covered by an ADB regional department.
"subregion"
A subset of countries, usually within one region
regional cooperation
A process in which countries in an ADB defined region or subregion

or in Asia and the Pacific work together to address common
concerns.
regional integration
A process through which countries in an ADB-defined region or

subregion or in Asia and the Pacific become more interconnected
and interdependent.
regional cooperation
strategy (RCS)
A strategy for an ADB defined region or subregion in Asia and the

Pacific to achieve the desired objectives of regional cooperation.
"Regional Cooperation
and Integration (RCI)
Strategy"
A strategy adopted by ADB in July 2006 to guide its support for

regional cooperation and integration.
interregional
Involving countries of two or more regions, usually within Asia and

the Pacific, for example, the Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (BIMSTEC).
B.
Introduction
1.
Article 1 of the Agreement Establishing the Asian Development Bank (the Charter)
states that ADB will foster economic growth and cooperation in the region [Asia and the Pacific]
and contribute to the economic development of the developing member countries (DMCs) in the
region collectively and individually. 1
2.
Regional cooperation and integration (RCI) is one of the means to achieve ADBs
overarching goal of poverty reduction in Asia and the Pacific by sustaining pro-poor growth.
1
ADB. 1966. Agreement Establishing the Asian Development Bank. Manila (Chapter I, Article 1).
OM Section B1/BP
Page 2 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
Support for RCI is, therefore, a longstanding responsibility of ADB. As a leading development
financial institution in the region, ADB supports and facilitates RCI as requested by its DMCs. To
maximize the benefits of RCI, ADB ensures that it fully aligns with national programs and
complements and supports global initiatives.
C.
The Policy
3.
ADB adopted a regional cooperation policy in 1994 2 that articulated its approach to
promoting regional cooperation. ADBs Strategy 2020 identifies regional integration as one of its
three strategic development agendas. It also identifies RCI as one of ADBs five core
specializations that best support its agenda, reflect DMCs needs and ADBs comparative
strengths, and complement efforts by development partners. 3
4.
Taking into account changes in the global and regional economic landscape, ADB has
developed a coherent and strategically focused approach in facilitating RCI activities. In July
2006, ADB adopted the RCI strategy to support RCI in Asia and the Pacific. 4 The RCI strategy
has four pillars: (1) regional and subregional economic cooperation programs on cross-border
infrastructure and related software, (2) trade and investment cooperation and integration, (3)
monetary and financial cooperation and integration, and (4) cooperation in regional public goods.
5.
The aim of these four pillars is to reduce poverty in DMCs through regional collective
action that leads to greater physical connectivity; expansion of trade and investment;
development of financial systems and macroeconomic and financial stability; and improved
environmental, health, and social conditions.
6.
ADB plays four distinct roles in supporting and promoting RCI in Asia and the Pacific:
(i) providing financial resources for RCI and/or helping DMCs mobilize funding for RCI;
(ii) creating, consolidating, and disseminating knowledge and information on RCI to DMCs;
(iii) helping DMCs and regional and/or subregional bodies build their institutional capacity to
manage RCI; and (iv) acting as catalyst and coordinator of RCI for DMCs. These four functions
cut across the four pillars of RCI. They are also mutually supportive and reinforcing, enabling
ADB to serve as an effective facilitator in supporting and promoting RCI.
7.
ADBs support for pillar 1 of the RCI strategy will cover significant lending as well as
nonlending operations. ADBs support for pillars 2, 3, and 4 is primarily nonlending, although
pillar 4 may involve some lending activities.
2
3
ADB. 1994. Bank Support for Regional Cooperation. Manila (March).

Manila (April).
ADB. 2006. Regional Cooperation and Integration Strategy. Manila (July).
OM Section B1/BP
Page 3 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
Basis:

ADB. 2009. Country Partnership Strategy: Responding to the New Aid
Architecture. Manila.
ADB. 2006. Regional Cooperation and Integration Strategy. Manila.
This OM section is to be read with OM Section B1/OP.
Compliance:
For inquiries:
Questions may be directed to the Director of the Office of Regional Economic

Integration.
30 June 2010
Prepared by the Office of Regional Economic Integration
This supersedes OM Section B1/BP
and issued by the Strategy and Policy Department
issued on 6 August 2008.
OM Section B1/OP
Page 1 of 4
OPERATIONS MANUAL
These procedures were prepared for use by ADB staff and are not necessarily a
complete treatment of the subject.
REGIONAL COOPERATION AND INTEGRATION
A.
Introduction
1.
ADB implements the regional cooperation and integration (RCI) strategy through
technical assistance, loans, and grants identified in the regional cooperation strategy (RCS),
and the indicative rolling regional cooperation operations business plan (RCOBP) to ensure
consistent strategic prioritization at regional and subregional levels.
B.
2.
The RCS follows a business process similar to that of the country partnership strategy
(CPS). 1 This includes (i) initiation, (ii) initiating paper and meeting, (iii) consultation through the
strategy formulation mission, (iv) informal Board seminar, (v) a management committee meeting
and subsequent confirmation of the RCS with the concerned DMC governments and regional
institutions as appropriate, and (vi) the Presidents clearance and the ADB Board of Directors
consideration and endorsement of the RCS. 2
3.
It is for regional departments to decide whether to prepare a new RCS. Alternatively, an
"interim RCS" may be prepared if the existing RCS expires, but uncertain circumstances
prevent the launch of a new RCS. Regional departments, in consultation with the vice president,
will determine the coverage of their RCS. A regional department may have more than one RCS
to cover its subregional initiatives. For example, Greater Mekong Subregion (GMS), Brunei
Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area (BIMP-EAGA), and
Indonesia-Malaysia-Thailand Growth Triangle (IMT-GT) all fall under the Southeast Asia
Department. For an RCS that involves other countries outside the geographical coverage of a
regional department, concerned regional departments should collaborate in the preparation of a
joint RCS.
4.
To ensure quality cross-border projects and programs, the RCS is fully aligned with
relevant present CPSs, and future CPSs should also be aligned with the RCS to the extent
possible. Coordination with regional groupings is also necessary to align the RCS with the
regional priorities of DMCs, to avoid duplication, and to ensure ADBs support for RCI is
consistent with the priorities of the region.
See OM Section A2 (Country Partnership Strategy). The RCS document will have the same general content as the
CPS, with the understanding that each regional or subregional program is different, and the role of ADB in each of
those programs will be different. Therefore, regional departments will have broad latitude in terms of the RCS
content.
Specific guidelines for each step are similar to those provided in the OM Section A2/OP on the Country Partnership
Strategy.
OM Section B1/OP
Page 2 of 4
OPERATIONS MANUAL
5.
The concerned vice presidents provide strategic guidance to and oversight of the
preparation of the RCS. A regional team takes the primary responsibility for RCS preparation
and implementation, with guidance from the regional management team. The regional team will
be led and managed by a team leader and will comprise country team leaders of participating
DMCs and representatives from sector divisions within regional departments, resident missions,
RSDD and OREI, and other departments, as appropriate. The regional management team
comprises the regional director general, the deputy director general, the advisor(s) to the
regional director general, the director of the operations coordination division, directors of the
sector divisions, and concerned country directors.
6.
The processes for the RCOBP are generally similar to those of the COBP. An indicative
RCOBP is prepared annually, normally on a 3-year rolling basis, to provide information on the
implementation of the RCS. The RCOBPs are approved by the President, and submitted to the
Board for information. The first RCOBP in the strategy cycle will be prepared in conjunction with
the RCS, but will be circulated to the Board as a separate document.
C.
Regional Projects 3
7.
Regional projects are broadly defined as those that require collective efforts and actions
of two or more countries to produce goods and services which are for the good of all
participating countries. Projects are considered regional when they:
(i)
require collective efforts and actions of two or more not necessarily adjacent
countries to jointly respond to cross-border issues, such as the cross-border
impact of environmental degradation, international crime, communicable
diseases, natural disasters, or regional economic crises; and/or
(ii)
are national in nature but with significant regional dimensions or implications,

such as a country transport system that is part of a regional transport system, a
national power grid within a regional power grid, a national gas pipeline that is
part of a network of regional gas pipelines, and associated agreements and
protocols that allow (a) an efficient flow of goods, services, and people, (b)
harmonization of standards and regulations, or (c) cost-effective communication
across DMCs; and/or
(iii)
facilitate regional policy dialogue that leads to regional agreements that promote
trade, investment, and monetary and financial cooperation, and facilitate
cooperation in regional public goods such as climate change, environmental
management, and prevention of communicable diseases; and/or
(iv)
support research and knowledge generation on issues related to the four pillars
of the RCI strategy, and promote knowledge sharing and dissemination among
DMCs; and/or
In this section, a regional project may be regional, subregional, or interregional, as defined in OM Section B1/BP.
OM Section B1/OP
Page 3 of 4
OPERATIONS MANUAL
D.
(v)
support initiatives or strengthen the institutional capacity of regional groupings,

such as the Association of Southeast Asian Nations (ASEAN), ASEAN+3
(ASEAN plus the Peoples Republic of China, Japan, and the Republic of Korea),
Boao Forum for Asia, Central Asia Regional Economic Cooperation (CAREC),
Bay of Bengal Initiative for Multi-sectoral Technical and Economic Cooperation
(BIMSTEC), Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN
Growth Area (BIMP-EAGA), Greater Mekong Subregion (GMS), IndonesiaMalaysia-Thailand Growth Triangle (IMT-GT), Pacific Islands Forum, Council of
Regional Organizations for the Pacific, South Asia Subregional Economic
Cooperation (SASEC), South Asian Association for Regional Cooperation
(SAARC), and Shanghai Cooperation Organisation (SCO); and/or
(vi)
support regional partnership building with regional and international institutions,

such as the United Nations Economic and Social Commission for Asia and the
Pacific (UNESCAP), Inter-American Development Bank (IADB), Organisation for
Economic Co-operation and Development (OECD), Pacific Economic
Cooperation Council, World Bank, and World Trade Organization (WTO); and/or
(vii)
facilitate regional partnership building between the public, private sector, and civil
society.
Disclosure
8.
The RCS, relevant assessments, and indicative rolling RCOBP will be disclosed in
accordance with the requirements of the Public Communications Policy. 4
E.
9.
The regional departments have primary responsibility for the first pillar of the RCI
strategyregional and subregional economic cooperation programs on cross-border
infrastructure and related software. The Regional and Sustainable Development Department, in
close cooperation with the regional departments, has primary responsibility for the fourth pillar of
the RCI strategycooperation in regional public goods. The Office of Regional Economic
Integration (OREI) has primary responsibility for the second and third pillars of the RCI
strategytrade and investment cooperation and integration; and monetary and financial
cooperation and integrationin close cooperation with the regional departments. Other offices
and departments (including the Asian Development Bank Institute, Central Operations Services
Office, Economics and Research Department, Office of General Counsel, Office of Cofinancing
Operations, Private Sector Operations Department, and Treasury Department) will be involved
in all pillars, as appropriate. 5
4
5
OM Section L3 (Public Communications).

Specific operational areas of each pillar of the RCI strategy are provided in: ADB. 2006. Regional Cooperation and
Integration Strategy. Manila (July).
OM Section B1/OP
Page 4 of 4
OPERATIONS MANUAL
10.
Although the primary responsibility for preparing the RCS and indicative RCOBP and
implementation of the RCS rests with the regional departments, the involvement of OREI early
in the process is crucial to provide consistency across subregional programs and to identify
areas for future cooperation. OREIin collaboration with the Regional Cooperation and
Integration Community of Practicealso acts as facilitator and coordinator of ADBs RCI
activities by providing links across departments in implementing RCI initiatives that go beyond
the boundaries covered by a single regional department.
11.
An existing RCS needs to be evaluated before a new one is prepared. The originating
regional department undertakes the final review of the existing RCS and evaluates the progress
achieved. Experience and lessons, particularly those relating to the findings of independent
regional cooperation assistance program evaluations, as made available by the Independent
Evaluation Department (IED), are incorporated into the new RCS, with recommendations of the
Development Effectiveness Committee of the Board. 6
Basis:
This OM section is based on OM Section B1/BP and documents cited therein.
Compliance:
For inquiries:
Questions may be directed to the Director of the Office of Regional Economic

Integration.
Prepared by the Office of Regional Economic Integration

30 June 2010
This supersedes OM Section B1/OP
In the absence of a regional cooperation assistance program evaluation, IED may validate the RCS final review.
Subject to IED's concurrence, the validated RCS final review serves as the equivalent of a regional cooperation
assistance program evaluation for the purpose of RCS preparation.
OM Section C1/BP
Issued on 14 July 2004
Page 1 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
POVERTY REDUCTION
A.
Introduction
1.
ADB adopted poverty reduction as its overarching goal in 1999. The strategy for
achieving this goal is described in Fighting Poverty in Asia and the Pacificthe Poverty
Reduction Strategy of the Asian Development Bank (the PRS).1 The strategy was reviewed in
Review of ADBs Poverty Reduction Strategy.2 This OM section summarizes key elements of
the strategy as amended by the review.
B.
The Policy
2.
ADB's overarching goal is to help its developing member countries (DMCs) reduce
poverty and improve living conditions. Poverty is a multidimensional phenomenonboth income
(or consumption) and non-income dimensionsrepresenting a deprivation of essential assets
and opportunities to which every human is entitled. The framework of the PRS requires ADB
support to be focused on the three interrelated pillars of propoor sustainable economic growth,
social development, and good governance. To enhance and sustain inclusive development, the
PRS also gives emphasis to five thematic prioritiescapacity development, environmental
sustainability, gender equality, private sector development, and regional cooperation. The
Millennium Development Goals provide all development stakeholders, including ADB, with a
framework of targets and indicators to help measure progress in reducing poverty in the region.
3.
In pursuing poverty reduction, ADB ensures country focus by formulating its assistance
around countries own national poverty reduction strategies (NPRS). The scope and content of
ADB support for poverty reduction is determined based on (i) thorough, and participatory,
analyses of constraints to and opportunities for poverty reduction within its DMCs; (ii) ADBs
own capacity; and (iii) assistance programs of development partners. ADB collaborates closely
with all development partners in areas such as undertaking poverty assessments and other
analytical work, identifying priority areas for its support to the DMCs, and implementing its
assistance program in the DMCs. ADBs medium-term assistance plan is laid out in country
strategies and programs (CSPs), and is updated through annual CSP updates.3 This approach
applies, in principle, to ADBs operations at the subregional and regional levels.
2
3
ADB. 1999. Fighting Poverty in the Asia and Pacific RegionThe Poverty Reduction Strategy of the Asian
Development Bank. Manila. In 2001, ADB adopted a long-term strategic framework to guide its strategic
management toward realizing its vision of Asia and the Pacific without poverty over the next decade and a half.
See ADB. 2001. Moving the Poverty Reduction Agenda Forward in Asia and the Pacific: the Long-Term Strategic
Framework of the ADB (2001-2015). Manila.
ADB. 2004. Review of ADBs Poverty Reduction Strategy. Manila.
See OM Section A2: Country Strategy and Program.
OM Section C1/BP
Page 2 of 3
4.
Considering the centrality of CSPs in determining ADBs assistance in DMCs, the PRS
commits ADB to strengthen mechanism for assuring quality at entry of CSPs and associated
sector and thematic analytical work. Such a mechanism seeks to ensure (i) greater focus by
operations departments on the quality of country analytical work; (ii) enhanced oversight by
Management and nonoperational departments; and (iii) an improved system to ensure quality at
entry of CSPs, and make them evaluable. To support this mechanism, a results framework will
be introduced in each CSP. The results framework will show the linkages between the
constraints to poverty reduction identified in poverty assessments, the proposed program, and
desired outputs and expected outcomes.
5.
To ensure effective delivery, ADB will manage the PRS through a results-based,
monitoring and evaluation system. The system will help ADB assess progress and test
assumptions, providing feedback for improvement of ADBs effectiveness at project, country,
sector, and institutional levels. The system will be grounded on tracking inputs and measuring
results. At the project level, ADB monitors the contribution of individual projects to outcomes
specified in CSPs. Monitoring and evaluation at the country level will be based on CSPs. At the
sector level, ADB monitors the progress in implementing sector specific strategies, improving
the quality and alignment of projects with the PRS, implementing the projects, and contributing
to knowledge management. Information on the progress achieved at these levels will also be
integral to the ADBs framework to manage for development results, particularly through
enhanced monitoring and evaluation at the institutional level.4
6.
The PRS requires ADB to strengthen and realign its financial and organizational capacity
to better respond to DMC needs.
C.
Scope of the Policy
7.
The PRS covers all aspects of ADB operations. Other OM sections provide summaries
of ADB policies and operational procedures to guide staff in aligning ADB operations with the
overarching goal of poverty reduction. This OM should be read with OM sections of other
policies, which operationalize the PRS.
A separate Board paper on the Managing for Development Results is under preparation.
OM Section C1/BP
Page 3 of 3
Basis:
This OM section is based on: ADB. 1999. Doc. R179-99, Fighting

Poverty in Asia and the Pacific The Poverty Reduction Strategy
of the Asian Development Bank, 19 October. Manila.
ADB. 2001. Doc. Sec. M17-01, Long-Term Strategic Framework
of the Asian Development Bank (2001-2015), 21 February.
Manila.
ADB. 2004. Doc. Sec. R95-04, Review of the Asian Develoment
Banks Poverty Reduction Strategy, 10 June. Manila.
For inquiries:
Questions may be directed to Regional and Sustainable

Development Department.
14 July 2004
This supersedes OM Section C1/BP
issued on 29 October 2003.
Prepared by the Regional and Sustainable Development Department

OM Section C1/OP
Page 1 of 1
OPERATIONS MANUAL
POVERTY REDUCTION
14 July 2004
This supersedes OM Section C1/OP

OM Section C4/BP
Issued on 23 December 2010
Page 1 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
GOVERNANCE
A.
Introduction
1.
The Asian Development Bank (ADB) was the first multilateral development bank to
have a Board-approved policy on governance. Good governance has subsequently been
established as one of the three pillars of ADBs poverty reduction strategy. The
governance policy is the foundation for a cluster of other ADB policies on procurement,
participation of civil society (nongovernment organizations, community-based
organizations, the private sector, research institutions, and academia), anticorruption
reform, and public communications.
2.
ADBs policy is guided by the provisions of the Agreement Establishing the Asian
Development Bank (the Charter) as they relate to governance. The capacity of the
institutional environment in ADBs developing member countries, in which citizens interact
among themselves and with government agencies and officials, helps to determine the
impact of economic policies adopted by the government and, therefore, affects the
development process. Governance is concerned directly with management of the
development process. The capacity of the institutional environment and the quality of
governance it reflects are a vital concern for all governments and ADB.
3.
ADBs approach to governance issues is guided by the provisions of its Charter.
Article 36 of the Charter explicitly excludes political activities and considerations and
therefore, ADB cannot act as an agency for political reform. Article 36 requires that only
economic considerations will be relevant to decisions made by ADB. However, if on
purely economic grounds ADB considers an action or measure worth supporting, it may
do so even if the action or measure may have political implications. ADBs work on
governance, therefore, will follow this pragmatic approach. Differences in political history
have resulted in a diversity of political systems and institutional cultures in the Asia and
Pacific region. None of these can claim to have any comparative advantage from the point
of view of governance.
B.
Definition
4.
The policy defines governance as the manner in which power is exercised in the
management of a countrys economic and social resources for development.1
C.
The Policy
5.
ADB regards good governance as synonymous with sound development
management. It involves both the public and private sectors. It includes the effectiveness
1
ADB. 1995. Governance: Sound Development Management. Manila. para. 4.
OM Section C4/BP
Page 2 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
with which development assistance is used, and has a direct effect on the impact of
development programs and projects (including those financed by ADB). Sound
development management, among other things, takes into account the absorptive
capacity of borrowers. Irrespective of the economic policies adopted by a government,
good governance is essential to ensure that these policies have their desired effect.
6.
The policy identifies four basic elements of good governance, which are all closely
linked and mutually reinforcing.
1.
Accountability
7.
Accountability means making public officials answerable for government behavior
and responsive to the entity from which they derive their authority. ADB views
accountability more broadly than just the internal governance of the public sector. It also
means establishing criteria to measure the performance of public officials, as well as
oversight mechanisms to ensure that the standards are met, including through the rule of
law and the judiciary. Over time, lack of accountability tends to reduce the states
credibility as an economic partner. It undermines the capacity of governments to sustain
the long-term business confidence essential for growth-enhancing private sector
investment. Without accountability practices as part of good corporate governance, state
enterprises and the private sector will not flourish.
8.
Economic accountability relates to the effectiveness of policy formulation and
implementation and the efficiency of resource use. Financial accountability covers
accounting systems for expenditure control, and internal and external audits.
2.
Participation
9.
The principle of participation derives from an acceptance that people are at the
heart of development. They are its ultimate beneficiaries, and the agents of development,
acting through groups or associations, and as individuals. Participation implies that
government structures are flexible enough to offer beneficiaries and others affected the
opportunity to improve the design and implementation of public policies, programs, and
projects.
10.
Participation in economic life by agents other than the state includes the role of the
private sector in working with governments and the activities of civil society, including
nongovernment organizations (NGOs). NGOs offer an additional and complementary
means of channeling the energies of private citizens. NGOs can be helpful in identifying
peoples interests, mobilizing public opinion in support of these interests, and organizing
action accordingly. They can provide governments with a useful ally in enhancing
participation at the community level and fostering a bottom-up approach to economic
and social development.
OM Section C4/BP
Page 3 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
3.
Predictability
11.
Predictability refers to (i) the existence of laws, regulations, and policies to regulate
society; and (ii) their fair and consistent application. The rule of law encompasses welldefined rights and duties, as well as mechanisms for enforcing them and settling disputes
in an impartial manner. These legal frameworks are essential for economic actors in
government and the private sector to make rational investment decisions, and also to
ensure that all individuals have equal access to opportunities, and are equally protected in
participating in economic activities. A predictable regulatory framework helps firms to plan
their activities effectively and to forecast the return on their investments with greater
confidence.
4.
Transparency
12.
Transparency refers to the availability of information to the general public and
clarity about government rules, regulations, and decisions and how these affect both
public and private sector functioning. Thus, transparency complements and reinforces
predictability.
13.
Access to accurate and timely information about the public and private economy
can be vital for economic decision making by the private sector. Transparency in
government decision making and public policy implementation reduces uncertainty and
helps inhibit corruption among public officials. To this end, rules and procedures that are
simple, straightforward, and easy to apply are preferable to those that provide
discretionary powers to government officials or are susceptible to different interpretations.
Basis:

ADB. 1998. Doc. R89-98. Anticorruption Policy. 11 June. Manila.
ADB. 1995. Doc. R151-95.
Management. 17 August. Manila.
Governance:
Sound
Development
ADB. 1995. Doc. Sec.M46-95. Compatibility of the Board Paper on

Governance with the Banks Charter. 17 August. Manila.
For other background information and references, see:
ADB. 2006. Second Governance and Anticorruption Action Plan (GACAP
II). 31 July. Manila.
ADB. 1998. Doc. R54-98. Cooperation Between the Asian Development
Bank and Nongovernment Organizations. 27 March. Manila.
ADB. 1998. Doc. IN42-98. A Review of the Law and Development
Activities of the Asian Development Bank. 18 February. Manila.
OM Section C4/BP
Page 4 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
This OM section is to be read with OM Sections C4/OP, C5/BP, and

C5/OP.
Compliance: This OM section is subject to compliance review.
For inquiries: Questions may be directed to the Director, Public Management,
Governance, and Participation Division, Regional and Sustainable
23 December 2010
Prepared by the Regional and Sustainable

Development Department and
issued by the Strategy and Policy Department
OM Section C4/OP
Page 1 of 5
OPERATIONS MANUAL
GOVERNANCE
A.
Introduction
1.
The Asian Development Bank (ADB) seeks to play a strategic role in promoting
good governance in the Asia and Pacific region. In implementing its policy on governance,
ADB takes account of the need for flexible and country-specific approaches. ADBsupported programs and projects are, therefore, designed to raise the quality of
governance in the developing member country (DMC) concerned, particularly in sectors in
which ADB is making loans. ADB recognizes that flexible long-term arrangements are
often most effective for addressing institutional and capacity development aspects of
efforts to strengthen governance systems.
2.
ADB must focus and prioritize its activities in governance where (i) there is
greatest demand from DMCs; (ii) DMCs have plans, or are prepared to develop plans for
improving the performance of country systems; and (iii) ADB can offer support from
sufficient skilled staff and external sources of expertise.
3.
ADBs second governance and anticorruption action plan (GACAP II), approved in
July 2006, provides strategic guidance to the implementation of the policy. Under
GACAP II, three governance themes are prioritized in ADB operations: (i) public financial
management, (ii) procurement, and (iii) combating corruption through preventive,
enforcement, and investigative measures. In consultation with DMCs, ADB identifies
opportunities for promoting good governance in its operations in each country.
4.
ADBs Strategy 2020 re-iterates ADBs commitment to supporting governance and
anticorruption reform in DMCs, and endorses the GACAP II approach. Strategy 2020
states: ADB will increase support for good governance and the building of development
capacities ADB will attempt to reduce the profound harm corruption inflicts on
development, particularly on the poor ADB considers improving governance, curtailing
official corruption, and helping make public institutions and organizations more capable as
highly effective ways to increase private sector investments throughout the region.1
ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank 2008
2020. Manila. paras. 32 and 33.
OM Section C4/OP
Page 2 of 5
OPERATIONS MANUAL
OPERATIONAL PROCEDURES
B.
5.
Governance is a cross-cutting theme and governance issues must be considered
and integrated into all ADB operations including country partnership strategies (CPSs),
project preparation and implementation, and monitoring and evaluation.
C.
Implementation of the Policy
6.
ADB aims to carry out its policy on governance primarily by mainstreaming its
governance priorities in all ADB operations. GACAP II specifies the minimum set of
actions necessary to fulfill the mandatory requirements of ADB policies. This does not
preclude further ADB governance and anticorruption assistance, where such assistance is
requested by DMCs, falls within Strategy 2020 priorities, and is reflected in the CPS. In
the case of small DMCs in the Pacific, or DMCs where ADB has no or minimal lending
programs, the risk will need to be assessed and managed accordingly.
7.
Strategy 2020 identifies good governance and capacity development as a key
driver of change (footnote 1). ADB will bring the four elements of good governance
(accountability, participation, predictability, and transparency) deeper into the mainstream
of its operations and activities. It will regard accountability for economic performance,
effectiveness of policy formulation and implementation, and the efficient use of public
resources as essential to preserving financial resources for development purposes. ADB
will work to make sure that the poor participate in meaningful ways in decision-making
processes that affect the management of resources on which they depend for
subsistence. To help regional integration fulfill its potential to catalyze growth, ADB will
support the establishment of transparency and predictability in regulations and decisions
on cross-border issues, trade and investment cooperation, regional financial integration,
and regional public goods.
8.
GACAP II focuses on the following key result areas (i) improving identification and
management of governance, institutional, and corruption risks in CPSs, and annual
country portfolio reviews; (ii) strengthening governance and anticorruption components in
program and project design; (iii) strengthening program and project administration and
portfolio management; and (iv) improving organizational structure, human resources, and
access to expertise within ADB.
9.
A distinguishing feature of GACAP II is the adoption of a risk-based approach to
governance assessment. This requires identification of risks of corruption in public
financial management and procurement and the classification of major risks at country,
sector, and project levels. Major risks are those that are likely to occur, would have
serious negative consequences for development effectiveness, and may not be
completely mitigated over the life of the CPS.
OM Section C4/OP
Page 3 of 5
OPERATIONS MANUAL
10.
Country partnership strategies. GACAP II requires risk assessments and risk
management plans to inform CPS formulation and preparation of projects in DMCs where
ADB has a lending program. The directors general of the regional departments will
determine the sectors to be covered by the risk assessments and whether national and/or
subnational assessments are required. The directors general will determine the
appropriate timing for preparing and updating the CPS risk assessments and risk
management plans. The directors general will consult with Private Sector Operations
Department (PSOD), as sector risk assessments should include corruption risks for
private sector operations.
11.
A CPS should include a country risk assessment and risk management plan that
covers ADBs three thematic governance priorities (public financial management,
procurement, and combating corruption). The risk assessments should include
institutional analysis, including the existence and proper enforcement of legal and
regulatory frameworks. Country risk assessments will inform the preparation of sector risk
assessments and risk management plans for ADBs priority sectors in the DMC. The
country and sector risk management plans will define the minimum actions ADB intends to
take to support governance in the DMC. Sector risk assessments should inform the
preparation of sector analysis and road maps. A consolidated summary of country and
sector risk management plans should be included as a linked document to the CPS to be
stored electronically in the knowledge repository managed by the concerned regional
department.
12.
The introduction of the risk assessment exercise should be positive and forwardlooking, and should be presented as a means to strengthen constructive dialogue and
engagement between ADB and the DMC. DMC stakeholders should be involved with the
risk assessment process from the beginning, and their active participation should be
encouraged through to the finalization of the risk management plans.
13.
Project design and administration. The risk assessments and risk management
plans must be prepared for projects in ADB priority sectors in the DMC. The risk
assessments must focus on ADBs three thematic governance priorities and should be
informed by country and sector risk assessments and risk management plans. Identified
risks and mitigation measures will inform project design. Project concept papers may
provide a preliminary assessment of financial management, procurement, and corruption
risks, which will be further developed with the preparation of project risk assessments and
risk management plans. The preliminary assessment is expected to draw heavily on the
relevant country and sector risk assessments and risk management plans, and country
portfolio review mission updates. The project risk assessments and risk management
plans can be prepared by ADB staff or consultants, with the required expertise. Terms of
reference must be prepared and budget resources allocated, either from the ADB budget
or from a project preparatory technical assistance budget. Risk management plans will be
monitored through project review missions.
.
14.
ADB organizational management. ADBs performance on preventing and
controlling corruption in ADB-financed programs and projects will be regularly reviewed.
OM Section C4/OP
Page 4 of 5
OPERATIONS MANUAL
ADB Management will ensure that regional departments and resident missions have
appropriate staff resources to implement GACAP II.
15.
Consultation processes. Governance projects and governance aspects of sector
projects will be identified through a consultative process, including forums convened to
seek opinions or to discuss the findings of governance risk assessments from a variety of
stakeholders, including government and civil society organizations.
16.
Civil society involvement. GACAP II emphasizes the need to involve civil society
organizations to provide oversight and promote links between DMC governments and
citizens. This will strengthen participation and improve accountability. Civil society should
be consulted when preparing risk assessments and risk management plans. Where
feasible and based on an assessment of civil society capacity (conducted jointly with the
government of the DMC), efforts should be made to enable grassroots civil society
organizations to monitor governance project results during implementation.
17.
Communication and dissemination. ADBs Public Communications Policy
commits ADB to a presumption in favor of disclosure of information.2 The policy also
states that, with respect to assessment studies conducted to inform preparation of a CPS
document, including governance assessments, ADB shall make strategy and program
assessments publicly available upon completion. However, the sensitivity of some of the
information in the risk assessments could result in the application of one or more of the
exceptions to presumed disclosure, as described in the Public Communications Policy. In
such cases, the full risk assessment reports will not be made publicly available, but will be
stored in the electronic knowledge repository. However, the major findings of the risk
assessments should be summarized and included as a CPS linked document to be made
publicly available.
D.
Implementation Arrangements
18.
The regional departments, resident missions, and PSOD are primarily responsible
for implementing ADBs governance policy. The Regional and Sustainable Development
Department (RSDD) provides advice, guidance, and assistance with implementation of
the governance policy, and has overall responsibility for coordinating and monitoring
ADBs governance-related activities. RSDD, in collaboration with the Budget, Personnel,
and Management Systems Department is responsible for designing and conducting
learning and development programs for ADB staff on implementation of GACAP II. The
Central Operations Services Office will provide technical advice to regional departments
on procurement risk assessments and design of procurement risk mitigation measures.
19.
The Office of Anticorruption and Integrity is the point of contact for allegations of
fraud and corruption in ADB-financed activities or among its staff. The Office of the
General Counsel may be consulted on matters relating to legal and judicial reform,
including access to justice issues, as well as on anti-money laundering issues and
2
ADB. 2005. Public Communications Policy. Manila.
OM Section C4/OP
Page 5 of 5
OPERATIONS MANUAL
initiatives. The Office of Cofinancing Operations may provide guidance and advice on
cofinancing for governance-related activities.
20.
Implementation of GACAP II by regional departments, resident missions, and
PSOD will need to be managed at many levels to ensure that accountability and
responsibility is not compromised, and to bring about organizational change. Although all
divisions in regional departments and PSOD have direct responsibility for implementation,
the regional departments and PSOD must appoint a focal person to facilitate change,
coordinate implementation, share good practices and learning experiences, and report on
implementation.
E.
Monitoring and Evaluation Arrangements
21.
RSDD compiles information on ADBs governance-related activities and prepares
periodic reports and good practice case studies. RSDD also provides advice and
guidance on projects with governance sector and/or thematic classifications, governance
risk assessments and risk management plans, and governance aspects of CPSs.
22.
The regional departments will assist the Public Management, Governance and
Participation Division in RSDD by providing information on achievements and on lessons
learned in governance initiatives for purposes of periodic reporting to the ADB Board of
Directors, ADB Management, and the public.
Basis:
This OM section is based on OM Sections C4/BP and the documents cited

therein.
Compliance: This OM Section is subject to compliance review.

For inquiries: Questions may be directed to the Director, Public Management,
Governance and Participation Division, Regional and Sustainable
Development Department
23 December 2010

Development Department and issued by
the Strategy and Policy Department
OM Section C6/BP
Page 1 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
ENHANCING THE ASIAN DEVELOPMENT BANKS ROLE IN COMBATING MONEY
LAUNDERING AND THE FINANCING OF TERRORISM
A. Introduction
1.
Money laundering is the processing of the proceeds of crime so as to disguise
their illegal origin. The financing of terrorism is generally understood to be an act of
providing or collecting funds with the intention that they should be used or in the
knowledge that they are to be used in order to carry out terrorism. 1
2.
Money laundering and financing of terrorism are global problems affecting both
developed countries and ADBs developing member countries (DMCs). Assistance in
combating these financial crimes is urgently needed by many DMCs. It is timely for ADB
to strengthen its assistance to DMCs in response to ever increasing requests for
assistance, within its mandate as an international financial institution. However, it is likely
that ADBs role will be more prominent in the anti-money-laundering area than in
combating the financing of terrorism for at least two reasons. First, the money laundering
problem is believed to be much larger than the financing of terrorism problem, at least in
most of Asia and the Pacific. Second, combating the financing of terrorism involves law
enforcement issues that do not fall readily within the mandate or expertise of ADB.
B. The Policy
3.
ADB shall combat, and assist its DMCs to combat, money laundering and
financing of terrorism. ADBs policy on enhancing its role in anti-money-laundering and
combating the financing of terrorism (AML/CFT) is guided by of the following principles:
(i)
ADB locates and implements its AML/CFT activities within the broader
context of its existing goals, policies, and strategies for assisting DMCs.
These include poverty reduction, strengthening financial systems, and
promoting good governance and anticorruption activities. This will ensure
that ADBs AML/CFT activities do not compete with or override existing
operational priorities or divert scarce financial and human resources.
The United Nations International Convention for the Suppression of the Financing of Terrorism (1999)
stipulates in its Article 2 that: "Any person commits an offence within the meaning of this Convention if that
person by any means, directly or indirectly, unlawfully and willfully, provides or collects funds with the
intention that they should be used or in the knowledge that they are to be used, in full or in part, in order to
carry out (a) an act which constitutes an offence within the scope of and as defined in one of the treaties
listed in the annex; or (b) any other act intended to cause death or serious bodily injury to a civilian, or to
any other person not taking an active part in the hostilities in a situation of armed conflict, when the
purpose of such act, by its nature or context, is to intimidate a population, or to compel a government or
an international organization to do or to abstain from doing any act."
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BANK POLICIES (BP)
(ii)
ADB does not attempt to duplicate the ongoing efforts and programs of
other organizations such as the Financial Action Task Force on Money
Laundering, the United Nations, the Asia/Pacific Group on Money
Laundering, the International Monetary Fund, and the World Bank.
Instead it seeks to identify additional measures that it might usefully take
to complement the efforts of these other organizations, either through its
lending operations or through technical assistance.
(iii)
ADBs role is also tailored to take account of the special problems and
circumstances faced by Asia and Pacific DMCs, notably lack of or weak
AML/CFT laws and weak institutional capacity, and lack of specialized
and sustainable training for government officials so that they can
effectively implement and enforce AML/CFT laws. 2
C. Scope of the Policy

4.
Guided by the above principles, ADBs AML/CFT policy has four key elements:
(i)
Assisting DMCs in establishing and implementing effective legal and

institutional systems to combat money-laundering and the financing of
terrorism;
(ii)
Increasing collaboration with other international organizations and aid

agencies;
(iii)
Strengthening internal controls to safeguard ADBs funds; and
(iv)
Upgrading ADBs staff capacity. 3
See also ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development
Bank, 2008-2020. Manila. p. 20
A review of ADB's AML/CFT activities under the policy was completed in 2008. See ADB. 2008. Review
of Enhancing the Asian Development Bank's Role in Combating Money Laundering and the Financing of
Terrorism. Manila.
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BANK POLICIES (BP)
Basis:

ADB. 2003. Doc. R45-03, Enhancing the Asian Development Banks
Role in Combating Money Laundering and the Financing of Terrorism,
4 March. Manila.
ADB. 2008. Doc. IN.108-08, Review of Enhancing the Asian
Development Banks Role in Combating Money Laundering and the
Financing of Terrorism, 24 April. Manila.
This OM section is to be read with OM Section C6/OP.
Compliance:
For inquiries:
Questions may be directed to the General Counsel, Office of the

General Counsel.
1 July 2010
Prepared by the Office of the General Counsel and

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OPERATIONS MANUAL
ENHANCING THE ASIAN DEVELOPMENT BANKS ROLE IN COMBATING MONEY
LAUNDERING AND THE FINANCING OF TERRORISM
A. Introduction
1.
ADBs policy on combating money laundering and the financing of terrorism is to
be implemented through the adoption of a consolidated strategy and approach.
B. Application of the Policy
1. Assisting Developing Member Countries in Establishing
Implementing Effective Legal and Institutional Systems
and
2.
As a matter of the first priority, ADB encourages the inclusion of anti-moneylaundering and combating the financing of terrorism (AML/CFT) issues in the policy
dialogue with its developing member countries (DMCs), where necessary and
appropriate, particularly when DMCs request ADBs assistance in this area. In these
cases, the AML/CFT issues must be explicitly incorporated into the country partnership
strategy (CPS) and regional cooperation strategy, and relevant sector and aid agency
consultations.
3.
In DMCs where AML/CFT efforts are more limited, ADB assists the DMCs policy
makers to recognize the dangers and risks that money laundering and the financing of
terrorism pose to their financial sector governance and integrity. Such recognition needs
to be placed on a sound and comprehensive basis to achieve both poverty reduction and
sustainable economic development.
4.
In DMCs where AML/CFT efforts have made certain progress, ADB assists to
strengthen their regimes and ensure their effective implementation in close coordination
with other aid agencies concerned.
5.
In identifying the appropriate scope and methods of the assistance, ADB takes
into account, as feasible, assessments carried out by international and regional
organizations including the Financial Action Task Force on Money Laundering (FATF),
the Asia/Pacific Group on Money Laundering (APG), the Eurasian Group on Combating
Money Laundering and Financing of Terrorism (EAG), the International Monetary Fund
(IMF), and the World Bank; and self-assessments by DMCs. Such an approach provides
for consistency among the concerned organizations and ADB in addressing AML/CFT
matters, and also facilitates cooperation among DMCs.
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6.
In the course of country dialogue, ADB encourages all DMCs to participate
actively in international and regional AML/CFT forums and activities, starting with
regional forums such as the APG and the EAG.
7.
ADBs assistance may be funded by technical assistance (TA) grants, project,
program, or TA loans; and/or funds provided by other sources through cofinancing
arrangements. The assistance could be directed, for instance, to raise awareness of the
risks that the issues pose; to establish or strengthen legal, regulatory, and institutional
frameworks; to build institutional capacity in responsible institutions; to provide for the
sustainable training programs for officials dealing with AML/CFT matters; and to conduct
research and regional conferences, workshops, and seminars.
8.
In the case of assistance through loans, the principal modality is financial sector
loans. Despite a tendency for some DMCs to prefer TA grants to loans when requesting
ADBs assistance, the feasibility of the assistance through loans needs to be studied. To
accelerate DMCs concentrated efforts supported by political commitment, moderate use
of loan covenants or tranche conditions (in the case of program loans) may be
appropriate and useful.
9.
Assistance through TA grants may be considered, depending on the nature,
urgency, and priority of the request. Complementary assistance through the use of loans
and TAs may also be explored. Where common needs for assistance exist for a region
or a subregion, a regional or subregional TA may be developed. The method of
assistance to choose must be carefully considered, taking into account all the relevant
factors, and must be discussed with the DMCs concerned.
2. Increasing Collaboration with Other International Organizations
10.
As various international organizations and aid agencies work in Asia and the
Pacific, it is essential that ADB increase and strengthen its collaboration and cooperation
with these organizations. To this end, ADB seeks to achieve such increased
collaboration through:
(i)
adopting the FATFs Forty Recommendations on Money Laundering and

Special Recommendations on Terrorist Financing, which incorporate
relevant United Nations conventions and Security Council resolutions 1 , as
the primary international standards to guide ADBs operations;
(ii)
strengthening ADBs cooperation and collaboration with the APG and the
EAG; and
See www.fatf-gafi.org for the full text of the FATF Recommendations and United Nations instruments.
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(iii)
participating in meetings and workshops of relevant international

organizations and multilateral/bilateral aid agencies on a more regular
basis, such as the FATF plenary meetings and typology workshops.
C. Strengthening Internal Controls to Safeguard ADB Funds

11.
While ADB is not a deposit-taking institution and its treasury operations are
consequently less directly exposed to money laundering and financing of terrorism
activities than those of commercial financial institutions, the potential for indirect
exposure may exist. For this reason, it is important that ADB continues to strive toward
international best practice standards in its treasury operations.
12.
At the same time, ADB monitors and strengthens each procurement and
consultant selection as well as the rules, procedures, and systems for borrowers and
other external parties concerned in ADBs projects to ensure that ADB funds are not
misused for the purposes of money laundering and financing of terrorism through
fraudulent procurement, contracting, and accounting. Adequate due diligence should
also be carried out to ensure that integrity-related risks are addressed in the course of
project processing. 2
13.
Through project and financial management, ADB strengthens borrowers
financial accounting and auditing arrangements in relation to ADB projects to prevent
misuse of ADB funds. ADB should also strengthen its system to screen sources of
commercial cofinancing operations.
D. Role of Departments and Offices
14.
Since AML/CFT issues require different types of skills and expertise, the
implementation of the policy involves several departments and offices of ADB.
15.
The principal challenge facing ADB staff initially is to gradually and systematically
incorporate AML/CFT issues into all relevant aspects of policy dialogue with DMCs and
into loan and TA operations for which the regional departments and the Private Sector
Operations Department (PSOD) are primarily responsible. ADB also needs to
incorporate these issues into the administration of its own financial operations and
procurement-related activities for which the Office of the Auditor General (OAG), the
Office of Anticorruption and Integrity (OAI), the Central Operations Services Office
(COSO), the Controller's Department (CTL), and the Treasury Department share
responsibilities. OAG also carries out independent audits of ADB's AML/CFT activities.
For nonsovereign operations, such due diligence should adhere to the requirements of OM D10 and the
integrity due diligence guidelines for nonsovereign operations. Similar due diligence should be carried out
for applicable sovereign operations (notably, financial intermediation loans).
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The Office of the General Counsel (OGC) and the Regional and Sustainable
Development Department (RSDD) support the work of these departments and offices.
16.
The regional departments assist DMCs in establishing and implementing
effective systems to combat money laundering and financing of terrorism through
enhanced policy dialogue and provision of loans (or loan components) and TA, as
appropriate. They also explore ways of enhancing regional and subregional cooperation
among DMCs. For DMCs where no relevant project is being implemented, processed, or
planned, the regional departments first identify whether it is appropriate to include
AML/CFT issues in the policy dialogue and then in the CPS. The regional departments
take into account the latest developments of international and regional AML/CFT efforts
when forming their assistance to DMCs. The regional departments also attend, when
appropriate, selected regional forums and country-specific aid coordination meetings to
ensure good coordination with other TA providers.
17.
OAG, OAI, COSO, CTL, TD, and PSOD incorporate international best practices
as applicable within their mandates and responsibilities and in close coordination with
other concerned departments and offices.
18.
OGC monitors the implementation of the policy and provides legal advice and
other information on the latest developments in the global and regional AML/CFT efforts.
OGC is also responsible for organizing and conducting staff training in coordination with
the Budget, Personnel and Management Systems Department, RSDD and external
experts. OGC, in coordination with relevant departments and offices, will continue to
attend selected international and regional meetings and workshops as appropriate.
Basis:
This OM section is based on OM Section C6/BP and the documents

cited therein.
Compliance:
For inquiries:

General Counsel.
1 July 2010
Prepared by the Office of the General Counsel and

OM Section C2/BP
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OPERATIONS MANUAL
BANK POLICIES (BP)
GENDER AND DEVELOPMENT IN ADB OPERATIONS
A.
Introduction
1.
ADBs policy on gender and development1 (GAD), approved in 1998, adopts gender
mainstreaming as a key strategy for promoting gender equity. This requires gender concerns to
be treated as a cross-cutting theme influencing all social and economic processes. ADB's
Strategy 20202 identifies gender equity as one of the five drivers of change to achieve the vision
and strategic agenda of inclusive economic growth and to make the greatest impact on the
development challenges in Asia and the Pacific. The GAD policy provides a policy framework;
introduces institutional mechanisms to address gender concerns in ADBs program of activities;
and supports a greater emphasis on gender issues in all ADB operations.
B.
The Policy
2.
ADB's policy on GAD adopts mainstreaming as a key strategy for promoting gender
equality and womens empowerment. The key elements will include the following:
1
2
(i)
Gender sensitivity to observe how ADB operations affect women and men
differently, and to take into account their different needs and perspectives in
planning these operations.
(ii)
Gender analysis to assess systematically the impact of programs and projects

on men and women and on their economic and social relationships.
(iii)
Gender planning to formulate specific strategies that result in equal opportunities

and outcomes for women and men.
(iv)
Gender mainstreaming to ensure that gender concerns and womens needs and
perspectives are explicitly considered in all ADB operations, and that women and
men participate equally in the decision-making process in development activities.
(v)
Agenda setting to assist developing member country (DMC) governments in

formulating strategies to reduce gender disparities and in developing plans and
targets for women's and girls' education, health, legal rights, employment, and
income earning opportunities.
ADB. 1998. Policy on Gender and Development. June. Manila.

ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank 2008-2020. April.
Manila.
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BANK POLICIES (BP)
3.
Mainstreaming requires explicit integration of gender considerations into all aspects of
ADB operations. This entails addressing gender considerations in ADBs knowledge
management activities, country partnership strategies and programs, including studies on the
impact of economic reform programs on women; undertaking gender analysis in projects; and
ensuring the consideration of gender issues at all stages of the project cycle, including
identification, preparation, implementation, and monitoring and evaluation.
4.
The GAD policy recommends that gender disparities be directly addressed through the
design of a larger number of programs and projects with specific gender features and targets
that deliver gender equality and women's empowerment benefits, such as improved access to
social services, economic and financial resources and opportunities, basic rural and urban
infrastructure, and/or enhanced voices and rights.
5.
While gender mainstreaming forms the major thrust of ADBs approach to reducing
gender disparities and empowering women, exclusive women-targeted projects may be
formulated and implemented where special socio-cultural circumstances dictate and permit
separate resource allocation to improve womens access to and control over project benefits.
Stand-alone projects for women may also be formulated and implemented to address glaring
gender inequalities.
6.
The GAD policy identifies five specific areas of intervention to support
implementation:
policy
(i)
provide assistance to developing member countries in GAD policy support, GAD

capacity building and awareness, and the formulation and implementation of
policies and programs to improve the economic and social status of women;
(ii)
conduct gender analysis and prepare project gender action plans for lending and
Asian Development Fund grant operations;
(iii)
assist the DMCs to implement commitments made at the United Nations Fourth
World Conference on Women in Beijing and in the Millennium Development Goals
related to gender equality and womens empowerment;
(iv)
explore opportunities to address some of the new and emerging issues for
women in the Asia and Pacific region directly; and
(v)
promote greater GAD awareness within ADB through training workshops and
seminars, development of suitable approaches, and staff guidelines to implement
the GAD policy.
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BANK POLICIES (BP)
Basis:

ADB. 1998. Doc. R74-98. Revision 1, Final. Policy on Gender and Development.
11 June. Manila.

Development Bank 2008-2020. April. Manila.
ADB. 2005. The Public Communications Policy of the Asian Development
Bank. Manila.
ADB. 1985. Doc. R56-85. Role of Women in Development. 17 June. Manila.
Compliance:
For inquiries: Questions may be directed to the Director, Poverty Reduction, Gender, and
Social Development Division, Regional and Sustainable Development
Department.
6 December 2010
issued on 25 September 2006.

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OPERATIONAL POLICIES (OP)
GENDER AND DEVELOPMENT IN ADB OPERATIONS
A.
Introduction
1.
ADB aims to operationalize its policy on gender and development (GAD) primarily
through mainstreaming gender considerations into all ADB operations. However, ADB will continue
to develop and finance stand-alone projects directed at correcting gender disparities and
promoting the empowerment of women, especially in developing member countries (DMCs) with
glaring gender inequalities.
B.
2.
As GAD is a cross-cutting theme and a driver of change in Strategy 20201, gender
issues must be integrated into all ADB operations, including country partnership strategies and
programs, project preparation, implementation, and monitoring and evaluation.
C.
Country Partnership Strategy
3.
Since country partnership strategies (CPSs) set the framework for ADBs assistance to
its DMCs, the GAD policy recognizes that gender mainstreaming at the country level must begin
with the development of the CPS. Therefore, gender issues must be systematically addressed in
the main text, sector road maps, and the results framework of the CPS. For each DMC, the
relevant regional department (i) prepares or updates the country gender assessment (see para.
5)2; and (ii) formulates an appropriate gender strategy (see para. 6), which specifies how ADB
intends to promote and implement its overall GAD objectives in that DMC, and discusses how
ADB assistance will address gender equality and womens empowerment issues. A summary of
(i) and (ii) is included in the CPS linked document.
4.
As part of its ongoing policy dialogue and analytical work, ADB (i) collects recent sexdisaggregated data on social and economic indicators pertaining to gender disparities in the
DMC; (ii) identifies GAD policies and priorities of the DMC, and relates them to ADBs country
strategy; and (iii) examines the GAD policies and strategies of other relevant agencies and
nongovernment organizations in the DMC. The data obtained form the basis of policy dialogue
between ADB and the DMC on gender equality and the empowerment of women.
1
2
ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank 2008-2020.
Manila.
Preparation of the country gender assessment may not coincide with CPS. However, it will be used as an integral
part of the continual dialogue and analytical work in the country concerned.
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OPERATIONS MANUAL
D.
Country Gender Assessment
5.
The country gender assessment (CGA) informs the formulation of the gender
strategy in the CPS. The CGA contains (i) a social and economic overview of the situation of
women in the DMC; (ii) information on gender disparities with regard to access to education,
health, employment, resources, productive assets, and decision making; (iii) a description of the
DMC government policies and institutions related to women; (iv) GAD policies and programs of
other institutions (national organizations and international development agencies); (v) an
assessment of the impact of ADB operations on gender equity and empowerment of women; (vi)
recommendations for potential ADB initiatives and interventions; and (vii) concrete suggestions
for mainstreaming gender concerns in the project pipeline. The CGA is a public document, which
may be published as a stand-alone ADB publication and made available through the internet or
by other means, in accordance with ADBs public communications policy3.
E.
Country Gender Strategy
6.
The country gender strategy for a DMC specifies how ADB intends to address the
gender issues highlighted in the CGA, and how the overall gender objectives will be achieved
through ADBs program and pipeline of assistance. The gender strategy indicates the sectors
and subsectors for which gender initiatives are required, the operational approaches, and the
actions required to achieve strategic GAD outcomes. The gender strategy may include policy
dialogue, special studies, targeted investments to correct gender disparities, strategies for
increasing womens participation in the development process, support to the DMC for promoting
gender equality and the empowerment of women, institutional development, policy support, and
regional cooperation activities. Policy reform and capacity building in GAD are given particular
focus.
F.
Country Operations Business Plan
7.
The country operations business plan (COBP) includes indicative lending and nonlending pipeline. Projects likely to be categorized with a gender equity theme or effective gender
mainstreaming are indicated as such in the COBPs.
G.
GAD at the Project Level
8.
Gender considerations are an essential element of loan, Asian Development Fund
grant, and technical assistance (TA) operations. Gender issues must be considered at all
stages of the project cycle: identification, preparation, implementation, and monitoring and
evaluation. A preliminary review is conducted at the project concept paper stage to identify the
projects potential to address gender equity and the empowerment of women. A detailed gender
analysis and preparation of a project gender action plan are required for projects that have
potential to correct gender disparities, significantly mainstream gender equity concerns, or are
likely to have substantial gender impact. The gender mainstreaming category of each project
must be determined at an early stage of project preparation (see para. 12). During
implementation of these projects, monitoring of gender concerns and components is required.
3
ADB. 2005. The Public Communications Policy of the Asian Development Bank. Manila.
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H.
Initial Poverty and Social Assessment
9.
An initial poverty and social assessment (IPSA)4 is required for all ADB projects and
programs. Gender analysis must be conducted as an essential component of the IPSA. A
gender analysis checklist for the IPSA is provided in Appendix 1. The IPSA is carried out as early
as possible in the project cycle, and preferably at the fact-finding stage for the project
preparatory technical assistance or another project preparatory study. When it has been
completed, the IPSA must be posted on ADBs website in accordance with ADBs public
communications policy5.
I.
Project Gender Action Plan
10.
If the IPSA indicates that the project has the potential to mainstream gender concerns
significantly, or is likely to have a substantial gender impact, a detailed gender analysis needs
to be undertaken during the project design to inform development of a project-specific gender
action plan (GAP).6 For such projects, the GAP is prepared during the design phase by a social
development or gender specialist. A guide to key gender considerations in project design is
provided in Appendix 2. The results of the gender analysis are provided in the linked summary
poverty reduction and social strategy of the report and recommendation of the President
(RRP).
11.
A project GAP must be prepared for projects with potential to address gender equality
and womens empowerment, and those that are categorized with gender equity7 theme or
effective gender mainstreaming8 under ADBs project classification system. The GAP
identifies strategies, mechanisms and/or project outputs for addressing gender concerns, and
reports on how women are to be involved in the design, implementation and monitoring
process. The budget provision for these components or design features must also be highlighted
in the plan. The project GAP consists of (i) the preparatory work undertaken to address gender
issues in the project; (ii) the gender inclusive design features, mechanisms, targets and
monitoring indicators included in the project design to facilitate and promote womens
4
5
6
See OM Section C3 on Incorporation of Social Dimensions into ADB Operations.

ADB. 2005. Public Communications Policy of the Asian Development Bank. Manila.
In the case of policy-based loans or grants, a GAP may not be necessary if the policy matrix, program design and
monitoring framework and the main text of the report and recommendation of the President clearly and sufficiently
demonstrate how the program actions will result in gender equality and womens empowerment.
A project is assigned a gender equity theme if the project outcome directly addresses gender equality and/or
women's empowerment by narrowing gender disparities through access to social services (e.g. education, health,
and water supply/sanitation); and/or economic and financial resources and opportunities (e.g. employment
opportunities, financial services, land, and markets), and/or basic rural and urban infrastructure (e.g. rural
electrification, rural roads, pro-poor energy distribution, and urban services for the poor); and/or enhancing voices
and rights (e.g. decision making processes and structures, political empowerment, and grievance mechanisms);
and (ii) the outcome statement of the project design and monitoring framework explicitly mentions gender equality
and women's empowerment and/or, the outcome performance indicators include gender indicators.
A project is assigned an effective gender mainstreaming category if the project outcome is not gender equality or
women's empowerment, but the project is still likely to deliver tangible benefits to women by improving their access
to social services, and/or economic and financial resources and opportunities, and/or basic rural and urban
infrastructure, and/or enhancing voices and rights, which contribute to gender equality and women's
empowerment.
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participation and/or tangible gender benefits from the project; and (iii) mechanisms to ensure
implementation of the gender design elements. Key gender targets and monitoring indicators
should be reflected in the design and monitoring framework of the RRP. The gender action plan
format is in Appendix 3.
12.
Key features of the GAP should be described in the main text of the RRP in the due
diligence section. The project GAP summary is a mandatory RRP linked document. The project
GAP should be covenanted in the project or loan agreements. It is also included in the project
administration manual (PAM).
J.
Project Implementation
13.
The GAP activities are included in the PAM under Section VIII, Gender and Social
Dimensions. During project implementation, monitoring and reporting on gender targets and
indicators and on the implementation progress of the GAP and other gender provisions is
required. Review missions and project completion missions include assessments and reports on
GAP implementation and achievements of the gender targets included in the GAP and the
design and monitoring framework.
K.
14.
The responsibility for implementing ADBs GAD policy rests with the regional
departments. The responsibility for monitoring the gender inclusive design features of individual
projects, programs, and TAs also rests with the regional departments. The Regional and
Sustainable Development Department (RSDD) provides advice and assistance with
implementation of the GAD policy, and has overall responsibility for coordinating and monitoring
ADBs gender-related activities. RSDD compiles such information and prepares periodic
reports and good practice case studies.
Basis:
This OM section is based on OM Section C2/BP and the supporting

documents cited therein.
Compliance:
For inquiries: Questions may be directed to the Director, Poverty Reduction, Gender, and
Department.
6 December 2010

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Appendix 1
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Gender and Development Section of Initial Poverty and Social Analysis (IPSA)
Gender issues should be addressed when
there are striking disparities and inequalities between the access of men and women
to and use of relevant services, resources, assets, opportunities, and participation in
the decision-making process;
the project has the potential to redress such differences and inequalities; or
the project presents evident risks to the empowerment and gender equality of women
and girls.
Key questions to be answered in the IPSA are:
1. What are the key gender issues in the sector and subsector that are likely to be relevant
to this project or program?
Refer to the country gender assessment and the country partnership strategy for
sector or subsector specific gender issues;
Where the above do not exist, contact the gender specialists in the respective
department or in the Regional and Sustainable Department to assist in identifying
relevant literature and data.
2. Does the proposed project or program have the potential to promote gender equality
and/or womens empowerment by improving womens access to and use of
opportunities, services, resources, assets, and participation in decision making?
Yes:
If women are substantially engaged and/or involved in the sector, or if the project or
program has the potential to directly improve the access of women or girls to
opportunities, services, assets, or resources, it should be ticked as Yes.
If yes, the project has the potential to pursue gender equity theme or effective gender
mainstreaming. Indicate the project gender category in the project concept paper.
If yes, detailed gender analysis and preparation of a gender action plan are required.
Include these in the terms of reference of the project design stage and consider
recruitment of a gender specialist.
Briefly explain how the project is likely to provide gender benefits and the potential
measures to be considered for maximizing the positive impacts.
No:
If not, briefly explain why.
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3. Could the proposed project have an adverse impact on women and/or girls or widen
gender inequality?
Examples of negative gender impacts may include:

o womens loss of traditional land rights or employment or livelihood opportunities
as a result of project activities or policy changes
o negative impacts on women related to environmental impact, resettlement, or
negative impacts on indigenous women (which should be addressed under the
safeguards policy statement and its required procedures)
o increased risks for women and girls to HIV/AIDS and sexual transmitted
infections, human trafficking, non-compliance with core labor standards
o high service charges and other fees that are likely to exclude vulnerable
women from access to services
If yes, actions and /or measures should be prepared during project preparatory TA or
due diligence. Project designs should include developing detailed implementation
arrangements and allocation of budget for these actions and measures to mitigate and
compensate these adverse impacts and/or risks.
Describe these measures in the IPSA section on social safeguards issues and other
social risks.
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Key Gender Considerations in Project Design

Gender Analysis
Have both mens and womens needs for the possible project interventions been
assessed?
Have both women and men been consulted and involved in project design?
Have cultural, social, legal, economic, and other constraints on womens potential
participation and gender equal benefits been identified?
Have strategies been formulated to address the constraints?
Have local womens organizations been consulted and their capacity as service
providers assessed?
Will women directly benefit from all project outputs?
Have the baseline key sex-disaggregated data (e.g., % of women in training,

representation in decision-making bodies) been collected to inform the gender targets
in the gender action plan and the project design and monitoring framework?
Project Design
Have the findings of the gender analysis been integrated into the design of project
outputs?
Does the project design include outputs, strategies, design features, or targets to
promote and facilitate womens active involvement in the project?
Has a project gender action plan (or gender-inclusive policy matrix, in the case of
policy-based lending) been prepared?
Is there a budgetary allocation for these design features, strategies, and mechanisms?
Has a separate budget been set aside for facilitating the participation of women?
Are the strategies and targets for womens participation included in the design and
monitoring framework of the project?
Is gender expertise included during project implementation?
Is there a provision to strengthen the executing agency and implementing agency staff
so they can effectively plan and implement gender-inclusive components and design
features?
Is the implementation mechanism in place to implement the gender action plan or

gender provisions that coordinates across different project outputs?
Project Performance Monitoring
Have gender-related targets and indicators to measure progress in achieving benefits

for men and women been integrated into the project design and monitoring framework?
Have gender-related targets and indicators defining the benefits to women and men
been developed and integrated into the project design and monitoring framework?
Will sex-disaggregated data be collected during implementation to monitor gender

impact?
Are women and men involved in monitoring and evaluation?
OM Section C2/OP
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Project Gender Action Plan Format

The gender action plan should focus on how gender issues, concerns, and
constraints identified through the gender analysis have been addressed in the project
design. It should be presented in a table format that corresponds to the structure of each
project output. Targets and responsibilities need to be specified.
1. Project Design. For each relevant project output, describe any actions, features,
mechanisms, strategies, and/or targets included in the project design to maximize positive
gender equality impacts and promote womens active involvement in the project and direct
access to project benefits. The gender action plan needs to include specific design features
in the majority (i.e. 50% or more) of project outputs to facilitate and ensure women's
participation and access to project benefits, with most of these outputs having at least
three gender design features or mechanisms. Any targets set for womens participation or
access to project benefits e.g., number of women to be trained, reserved seats for women
on decision-making bodies such as water-user groups, number of scholarships for girls,
involvement of women in operation and maintenance, monitoring and evaluation, etc.
should be mentioned and highlighted here. Any gender capacity-building assistance for
executing or implementing agencies, or provisions to mobilize and train women, should
also be mentioned here. Budget line items for gender and development (GAD) activities
should be listed. Policy dialogue to improve womens access to assets such as land or to
address the strategic needs of women should be highlighted. This is the most important
section of the gender action plan.
2. Implementation. The implementation arrangements to ensure the features and
mechanisms designed in the project to address GAD objectives should be described here.
This section should describe (i) inclusion of GAD specialists among the implementation
consultants, (ii) engagement of nongovernment organizations to facilitate womens
participation, and (iii) preparation of a GAD implementation plan to systematically
implement the GAD components or specific GAD reporting requirements.
3. Monitoring and Evaluation. Provision and requirements for collection of sex-disaggregated data in the baseline surveys and development of monitoring indicators to
assess the gender-differentiated impact of the project should be highlighted here. Any
provision to involve women in the monitoring and evaluation of the project should also be
described. Requirements to discuss gender issues and impacts in any midterm review and
regular progress reports to be submitted to ADB should also be mentioned.
OM Section C3/BP
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OPERATIONS MANUAL
BANK POLICIES (BP)
INCORPORATION OF SOCIAL DIMENSIONS INTO ADB OPERATIONS
A.
Introduction
1.
Social elements such as gender, ethnicity, race, caste, age, and others, influence
peoples decision making, access to services, resources, opportunities, and ability to cope with
risks. These variables affect the character of the institutions (formal and informal rules, norms,
and values) that determine the level and nature of peoples access and capability.
2.
To achieve ADBs overarching goal of poverty reduction,1 the Millennium Development
Goals, and ADB's strategic agenda on inclusive growth,2 understanding how social elements
influence poverty, inequality, and vulnerability is important. ADB operations can help
significantly reduce poverty, inequality, and vulnerability by transforming institutions so they
promote inclusiveness, equity, empowerment, and social security.
3.
ADBs enhanced poverty reduction strategy (footnote 1) has three pillars: (i) pro-poor,
sustainable economic growth; (ii) inclusive social development; and (iii) good governance.
Although social development is often best highlighted in the second pillar, social development is
a cross-cutting concept that needs to be incorporated into the two other pillars as well.
B.
Policies
4.
All ADB operations have social dimensions that need to be taken into account from the
country strategy formulation, programming, and project processing phases onward.3 The key
social dimensions, supported by specific ADB policies or strategies, include (i) participation;
(ii) gender and development; (iii) social safeguards; and (iv) management of social risks,
especially among vulnerable groups.
5.
ADB operations incorporate social dimensions to ensure the following social
development outcomes, especially for the poor, vulnerable, and excluded groups:
(i)
policies and institutions that recognize and promote greater inclusiveness and
equity in access to services, resources, and opportunities;
ADB. 2004. Enhancing the Fight Against Poverty in Asia and the Pacific : The Poverty Reduction Strategy of the
Asian Development Bank. Manila.
Manila.
Unless otherwise indicated, references to projects include (i) ADB-funded and/or ADB-administered sovereign and
nonsovereign investment projects funded by a loan, and/or a grant, and/or other means (such as equity and/or
guarantee), and (ii) programs. It does not include policy and advisory technical assistance, capacity development
technical assistance, and/or research and development technical assistance.
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BANK POLICIES (BP)
(ii)
(iii)
6.
greater empowerment to participate in social, economic, and political life; and

a greater sense of security and ability to manage risks.
In pursuing these social development outcomes, ADB

(i)
(ii)
(iii)
(iv)
encourages consultation with and participation by stakeholders (including the

government, executing and implementing agencies, clients and/or beneficiaries,
people affected by ADB-supported projects); provides them with opportunities
to engage in key stages of the country strategy formulation, programming, and
project cycles; and actively seeks, where appropriate, the cooperation of
nongovernment organizations and other civil society groups in formulating,
designing, implementing, monitoring, and evaluating projects;
addresses gender considerations in relevant aspects of ADB operations,
including macroeconomic, sector strategy, country strategy formulation, and
programming work, and in key stages of the project cycle; and proposes
strategies to promote social inclusion and gender equality and to empower
women;
integrates social analysis in preparing country partnership strategies and
regional strategies and programs; identifies potential social issues during project
preparation to ensure that the project design maximizes social benefits and
avoids or minimizes social risks, particularly for vulnerable and marginalized
groups; and
ensures that project design and implementation arrangements include actions to
enhance benefits and to monitor and evaluate the distribution of the benefits of
the project, with performance targets and indicators for monitoring and evaluating
benefits included in the design and monitoring framework of the project
performance management system.
7.
Social dimensions will be addressed in ADB's public and private sector operations in
developing member countries.
Basis:

ADB. 2010. ADB. Safeguard Policy Statement. Manila.
ADB. 1998. ADB Policy on Gender and Development. Manila. Reprinted in 2003.
ADB. 1998. Cooperation Between Asian Development Bank and
Nongovernment Organizations. Manila.
ADB. 2004. Enhancing the Fight Against Poverty in Asia and the Pacific: the
Poverty Reduction Strategy of the Asian Development Bank. Manila.
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BANK POLICIES (BP)
ADB. 2001. Social Protection Strategy. Manila.

Development Bank (2010-2020). Manila.
ADB. 2005. The Public Communications Policy of the Asian Development Bank.
Manila.
Compliance:
For inquiries:
Questions may be directed to the Director, Poverty Reduction, Gender, and

Department.
6 December 2010
This supersedes OM section C3/BP
issued on 25 April 2007.

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INCORPORATION OF SOCIAL DIMENSIONS INTO ADB OPERATIONS

A.
Incorporating Social Dimensions at Different Levels of ADB Operations
1.
Social dimensions such as participation, gender and development, social safeguards,
and management of social risks should be examined from ADBs strategic (regional,
subregional, national, and subnational), sector, program, and project operations. Specific
situations and priorities of a developing member country (DMC) will determine the approach to
incorporating these social dimensions into ADB operations. Social dimensions will be integrated
into the process of, and into the documents produced in, the country partnership strategy (CPS),
project design, implementation, and monitoring and evaluation phases. Social analyses should
explain the contributions of project interventions to sector impacts and the Millennium
Development Goal (MDG) results at the country level and ADB's inclusive growth agenda.1
B.
Social Dimensions in the Country Partnership Strategy
2.
The social dimensions of ADBs operations in a DMC will be examined and integrated
into the country poverty analysis, sector road maps, and/or thematic strategies, as key inputs to
the CPS. The analysis will
(i)
(ii)
(iii)
(iv)
(v)
examine how the social, institutional, and policy context determines the level and
patterns of social exclusion and inequity, and how such exclusion and inequity
influence income and non-income dimensions of poverty;
identify opportunities for ADB operations to develop or enhance policies,
institutions, and capacity to promote greater inclusion and equity and to empower
the poor, marginalized, and vulnerable groups;
show the DMCs progress in reducing gender disparities and in empowering
women and girls, and suggest ways to accelerate progress; 2
suggest ways to manage social risks and social vulnerabilities at the country and
sector levels (e.g., through a risk and/or vulnerability profile); and
determine results indicators to monitor social inclusion, equity, empowerment,
and security relevant to the CPS goals in the DMC.
3.
As appropriate, ADB staff will work with key government officials to facilitate the
participation of nongovernment organizations, local communities, business associations,
workers' organizations, womens organizations, indigenous peoples, and other stakeholders
during the CPS preparation. To ensure meaningful consultation and participation, and in
1
Manila.
See discussion of country gender assessments in OM Section C2 (Gender and Development in ADB Operations).
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accordance with ADBs public communications policy,3 the draft CPS will be made available to
in-country stakeholders for comment before consultations.
4.
The country strategy final review assesses the validity of the strategy, and progress
toward achieving CPS outcomes, including outcomes with social dimensions. This report also
provides a basis for policy dialogue with the government on progress in addressing social
development issues.
C.
Social Dimensions at the Project Level
5.
The process of identifying likely social dimensions, including potential beneficiaries and
people likely to be adversely affected by an ADB-supported project4 will start during project
identification and will continue with increasing refinement during project preparation and
implementation.
1.
Social Dimensions in Project Conceptualization
6.
An initial poverty and social analysis (IPSA) is required for all loan and grant-based
investment projects and programs 5 to identify social issues. The IPSA should (i) identify
expected poverty and social impacts of the intervention as a contribution to results at the sector
and country levels; (ii) identify key social issues (such as participation, gender, involuntary
resettlement, indigenous peoples, labor, affordability, and other risks and/or vulnerabilities) that
need to be addressed during implementation of the project preparatory technical assistance
(PPTA) and the ensuing project; (iii) identify plans and terms of reference to assist in project
preparation; and (iv) identify and allocate resources for conducting social analysis during the
feasibility study or due diligence (para. 7).
7.
For preparation of sovereign projects, the IPSA should be undertaken before or during
loan fact-finding. The IPSA is a core appendix to the project concept paper. For nonsovereign
projects 6 and for sovereign projects where no PPTA is undertaken, the IPSA should be
conducted as part of due diligence. The IPSA must be posted on ADBs website, upon its
completion, in accordance with ADB's Public Communications Policy (see footnote 5).
2.
Social Dimensions in Project Design
8.
Based on the issues identified and process initiated during the IPSA, a social analysis
should be carried out during project design to examine opportunities, constraints, and likely
3
4
ADB. 2005. Public Communications Policy of the Asian Development Bank. Manila.
Unless otherwise indicated, reference to projects includes (i) ADB-funded and/or ADB-administered sovereign and
nonsovereign investment projects funded by a loan, and/or a grant, and/or other means (such as an equity
investment and/or guarantee), and (ii) programs, but does not include policy and advisory technical assistance,
capacity development technical assistance, and/or research and development technical assistance.
This excludes policy and advisory technical assistance, capacity development technical assistance, and/or
research and development technical assistance, economic, sector, and thematic work.
For nonsovereign projects, the IPSA will be prepared during the transaction review where conduct of due diligence
is required. See OM Section D 10. Nonsovereign Operations.
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social impacts of the project, and to identify and formulate design measures and
implementation arrangements to maximize the social benefits and avoid or minimize the social
risks of the project in a participatory manner. The social analysis should be organized and
sequenced so as to (i) address the key issues identified in the IPSA; (ii) provide relevant social
development inputs to the technical, economic, and other analyses; (iii) formulate and
incorporate measures in the project design, including social and gender action plans; and
(iv) provide baseline data for monitoring social impacts of the project. Social impacts shall also
be assessed in relation to their contribution to inclusive growth and the MDGs. Where
significant negative impacts are likely, a separate mitigation plan such as a resettlement plan,
indigenous peoples development plan, or labor retrenchment plan should be prepared in
consultation with and participation of stakeholders, particularly with those who will be affected.
9.
The results of the social analysis, including specific plans such as a gender action
plan,7 resettlement plan, indigenous peoples development plan, or other measures to address
social issues should be summarized in the summary poverty reduction and social strategy
(SPRSS). The SPRSS is linked to the report and recommendation of the President (RRP) for
sovereign and nonsovereign projects (see footnote 4). The provisions of the social analysis and
resulting plans should be reflected fully in the project administration manual (PAM) for
sovereign projects.
10.
Policy-based loans and grantsbecause of their size and systemic impact on the
countryrequire a deeper analysis of potential social impacts. For policy-based interventions,
a social and poverty impact assessment is carried out to identify key transmission channels
through which the proposed policy reforms could affect poor and vulnerable groups. This
impact assessment is summarized and is highlighted in the SPRSS.
11.
For multitranche financing facilities (MFFs), the SPRSS will be prepared before
approval of the MFF. It will set out the broad magnitude of the scope and criteria for carrying
out further poverty and social analysis and developing more specific plans or measures in
future. The SPRSS will be updated for the second and subsequent tranches, and revisions
incorporated into the periodic financing request submitted to the Management.8
12.
For sector loans, social dimensions will be addressed in the sector analysis, and social
indicators and benchmarks will be developed as part of the sector performance. This
assessment is summarized and is highlighted in the SPRSS. For subprojects prepared during
PPTA stage SPRSS have to be prepared as a linked document to the RRP. For subprojects
prepared after the loan was approved, the SPRSS will be prepared by the executing agency in
accordance with the agreed social criteria. ADB will review these subprojects on a selective
basis to ensure compliance with the agreed upon criteria.9
8
9
See discussion of a project-specific gender action plan in OM Section C2 (Gender and Development in ADB
Operations).
See OM Section D14/OP. Multitranche Financing Facility. April 2010.
See OM Section D3. Sector Lending/ Operational Procedure. October 2003.
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3.
Social Dimensions in Project Implementation: The Project Performance

Management System
13.
ADBs project performance management system (PPMS) is a results-based approach
to project planning, performance monitoring, and evaluation of impacts, and is based on a
projects design and monitoring framework (DMF) and the PAM10. To define transparent and
participatory mechanisms for monitoring social actions and impacts of the project, appropriate
social targets and indicators resulting from the social analysis must be included in the DMF. To
monitor implementation of social action plans and measures specified in the SPRSS, each
social action plan must be reflected in the PAM, indicating responsible agencies, required
resources, and relevant stakeholders. The social analysis ensures that proposed monitoring
and evaluation is specified in the PPMS and carefully scheduled, appropriately budgeted, and
properly supervised.
14.
Project reviews should assess (i) the progress of social actions and delivery of benefits
to intended beneficiaries, (ii) achievement of results at the sector level, (iii) inclusion of
vulnerable and marginalized groups, (iv) participation of stakeholders (including beneficiaries
and adversely affected people), and (v) mitigation of adverse effects. After the project review,
project implementation schedules, inputs, and/or outputs may be readjusted.
15.
After project completion, the project performance evaluation should assess the actual
impact of the project on targeted beneficiaries, affected people, and other stakeholders
differentiated by gender, ethnicity, household-income levels and/or other relevant factors in
relation to the intended project outcomes and related performance targets and indicators in the
PPMS.
D.
16.
The responsibility for incorporating social dimensions in ADBs operations and
monitoring the social dimensions of individual projects rests with the operational departments.
The Regional and Sustainable Development Department has overall responsibility for
coordinating and monitoring ADBs social development activities.
10
For a multitranche financing facility, a facility administration manual (FAM) is developed and is subject to the same
general considerations and guidelines as the PAM, subject to particularities of the MFF.
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Basis:
This OM section is based on OM Section C3/BP and the supporting

Compliance:
For inquiries:
Questions may be directed to the Director, Poverty Reduction, Gender, and

Department.
6 December 2010
This supersedes OM section C3/OP

OM Section C5/BP
Issued on 4 October 2010
Page 1 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
ANTICORRUPTION
A.
Introduction
1.
The anticorruption policy1 of the Asian Development Bank (ADB) is intended to reduce
the burden that corruption exacts upon governments and economies in the Asia and Pacific
region. The policy supports ADBs obligation in accordance with Article 14 (xi) of the Agreement
Establishing the Asian Development Bank (the Charter), to ensure that the proceeds of ADB
financing are used only for their intended purposes.
2.
In pursuance of the above, ADB, working together with the African Development Bank
(AfDB), European Bank for Reconstruction and Development (EBRD), the European Investment
Bank (EIB), the Inter-American Development Bank (IDB), the International Monetary Fund
(IMF), and the World Bank, developed a uniform framework for preventing and combating fraud
and corruption (Uniform Framework). The Uniform Framework outlined common principles and
guidelines for conducting investigations, and harmonized the definitions of various types of
corrupt, fraudulent, or otherwise unethical practices.
3.
In recognition that a unified and coordinated approach is critical to the success of the
shared effort to fight corruption, ADB also approved the Anticorruption Policy: Harmonization of
Debarments2 which provided the basis for ADB to enter into the Agreement for Mutual
Enforcement of Debarment Decisions by and between ADB, AfDB, EBRD, IDB and the World
Bank Group (the Participating Institutions).
B.
Definitions and Application
4.
Pursuant to the harmonized definitions under the Uniform Framework, ADB employs the
following definitions:
1
2
(i)
A corrupt practice is the offering, giving, receiving, or soliciting, directly or

indirectly, anything of value to influence improperly the actions of another party;
(ii)
A fraudulent practice is any act or omission, including a misrepresentation, that

knowingly or recklessly misleads, or attempts to mislead, a party to obtain a
financial or other benefit or to avoid an obligation;
ADB. 1998. Anticorruption Policy. Manila.

ADB. 2010. Anticorruption Policy: Harmonization of Debarments. Manila.
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BANK POLICIES (BP)
(iii)
A coercive practice is impairing or harming, or threatening to impair or harm,

directly or indirectly, any party or property of the party, to influence improperly the
actions of a party;
(iv)
A collusive practice is an arrangement between two or more parties designed to

achieve an improper purpose, including influencing improperly the actions of
another party.
(v)
A conflict of interest is any situation in which a party has interests that could
improperly influence that partys performance of official duties or responsibilities,
contractual obligations, or compliance with applicable laws and regulations.3
5.
Corrupt, fraudulent, collusive, and coercive practices comprise corruption, which
involves behavior on the part of officials in the public and private sectors, in which they
improperly and/or unlawfully enrich themselves and/or those close to them, or induce others to
do so, by misusing the position in which they are placed. Corruption also encompasses the
behavior of entities facilitating corrupt, fraudulent, collusive, or coercive practices, including any
government employee (including employees of state-owned enterprises and subvented
agencies); any employee of an individual, firm, or organization; and any principal, partner,
shareholder, director, or officer of any such firm or organization, as well as agents operating on
their behalf.
6.
Pursuant to its anticorruption policy, ADB will work to ensure that all of its projects,
activities, and staff adhere to the highest ethical standards. To help achieve this, the
anticorruption policy designates the Office of Anticorruption and Integrity (OAI) as the initial
point of contact for allegations of fraud, corruption, and abuse within ADB or ADB-financed
projects or its staff. The OAI, its staff, and/or any party OAI or the Head, Office of Anticorruption
and Integrity authorizes or the President appoints to perform investigations that OAI would
otherwise perform, shall assess allegations and conduct investigations thoroughly, and
confidentially, and shall recommend administrative action for ADB to take to address such
allegations.
7.
Pursuant to the Anticorruption Policy: Harmonization of Debarments, ADB may enforce
sanctions imposed by the participating institutions, and, when appropriate, recognize sanctions
imposed by national authorities, subject to ADBs rules, and to exclude parties that have not
observed the highest standard of ethics.4
ADB. 2004. Anticorruption Policy: Proposed Clarifications and Related Changes to Consulting and Procurement
Guidelines. Manila.
ADB. 2010. Anticorruption Policy: Harmonization of Debarments. Manila. Para 11.
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BANK POLICIES (BP)
C.
The Policy
8.
ADBs anticorruption policy strongly affirms that corrupt behavior is a serious impediment
to the process of social and economical development. Experience demonstrates that significant
progress can be made in the fight against corruption if the proper legal, institutional, and policy
reforms are in place. ADB seeks to address corruption as part of its broader work on
governance issues, and recognizes the importance of accountability for officials in the public
and private sectors, and transparency and predictability in public and private sector operations.
9.
Strategy 2020 focuses on improving governance and preventing corruption in ADBs five
core specializations: (i) infrastructure; (ii) environment, including climate change; (iii) regional
cooperation and integration; (iv) financial sector development; and (v) education. Strategy 2020
also places renewed emphasis on project implementation and portfolio performance, the
application of quality-at-entry mechanisms, and project-readiness criteria.5
D.
Scope of the Policy
10.
This policy covers all ADB staff and all entities and activities associated with ADB and its
activities, including proposed, ongoing, and completed public and private sector projects and
operations.
11.
Specifically, ADBs anticorruption policy is centered upon three objectives:

(i)
supporting competitive markets, and efficient, effective, accountable, and

transparent public administration as part of ADBs broader work on good
governance and capacity building;
(ii)
supporting promising anticorruption efforts on a case-by-case basis and

improving the quality of ADBs dialogue with its developing member countries on
a range of governance issues, including corruption; and
(iii)
ensuring that ADBs projects and staff adhere to the highest ethical standards.
Manila.
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BANK POLICIES (BP)
Basis: This OM section is based on:

ADB. 2006. Doc. R179-06. Anticorruption Policy: Harmonized Definition of
Corrupt and Fraudulent Practices. 29 August. Manila.
ADB. 2004. Doc. R185-04. Anticorruption Policy: Proposed Clarifications and
Related Changes to Consulting and Procurement Guidelines. 1 October. Manila.
ADB. 1995. Doc. R151-95. Governance: Sound Development Management.
17 August. Manila.
For inquiries: Questions may be directed to the Head, Office of Anticorruption and Integrity.
4 October 2010
Prepared by the Office of Anticorruption and Integrity

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ANTICORRUPTION
A.
Introduction
1.
The anticorruption policy1, governance policy,2 and the Second Governance and
Anticorruption Action Plan (GACAP II),3 provide the strategic framework for the Asian
Development Banks (ADB) governance and anticorruption work.
2.
GACAP II was launched to improve ADBs performance in the implementation of its
governance and anticorruption policies in sectors where ADB operates, and to design and
deliver better quality projects. It outlines a risk-based approach to managing governance and
fighting corruption, refocusing efforts to achieve results in three governance themes, namely:
(i) improving public financial management, (ii) strengthening procurement systems, and
(iii) combating corruption through preventive enforcement and investigative measures.
3.
The following key result areas (KRAs) envisaged in GACAP II encourage ADB to anchor
support to developing member country (DMC)-led, long term, program-based approaches for
national and sub-national governments, and to be an integral part of DMC sector development
plans:
KRA 1:
Improve identification and management of governance, institutional, and

corruption risks in country partnership strategies (CPSs) and annual country
portfolio review missions.
KRA 2:
Strengthen governance and anticorruption components in project and project

design.
KRA 3:
Strengthen program and project administration and portfolio management.
KRA 4:
Improve organizational structure, human resources, and access to expertise.
4.
ADB will systematically identify, in consultation with its member countries, opportunities
for reducing corruption as part of its broader emphasis on promoting good governance and
sound development management. In reducing corruption in the Asia and Pacific region, ADB
will:
1
ADB.1998. Anticorruption Policy. Manila.

ADB.1995. Governance: Sound Development Management. Manila.
3
ADB.2006. Second Governance and Anticorruption Action Plan (GACAP II). Manila.
2
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B.
(i)
address anticorruption issues in ADB lending, grants, and technical assistance

operations, including during project preparation and supervision;
(ii)
address anticorruption issues in country programming dialogue including the

CPS;
(iii)
cover anticorruption aspects in policy dialogue and policy-intensive lending

operations;
(iv)
undertake analyses of corruption-related issues in the context of loan-related

economic and sector work, as well as any economic and sector work financed by
technical assistance (TA) and grants, or carried out by ADB staff;
(v)
support training, education, and dissemination activities among ADB staff,

government officials, consultants and contractors, representatives of civil society,
and other ADB stakeholders;
(vi)
compile a list of best practices, in the Asia and Pacific region and elsewhere,
concerning relevant anticorruption issues and initiatives, and support research
and international efforts to combat corruption;
(vii)
enforce strict guidelines on procuring goods and works, and in selecting

consultants; and
(viii)
ensure that ADB staff adhere to the highest ethical standards.

1.
Supporting Competitive Markets and Efficient, Effective, Accountable, and

Transparent Public Administration
5.
A major thrust of ADBs anticorruption effort will be on governance and capacity building.
ADB will employ a proactive approach that places a premium on continuous efforts to upgrade
the efficiency of markets and the quality of the public sector as a whole. This focus on
prevention over prosecution reflects the belief that most of ADBs priority governance initiatives
have significant positive externalities in the struggle against corruption. Long-term success is
more likely to come through patient and persistent economic, legal, and institutional reforms
rather than through short-term, largely reactive efforts to punish wrongdoers.
6.
ADB will concentrate its broader governance effort on economic liberalization and public
administration reform. Regarding the former, ADB will advance policy recommendations to
eliminate market distortions and reduce opportunities for rent seeking by firms or officials. The
liberalization of licensing regimes, the opening up of access to foreign exchange markets, the
reduction of administered prices, the expansion of credit opportunities for small farmers and
business people, the removal of subsidies and soft loans to favored companies, and the
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introduction of a clear distinction between production and regulatory functions are all ways in
which policy changes can level the playing field and reduce opportunities for corrupt or illicit
behavior. ADB is already pursuing many of these initiatives in its dialogue with DMCs.
7.
In advancing such initiatives, ADB seeks to adopt a proactive stance. Most priority
governance initiatives can make corrupt behavior more difficult to engage in and more readily
detected once it occurs. Over the longer term, ADB will be more effective if it focuses its
anticorruption efforts on prevention measures rather than on short-term efforts aimed at
prosecution, although the latter is necessary to provide a deterrent and to ensure the integrity of
ADB operations.
2.
Supporting Promising Anticorruption Initiatives and Country Dialogue
8.
ADB may also be called upon to assist its DMCs in pursuing explicit anticorruption
programs. Such assistance could include efforts to develop a national anticorruption strategy,
improve the ability of the courts to try corruption cases, respond to requests from legislators and
government officials for legal or technical assistance in drafting anticorruption statutes or
professional codes of conduct, strengthen the legal mechanisms for review of administrative
action (e.g., by creating an ombudsman position or mechanism for judicial review), or improving
the capacity of anticorruption agencies to detect and prosecute illicit behavior.
9.
ADB will carefully consider any request from a DMC for assistance in developing an
anticorruption effort. Since these activities are likely to be politically delicate and require detailed
knowledge of the particular circumstances surrounding each case, ADB will provide staff with
flexibility and discretion in pursuing such initiatives on a case-by-case basis. ADBs assistance is
guided by three principles:
(i)
the assistance must be requested by the DMC government;
(ii)
the request must be consistent with ADBs broader country operational strategy
and ongoing efforts in the fields of governance and capacity development; and
(iii)
the request should fall in an area where ADB has or can provide relevant
expertise.
3.
Ensuring that ADB Projects and Staff Adhere to the Highest Ethical
Standards
10.
If ADBs efforts to reduce unethical behavior between DMCs and its suppliers and
contractors are to be credible, it is essential that ADB staff be beyond reproach, and that ADBs
internal regulations and procedures support the highest ethical standards. Toward this end,
ADBs anticorruption policy also calls for more robust internal measures to enhance the integrity
of ADB operations. These measures will take place along five dimensions:
OM Section C5/OP
Page 4 of 8
OPERATIONS MANUAL
C.
(i)
maintaining the integrity of ADB lending and TA operations;
(ii)
procurement reform;
(iii)
updating the Code of Conduct and creating independent internal reporting

mechanisms;
(iv)
improving the quality of oversight; and
(v)
advancing staff awareness.
Other Anticorruption Initiatives

1.
Anticorruption in Project Design
11.
Individual projects must be designed bearing in mind fraud and corruption risks. Projects
should also be designed in ways that support good public sector management. Where feasible,
ADB should take measures to prevent "enclaving"the creation of quasi-independent units,
with their own accounting and reporting procedures, within a broader organizationin the
financial management and administration of ADB-funded projects.
Projects aimed at
strengthening public institutions should include measures that enhance the capacity of such
institutions to prevent and detect fraudulent or corrupt practices. Such measures could include
improving cash management (particularly in sectors that generate user fees or other revenues),
improving internal audit mechanisms, and strengthening inspector general functions.
2.
Anticorruption in Project Monitoring and Supervision
12.
Project processing missions provide opportunities for ADB staff to address anticorruption
in project design. In this context, particular attention needs to be given to strengthening the
ability of counterpart agencies to manage and monitor financial and human resources
effectively. Country portfolio review missions, country disbursement missions, and project
review missions provide useful avenues for discussing the policies and practices that impede
the efficient implementation of ADB projects. ADB staff responsible for conducting such
missions should take advantage of these opportunities to promote greater transparency,
accountability, and efficiency within ongoing ADB operations. Recommendations for future
improvements should be circulated to the Office of Anticorruption and Integrity (OAI), Strategy
and Policy Department (SPD), the Independent Evaluation Department (IED), and the Regional
and Sustainable Development Department (RSDD).
13.
ADBs anticorruption efforts will emphasize the implementation of practical and costeffective prevention and control measures, consistent with the Charter principle of economy
and efficiency. Examples include ensuring that staff with the requisite skills in accounting and
financial management are recruited by the executing or implementing agency, and ensuring that
robust internal control systems and accounting systems are in place before loan disbursement.
Other measures include the following:
OM Section C5/OP
Page 5 of 8
OPERATIONS MANUAL
(i)
identifying projects that carry high corruption risks;
(ii)
conducting direct field investigations for major infrastructure projects;
(iii)
auditing executing agencies directly involved in project implementation;
(iv)
disseminating ADBs anticorruption policy translated into local languages;
(v)
involving cooperation with capable nongovernmental organizations (NGOs) in

monitoring certain facets of project implementation.
14.
Staff should devote attention and resources to upgrading the quality of implementation
missions and project monitoring, particularly for high-risk projects. The technical expertise of
these missions should be broadened to ensure that staff with relevant qualifications, particularly
in financial, managerial, and policy areas, participate. Mandatory training on recognizing red
flags and areas of potential vulnerability should be provided to financial analysts involved in
ADB funded projects and project implementation officers. Designing appropriate efficiency
indicators to regularly monitor the financial and physical progress of projects should be
considered.
3.
Ensuring the Integrity of ADB Staff
15.
Violations of the duties and obligations incumbent on staff in accordance with ADBs
rules and procedures will be dealt with severely. Depending on the gravity and the
circumstances, disciplinary measures may be imposed pursuant to ADBs administrative orders.
16.
In addition to being subject to disciplinary action, ADB staff found to have engaged in
corrupt conduct will be required to make full restitution of any benefits arising from that corrupt
conduct. This procedure will apply equally to situations in which staff improperly and unlawfully
enrich themselves and/or those close to them, and circumstances in which they induce others to
do so.
4.
Ensuring the Integrity of ADB Projects
17.
ADB may declare a firm or individual ineligible to participate in ADB-financed activities, if
ADB determines that a firm or an individual in more general terms does not observe the highest
ethical standards of ethical conduct or has engaged in corrupt, fraudulent, collusive or coercive
practice, irrespective of whether the corrupt, fraudulent, collusive or coercive practices occurred
in the competition or execution of an ADB-financed activity.4
ADB. 2010. Anticorruption Policy: Harmonization of Debarments. Manila. Para 11.
OM Section C5/OP
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OPERATIONS MANUAL
D.
Anticorruption in Country Programming, Policy and Sector Dialogue
18.
ADB staff who prepare CPS documents, and staff responsible for processing and/or
implementing loans and TA projects, need to address corruption in the context of broader
governance and capacity building issues. They should be knowledgeable about corruption and
its impact within their particular geographic and/or sectoral sphere of operations.
19.
ADB has several mechanisms for dialogue with DMCs on issues of governance
(including corruption). These mechanisms range from CPS discussions to policy and sector
dialogue accompanying various lending operations. In keeping with the evolving practices of the
IMF and the World Bank, management and staff will give special attention to potential fraud and
corruption issues in country risk analyses and CPSs. In relation to CPS preparation, risk
assessment and risk management plans must be prepared for country systems in public
financial management, procurement, and combating corruption. ADB staff involved in the
preparation of these risk assessments and risk management plans should meet with DMCs
to discuss and review relevant governance and corruption issues. The risk assessment for
country systems should inform the preparation of risk assessments for ADB priority sectors,
which should in turn inform the design of ADB projects and programs. The CPS should
recommend ways for ADB to help advance the principles of sound development management,
including measures to combat fraudulent or corrupt practices.
20.
ADB staff should consider the history of ADB operations in a given sector or country,
and whether ADB projects are likely to be affected by fraudulent or corrupt practices during their
design or implementation. They should also consider the extent to which that countrys ability to
attain its national development objectives is compromised by fraud and corruption, and the
degree to which the government is willing or able to control corruption if it threatens the
effectiveness of ADB projects and/or that countrys general economic and social development.
They should also keep in mind that a rushed implementation of institutional changes often
increases the risks and levels of corruption. As a general rule, staff should address problems of
fraud and corruption at the national and local government level.
E.
21.
OAI is the point of contact for allegations of fraud and corruption in ADB-financed
activities or among its staff. On 7 November 2006, the President approved guidelines and
principles which establishes detailed procedures for OAIs work, and are based on common
principles and guidelines endorsed by the AfDB Group, EBRD, the EIB Group, the IDB Group,
and the World Bank Group.
22.
With regard to ADB lending and TA operations and ADB staff matters, staff are required
to report to OAI any allegations or evidence of corruption that they receive or encounter. In the
context of this policy, evidence is any physical object, record, document (in any form),
testimony, or other information that tends to establish the existence or non-existence of an
allegation or fact. Individual ADB staff members do not investigate such allegations or evidence
of suspected corruption, except as they may be specifically requested to do so by OAI.
OM Section C5/OP
Page 7 of 8
OPERATIONS MANUAL
23.
Once the allegation and/or evidence have been turned over to OAI, OAI shall screen it in
accordance with its established procedures and determine whether to proceed with an
investigation or not. OAI may consult with the Office of General Counsel (OGC) and/or other
departments or offices.
F.
Treatment of Fraud and Corruption Issues in ADB Reports and the Release of ADB
Documents
24.
When there is compelling evidence that corrupt activities have hampered the
effectiveness of ADB projects or lowered their rate of return, this evidence should be explicitly
noted in ADB documents, including project supervisory reports, project completion reports,
project performance evaluation reports, and other relevant documents, so that remedial action
can be taken.
25.
Management and staff should use plain language in the reports, and avoid using opaque
or euphemistic language that may obscure the nature of the problem. This principle also applies
to country programming exercises, and ADB research and analytical work.
G.
Recognition of Debarment by Participating Institutions5
26.
A debarment by a Participating Institution that imposed the sanction (Sanctioning
Institution) may be mutually recognized by ADB if:
5
6
(i)
the decision was based, in whole or in part, on a finding of a commission of one

or more of the sanctionable practices defined in the Uniform Framework, namely,
corrupt practices, fraudulent practices, coercive practices and collusive6;
(ii)
the decision was made public by the Sanctioning Institution;
(iii)
the initial period of debarment exceeds one year;
(iv)
the decision was made after the Agreement for Mutual Enforcement of
Debarment Decisions has entered into force with respect to the Sanctioning
Institution;
(v)
the decision by the Sanctioning Institution was made within 10 years of the date
of commission of the sanctionable practice; and
(vi)
the decision of the Sanctioning Institution was not made in recognition of a

decision made in a national or international forum.
ADB. 2010. Agreement for Mutual Enforcement of Debarment Decisions. Para 4.

ADB. 2006. Anticorruption Policy: Harmonized Definitions of Corrupt and Fraudulent Practices. Manila. Para 4
OM Section C5/OP
Page 8 of 8
OPERATIONS MANUAL
H.
Media and Policy Dissemination
27.
Vice presidents and heads of departments or offices (with the approval of their vice
presidents) may speak to the media as they deem necessary about issues of fraudulent or
corrupt practices in the conduct of ADB operations. Other ADB staff shall seek the approval of
their head of department or office, unless discussing issues of fraud and corruption in general
terms. Staff should not speak to the media either about specific examples of fraud or corruption
among suppliers or in DMCs, or about the general level of corruption within an ADB-financed
activity, entity, or country without clearance from the vice president concerned or, in his or her
absence, the head of the Department of External Relations (DER).
28.
The operational departments and RSDD will work in collaboration with SPD and OGC to
disseminate current and updated information about the policy to ADB member countries and
executing agencies. The Central Operations Services Office (COSO) will take the lead in
disseminating current and updated information about the policy to ADB suppliers and
consultants.
29.
In consultation with DER, OAI will (i) maintain for public dissemination a simplified
brochure and other information materials describing ADBs anticorruption policy, and (ii) update
and disseminate these materials. OAI will also maintain its website as part of the ADB internet
site.
I.
Partnerships
30.
ADB cooperates closely with other international organizations, such as the IMF, the
World Bank, and other multilateral development banks; United Nations agencies; the
Organization for Economic Co-operation and Development; and bilateral development agencies
in supporting international and country-specific efforts to combat corruption. It may work with
NGOs on various international efforts to control corruption. It may work with NGOs on specific
anticorruption initiatives within a particular country, although such work needs to be undertaken
only with the full support and backing of the government concerned.
Basis: This OM section is based on OM Section C5/BP and the documents cited therein.
For inquiries: Questions may be directed to the Head, Office of Anticorruption and Integrity.
4 October 2010
Prepared by the Office of Anticorruption and Integrity

OM Section D5/BP
Page 1 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
SECTOR DEVELOPMENT PROGRAMS
A. Introduction
1.
A sector development program (SDP) is a combination of an investment (project
or sector) component and a policy-based (program) component as well as, where
appropriate, attached technical assistance (TA), with a view to meeting sector needs in a
comprehensive and integrated fashion. The SDP is not a separate lending modality, but
represents a combination, under appropriate circumstances, of policy and investmentbased assistance.1
B. Definition
2.
The term sector in the context of an SDP is to be understood in the broad
sense of the word. In addition to the traditional concept of a sector, it may include
subsectors of more limited scope, or relate to broad cross-sectoral themes of a
macroeconomic nature.
C. The Policy
3.
The policies and procedures applicable to each component of an SDP must
apply in the context of the whole SDP.2
D. Scope of the Policy
4.
An SDP is considered when a sector requires both an investment component
and a policy reform component, and where the former is unlikely to be accomplished in
full and on time without the support of a policy-based lending component. This may be
especially relevant where policy reform results in substantial economic, financial, or
social costs. The SDP fosters an integrated, and generally long-term, approach to sector
needs and enhances ADBs leverage for promoting policy and institutional reform.
5.
Strong commitment to sector reform by the government is essential for the
success of the SDP modality of lending. Implementation experience with past program
loans and SDPs and with policy conditions attached to project and sector loans in the
developing member country (DMC) and sector concerned is an important factor for
determining eligibility for SDP assistance.
A combination of a policy-based program loan and a technical assistance loan for capacity building will be
processed as a program loan.
See OM Section D11(Processing Loan Proposals), OM Section D4 (Program Lending) and, where
applicable, OM Section D3 (Sector Lending), and OM Section D12 (Technical Assistance).
OM Section D5/BP
Page 2 of 4
6.
The investment component of an SDP involves primarily public sector
investments. Where appropriate, SDPs could also include a private sector investment
fund, channeled through competent financial intermediaries, to stimulate a private sector
supply response to a sector reform program.
1. Sector Analysis
7.
A comprehensive sector study must be undertaken prior to considering an SDP.
In addition to policy issues, the sector study must address the relative roles of the public
and private sectors, social and environmental issues, and institutional development
needs in the sector. An advisory TA may be processed with the SDP to study further any
unresolved policy issues or to strengthen the capacity of key sector institutions.
8.
An assessment of the impact of proposed sector reforms on the poor and other
vulnerable groups must be carried out. If adverse short-term impacts are expected on
the poor and such groups, the SDP seeks to include mitigating or offsetting measures.
When applicable, specific project components or counterpart funds may be used for this
purpose.
9.
The investment component of an SDP should be prepared in accordance with
usual ADB procedures and standards, including preparation of a feasibility study in the
case of a project loan and formulation of subproject selection criteria and evaluation
methodology in the case of a sector loan.
2. Macroeconomic Linkage and Aid Coordination
10.
SDPs must take into account the linkage between the proposed sector program
and the macroeconomic conditions in the DMC. In particular, general macroeconomic
conditions and the direction of macroeconomic policies must be deemed satisfactory for
an SDP to be considered. Also, the effect of untied capital inflows from the programlending component on money supply and the exchange rate must be considered.
11.
ADB is to consult and closely coordinate with the International Monetary Fund,
the World Bank and, where applicable, other multilateral development banks and major
bilateral agencies in formulating and implementing SDPs. Aid coordination must in
particular address the interface of the policy and investment program supported by the
SDP with the macroeconomic aspects.
3. Tranching
12.
The program-lending component of an SDP may be divided into tranches if major
elements of the sector policy reforms are to be introduced after the loan becomes
effective. The program-lending period and number of tranches are determined case by
case. Tranching conditions must be formulated with due regard for the proper timing
and sequencing of reform measures.
OM Section D5/BP
Page 3 of 4
13.
With regard to the investment component, tranching is generally not feasible or
advisable for a project loan.3 However, in the case of a sector loan, loan commitments
for new subprojects in each successive time period could, where necessary, be made
contingent on the timely and effective implementation of agreed upon reforms.
14.
Comprehensive and far-reaching policy reform is normally required in an SDP.
However, in view of the dislocations often caused by drastic policy changes, and the
sometimes adverse short-term impact of policy reform on specific groups, ADB can,
where justified, support an incremental pace of reform. This may be accomplished
through a succession of program loans or SDPs in a sector, or through the adoption of a
longer time frame for a single program loan or SDP.
4. State- or Provincial-Level SDPs
15.
SDPs at the state or provincial level may be considered in DMCs and sectors
where sufficient autonomy for policy exists at these levels of government, and where
there are no legal or administrative impediments to such loans. The ability of these
levels of government to address all relevant sector issues, and the full concurrence of
the national government and the state or provincial level government, are required for
this approach.
5. Loan Amounts
16.
A relatively large amount of resources may be required in an SDP to enable ADB
to meet underlying sector needs in a comprehensive manner. The total size of an SDP
depends on ADBs overall lending program to the DMC, sectoral investment needs,
availability of alternative sources of financing, the strength and costs of the policy reform
program, and intersectoral priorities.
6. Ceilings
17.
The program-lending components of SDPs are added to the free-standing
program loans when considering the ADB-wide ceiling for program lending.
Where appropriate, front-loading of key policy conditionalities could be required where severe sector
distortions are in evidence.
OM Section D5/BP
Page 4 of 4
Basis:

ADB. 1996. Doc. R143-96, Review of the Banks Program-Lending
Policies, 3 July. Manila.
This OM section is to be read with OM Section D5/OP.
Compliance:
For inquiries:
Questions may be directed to the Director; Strategic Planning, Policy

and Interagency Relations Division; Strategy and Policy Department.
29 October 2003
This supersedes OM Section No. 17/BP
Prepared and issued by the Strategy and

Policy Department with the approval
of the President.
OM Section D5/OP
Page 1 of 2
OPERATIONS MANUAL
SECTOR DEVELOPMENT PROGRAMS
A. Introduction
1.
The operational policies and procedures applicable to project or sector loans and
to program loans apply ipso facto to the investment and policy-based components of a
sector development programs (SDP), respectively.1 In addition, for SDPs, the policy and
investment components as well as, where applicable, the attached technical assistance
(TA), are processed, approved, and administered jointly.
1. Processing
2.
The SDP loan follows the same processing stages as those of a program loan;
however, a single report and recommendation of the President (RRP) is prepared and
Board approval is sought for the entire assistance package. The SDP approach is
appropriate where there is a clear benefit in adding a policy-based lending component,
in terms of significantly enhancing the prospects for policy reform. The SDP approach is
useful where a sector requires both large-scale investment lending and substantive
policy reform, and where the latter cannot readily be accomplished without the support of
an additional lending component. ADB therefore normally requires for particularly difficult
or costly reform measures to justify the program lending component.
2. Procurement and Disbursement
3.
Current ADB policies and procedures with regard to procurement and
disbursement apply to each of the SDP components.
3. Implementation and Monitoring
4.
Although the impact of an SDP on sector performance and development
objectives is to be considered and monitored as a whole, administration of the
investment and policy-based components may to some extent be separated. In
particular, the investment component generally follows different procurement and
disbursement procedures, has a distinct timetable and implementation arrangements,
and may be subject to separate or specific review missions. However, particular
attention must be paid to ensure that when the program loan component of the SDP is
reviewed, its linkage to the investment component is kept in the perspective, and vice
versa.
See OM Section D11 (Processing Loan Proposals), OM Section D3 (Sector Lending), and OM Section D4
(Program Lending).
OM Section D5/OP
Page 2 of 2
4. Technical Assistance
5.
If TAs are attached to policy components of an SDP, they must be carefully
targeted to meet key capacity-building needs in the sector and/or address major policy
issues having a bearing on future strategy decisions. The number and design of
attached TAs must be geared to the absorptive capacity of the executing agencies
involved. Close supervision of TA execution by ADB, and incorporation of their findings
in ongoing policy dialogue, are an essential part of SDP administration.
5. Counterpart Funds
6.
SDPs must include a broad review of budgetary allocations to and within the
sector, with a view to ensuring that essential expenditures are met. Where shortfalls in
the allocation of development or operating expenditures to the sector are identified, the
SDP must seek to correct these, to the extent feasible, by obtaining matching
expenditure commitments from the borrowing government in exchange for the
counterpart funds generated. Such matching expenditure commitments may, where
applicable, take the form of policy covenants, and be documented in the loan agreement
and indicated in the policy matrix. In all cases, agreement on the appropriate use of the
additional budgetary resources generated by a policy component of the SDP must be
reached during loan negotiations, and be specified as counterpart funds and explained
in the RRP.
Basis:
This OM section is based on OM Section D5/BP and the documents

cited therein.
Compliance:
For inquiries:

29 October 2003
This supersedes OM Section No. 17/OP

of the President.
OM Section D6/BP
Page 1 of 1
OPERATIONS MANUAL
BANK POLICIES (BP)
FINANCIAL INTERMEDIATION LOANS
A. Introduction
1.
Article 14(i) of the Agreement Establishing the Asian Development Bank (the
Charter) stipulates that ADB may provide loans to financial intermediaries to finance
specific development projects whose individual financing requirements are not large
enough to warrant the direct supervision of ADB. ADB funds can be directly provided to
one or several financial intermediaries depending on their management and
administrative capabilities or channeled to financial intermediaries through the
government and/or Apex wholesale financial mechanisms,1 where conditions necessary
for their sustainable operation exist. Direct lending to financial intermediaries is usually
considered in ADBs ordinary and private sector operations, subject to the nature of the
project and the financial intermediarys administrative capacity for complying with ADB
monitoring and reporting requirements.2
2.
Financial intermediation loans (FILs) seek to help achieve a number of
objectives: (i) furthering policy reforms in the financial and real sectors; (ii) financing real
sector investments through market-based allocation mechanisms; (iii) strengthening the
capacity, governance, and sustainability of participating financial intermediaries; and (iv)
helping increase the outreach, efficiency, infrastructure, and stability of the financial
system.
3.
FILs can be provided on a stand-alone basis, or as components of sector
development programs or sector or project loans. FILs may be used in conjunction with
ADBs guarantee products to enhance the availability of external funds for financial
intermediaries. FILs can be provided under ADBs public and private sector windows.3
This OM section applies to all forms of financial intermediation lending undertaken by
ADB.
B. Definitions
4.
Under FILs, ADB provides funds to eligible participating financial intermediaries
for onlending, at the financial intermediarys credit risk, to final borrowers (subborrowers)
for eligible subprojects. Financial intermediaries are usually financial institutions that
provide finance as their principal or subsidiary function. A subloan is a loan made by a
1
2
3
Apex institutions are (usually ) financial institutions through which donor-funded financial intermediation
loans are channeled to a second layer of financial intermediaries, who will in turn onlend such loan
proceeds to the subborrowers. Apex institutions will take the credit risk on the second-tier intermediaries.
See OM Section D1 (Lending and Relending Policies [OCR]).
Also see OM Sections D1/D2 (Lending and Relending Policies [OCR]/[ADF] for FILs with Government
guarantees financed from ADBs ordinary capital resources or the Asian Development Fund, and OM
Section D10 (Private Sector Operations) for FILs under ADBs private sector window without Government
guarantees.
OM Section D6/BP
Page 2 of 2
financial intermediary to a subborrower out of the proceeds of an ADB-financed FIL. A
subproject is the subborrowers investment or economic activity, for which a subloan is
provided. Subborrowers are entities to which part of the proceeds under an FIL are
onlent by the borrower or financial intermediary. Financial intermediaries can also make
FIL proceeds available to endusers in the form of financial leases. Financial leasing is
a contractual arrangement that allows one party (the lessee) to use an asset owned by a
financial intermediary (the lessor) in exchange for specified periodic payments.
C.
The Policy
5.
In connection with FILs, ADB may undertake financial and real sector-related
policy dialogue, institution building, and resource transfer to eligible financial
intermediaries and subprojects in support of private-sector-driven economic growth and
poverty reduction.
6.
Financial intermediation lending activities must be consistent with ADBs overall
strategy for financial sector development in developing member countries (DMCs), as
reflected in the country strategy and program. FILs should contribute to the
establishment of financial institutions and systems that can raise and can allocate
resources in DMCs in an efficient and sustainable manner. FILs should not discourage
domestic resource mobilization or cause market distortions. FILs may be considered
when there is effective demand for credit by potential subborrowers and the demand
cannot be efficiently met through the domestic financial system due to market failure or
structural problems, which are expected to be resolved through policy and institutional
reforms, capacity building, and/or improvements in the macroeconomic environment
over time.
7.
Government policies and the economic environment in DMCs should be
conducive to FIL operations. If there are significant constraints in the macroeconomic
framework and market distortions in the financial and relevant real sectors that would
adversely affect the allocation of FIL funds, FIL operations should only be considered if
the government has demonstrated commitment to address critical issues and concerns
through appropriate measures.
1. Eligible Financial Intermediaries
8.
ADB requires financial intermediaries that onlend funds under ADB FILs to meet
the following criteria:
(i)
financial soundness as evidenced by adequate capital, asset quality,

liquidity, and profitability;
(ii)
adequate credit and risk management policies, operating systems, and

procedures;
(iii)
compliance with prudential regulations, including exposure limits;
OM Section D6/BP
Page 3 of 3
(iv)
acceptable corporate and financial governance and management

practices including, among other things, transparent financial disclosure
policies and practices;
(v)
sound business objectives and strategy and/or plan;
(vi)
autonomy in lending and pricing decisions; and
(vii)
adequate policies, systems, and procedures to assess and monitor the

economic, social, and environmental impact of subprojects in accordance
with parameters established by ADB for this purpose.
9.
In addition, financial intermediaries should have or build up capacity for
mobilizing domestic resources. Financial intermediaries that do not meet all eligibility
criteria may still participate in an ADB FIL, if they agree to implement measures to meet
these criteria in accordance with a time-bound action plan acceptable to ADB.
10.
In the case of microfinance institutions (MFIs), eligibility requirements include a
clearly stated commitment to the microfinance business by management and an
institutional culture, structures, capabilities, operating systems, and financial position that
can support the sustained delivery of microfinance services to the poor. MFIs should be
financially viable, or, in the case of new MFIs, have the potential for becoming so over
the medium term.
2. Use of ADB Funds
11.
FILs can finance subprojects for the production of and trade in goods and
services and the development of housing and infrastructure. Subprojects are usually
undertaken by the private sector, although public sector subprojects can be considered
depending on the sector and country situation. Subprojects must meet criteria stipulated
and defined by ADB, including financial and economic viability and positive
developmental impact. Subprojects should also comply with the requirements of social
and environmental legislation and regulations of the DMC, as well as conform to ADBs
safeguard policies.4 Subborrowers must have acceptable debt/equity ratios (in the case
of larger small- and medium-sized enterprise or other companies) and the capacity to
repay the subloan, and to provide their own funds in cash or other assets acceptable to
ADB to cover part of the total subproject cost.
12.
ADB generally does not support directed credit schemes, as these involve the
allocation of resources outside market-based mechanisms, which can lead to economic
inefficiencies. However, ADB may target FILs at specific types of subproject
beneficiaries, such as (but not limited to) microenterprises, small- and medium-sized or
export-oriented enterprises, women entrepreneurs, low-income groups, and private
infrastructure projects. Such targeting would be done to promote certain development
objectives in line with a DMCs poverty reduction and economic growth strategies, as
reflected in the country strategy and program. However, beneficiaries should be defined
broadly enough to enable financial intermediaries to make prudent lending decisions
4
See OM Sections F1 (Environmental Considerations), F2 (Involuntary Resettlement), and F3 (Indigenous

Peoples).
OM Section D6/BP
Page 4 of 4
based on commercial considerations. Such FILs should be accompanied by programs
and policy reforms that address underlying market imperfections and institutional
problems inhibiting market-based credit flows to targeted groups, sectors, or regions.
13.
For each FIL, ADB usually specifies, on a case-by-case basis, the maximum
amount of eligible subloans to ensure a reasonable number of subprojects taking into
consideration project objectives.
14.
ADB funds may be used by the financial intermediary recipient of the FIL to
finance fixed capital requirements of subprojects, as well as subprojects foreign
exchange requirements for initial working capital (such as initial stock of spare parts,
tools, and raw materials) and interest and other charges during construction.5 If acute
balance-of-payments difficulties or other macroeconomic conditions lead to severely
curtailed capacity utilization by clients of an ADB-assisted financial intermediary, ADB
may consider permitting an existing or new credit line to be used for financing imports of
essential inputs needed by the financial intermediaries clients, subject to case-by-case
justification and ADB being satisfied with the financial intermediaries capabilities for
end-use supervision.
15.
ADB allows financial intermediaries to use funds provided under FILs to finance
the direct and indirect foreign exchange costs6 of subprojects. ADB may allow financial
intermediaries to use foreign exchange provided under FILs to finance local currency
expenditures of subprojects within the standard percentage limits under ADBs general
local cost financing policy,7 if justified on country and project grounds.
3. Procurement
16.
ADB does not insist on international competitive bidding procedures for
procurement under FIL-financed subprojects, but encourages such use where (i) the
amount of a subproject investment is unusually large, and (ii) of the procedures foster
economy and efficiency.8 ADB requires financial intermediaries to ensure, through
suitable monitoring mechanisms, that subborrowers adopt and implement appropriate
procurement procedures for subprojects.
4. Interest Rates
17.
Relending rates from the borrower of the ADB FIL to the financial intermediary
should have local cost anchors, which best reflect the costs of raising such funds locally
and avoid discouraging domestic resource mobilization. If ADB lends directly to financial
intermediaries under its public sector window, the loan terms should ensure that
guarantee fees paid by financial intermediaries to the DMC reflect this principle by
making the costs of the FIL consistent with market conditions. In exceptional and welljustified cases, for example when ADB seeks to support the establishment of MFIs by
helping build their capital base and institutional capacity at initial stages of their
development, ADB, for a certain period, may accept relending rates that are below
5
6
7
8
See OM Section H2 (Financing Indirect Foreign Exchange Cost of Projects).

See OM Section H3 (Local Cost Financing and Cost Sharing).
See OM Section H1 (Financing of Interest and Other Charges During Construction).
See OM Section J3 (Procurement).
OM Section D6/BP
Page 5 of 5
market, but not below ADBs ordinary capital resources lending rates in the case of a
foreign currency-denominated loan or the equivalent rate in the case of a local currency
loan, which should reflect an adequate foreign exchange risk premium. However, in such
cases, relending rates should not be so concessional as to unduly subsidize the financial
intermediary and provide a disincentive for financial and managerial efficiency.
18.
Financial intermediaries and MFIs onlending rates for subborrowers should be
market-based. When there is no market-determined benchmark rate, onlending rates
should be adequate to cover all costs and risks associated with onlending, and ensure
an adequate profit margin for the financial intermediary.
19.
ADBs policy is that generally the financial intermediary recipients of FILs should
avoid carrying the foreign exchange risk attached to the FIL. ADB normally expects (but
does not require) foreign exchange risks to be passed on from financial intermediaries to
subborrowers who can service the loan in foreign exchange. Financial intermediaries
operational procedures should ensure that risks assumed by subborrowers (or in
exceptional cases the financial intermediary) are adequately mitigated. If subloans are
made by financial intermediaries to subborrowers in local currency, onlending rates
should include an adequate foreign exchange risk premium. ADB does not object to
DMC governments assuming the foreign exchange risk under FILs. However, as a
matter of principle, a government subsidy of such costs should be avoided.9
5. Repayment
20.
ADB generally requires FILs to be repayable within a period of 15 years,
including a grace period of up to 3 years; however, this is a guideline and not a
requirement. Actual maturities of FILs must be determined by ADB based on the cash
flow needs of participating financial intermediaries and their capacity for managing longterm interest and, as necessary, foreign exchange risks. Financial intermediary
repayments of FILs may be either in substantial conformity with the composite
amortization schedules for subloans (mirror amortization), or on the basis of a fixed
amortization schedule. The latter applies only if (i) the financial intermediary is mature
and well established; (ii) it is able to protect itself against foreign exchange risks in the
intervals between repayments by subborrowers and the financial intermediaries
repayments to ADB (if the FIL is direct to the financial intermediary or the government or
Apex institution, as required; or (iii) a large number of subloans make mirror amortization
arrangement difficult to administer. When financial intermediaries loan repayments are
not on a back-to-back basis, financial intermediaries may, within their overall
amortization schedules, use subloan repayments for purposes that are consistent with
their business strategies and the FILs objectives.
See OM Section H7 (Foreign Exchange Risk).
OM Section D6/BP
Page 6 of 6
Basis:

ADB. 2000. Doc. R106-00, Finance for the Poor Microfinance
Development Strategy, 16 May. Manila.
ADB. 2000. Doc. R78-00, Private Sector Development Strategy, 6
March. Manila.
ADB. 1987. Doc. R27-87, Review of ADB Policies on Credit Lines to
Development Finance Institutions, 18 February. Manila.
This OM section is to be read with OM section D6/OP.
Compliance:
For inquiries:
Questions may be directed to the Director, Finance and Infrastructure

Division, Regional and Sustainable Development Department.
15 December 2003
This supersedes OM Section No. 82
issued on 22 February 1988.

OM Section D6/OP
Page 1 of 1
OPERATIONS MANUAL
FINANCIAL INTERMEDIATION LOANS
A. Introduction
1. The operational policies and procedures applicable to financial intermediation loans
(FILs) or financial intermediation components within other types of ADB loans are
generally the same as those for processing other project loans. However, more
emphasis is given to assessing the overall policy and institutional framework for the
financial sector with the aim of identifying impediments to FIL operations and designing
FIL projects that contribute to enhancing the outreach, efficiency, and stability of the
financial system.
1. Project Processing
2.
Work on related policy and institutional issues in the financial and relevant real
sectors generally precedes FIL processing. During the processing of an FIL or an FIL
component, ADB will ascertain that (i) the proposed FIL is an appropriate intervention for
achieving the projects objectives and can contribute to sustainable economic growth
and poverty reduction, (ii) the proposed FIL will support the development of sustainable
finance mechanisms and financial institutions, (iii) the proposed FIL will promote, rather
than conflict with, ADBs policy dialogue on financial and real sector issues, (iv) FIL
performance will not be unduly affected by market distortions or institutional constraints,
and (v) participating financial intermediaries meet general eligibility criteria.1 Any
substantial market failures and distortions that could have an impact on FIL performance
need to be thoroughly analyzed during project processing, and FIL disbursements
should be made conditional on the adoption and implementation of reforms to overcome
such distortions.
3.
The selection of financial intermediaries also takes into consideration the nature,
size, and location of the target beneficiaries under ABD projects and their financing
needs. The financial position and performance of financial intermediaries will be
assessed in accordance with special financial intermediary provisions under the
Guidelines for the Financial Governance and Management of Investment Projects
Financed by the Asian Development Bank.2
4.
The report and recommendation of the President (RRP) for an FIL, or a project
with an FIL component, must provide adequate information on the (i) status of and
1
See OM Section D6/BP, paras. 8 and 9. Financial performance indicators will generally be based on
international prudential norms and best practices.
See OM Section G2 (Financial Management Systems, Financial Analysis, and Financial Performance
Indicators).
OM Section D6/OP
Page 2 of 2
relevant issues for financial sector development; (ii) projects contributions to creating
sustainable and efficient financial mechanisms and institutions; (iii) effective demand for
the FIL; and (iv) business strategy; financial and operational performance; governance
practices; and credit and risk management policies, systems, and procedures of
participating financial intermediaries. The RRP must also address eligibility criteria for
subprojects and subborrowers, relending rates and justification for any implicit subsidy,
onlending conditions, procurement requirements, environmental requirements, and
repayment obligations, as required by ADB policies.
2. Monitoring
5.
Through appropriate monitoring procedures, ADB seeks to ensure that its funds
are used according to the policies and criteria specified in the loan agreement and that
the overall viability and the soundness of the financial intermediary is maintained and
even strengthened. Monitoring requires a continuous flow of information from financial
intermediaries and the government through regular reporting requirements that are
specified at FIL appraisal, including the submission of financial statements, project
reports, and regulatory agencies supervision reports of financial intermediaries to ADB,
and visits by ADB staff. Project reports should include sufficient information on emerging
sector policy issues, financial intermediary performance, subproject performance,
subborrowers repayment performance, and subprojects contributions towards achieving
project objectives. In addition, ADB requires financial intermediaries to advise ADB in
advance of major decisions on internal and external events, such as mergers and
acquisitions, changes in key management officers, and charter changes that may have a
significant impact on their organization, management, policies, procedures, and
operations.
6.
ADB requires participating financial intermediaries to achieve specified minimum
levels of performance in terms of solvency, profitability, portfolio quality, and liquidity as
reflected by adequate financial ratios throughout FIL implementation, and confirmed by
financial statements that are based on accounting and audit principles acceptable to
ADB and audited annually by independent auditors acceptable to ADB.3 ADB may
suspend disbursement to financial intermediaries that do not comply with performance
criteria for an extended period of time or do not implement acceptable corporate and
financial governance practices.
7.
ADB generally allows financial intermediaries to enter into subloans meeting
agreed criteria without submitting subloan proposals to ADB for amounts up to an
agreed free limit. The requirement of a free limit, above which subloan proposals need
to be submitted by the financial intermediary to ADB for prior approval, enables ADB to
satisfy itself on the quality of the financial intermediarys appraisal of projects and advise
on appraisal techniques and methodology. The free limit is decided on a case-by-case
basis during FIL appraisal, taking into consideration the financial intermediarys record of
performance, its management competence, appraisal standards, portfolio quality,
average loan size, and the type and expected size of subloans under the FIL. In
addition, ADB normally requires the financial intermediaries to submit the first two or
three subloans to be financed under the FIL for ADBs review.
3
See also ADB. 2002. Guidelines for the Financial Governance and Management of Investment Projects
Financed by the ADB. Manila, for financial intermediary financial reporting requirements.
OM Section D6/OP
Page 3 of 3
8.
ADB will regularly assess FILs contributions to financial sector and
socioeconomic development, including improvements in the subborrowers financial and
operational performance and the impact of subprojects on employment, regional
development, and poverty reduction, as appropriate. If subprojects are unable to achieve
the required performance targets as a consequence of significant distortions in the
market environment, ADB will seek to discuss appropriate remedial measures with the
Government.
9.
Financial intermediaries must adopt an appropriate environmental management
system that will cover the environmental assessment process of all subprojects to be
financed with ADB funds. However, for FILs for microfinance projects where all
subprojects will result in insignificant environmental impacts, or for other FILs where it
can be clearly demonstrated that this is the case, financial intermediaries are not
required to adopt an environmental management system or environmental assessment
report. For category A and environmentally sensitive B subprojects above the free limit,
the environmental impact assessment (EIA) or initial environmental examination (IEE)
must be cleared by ADB before subproject approval. The summary EIA or summary IEE
must be disclosed to the public at least 120 days before the subproject is approved. For
these subprojects, ADB will review compliance with its environmental assessment
requirements, including those related to consultation and information disclosure. For
subprojects below the free limit, ADB reserves the right to review the subproject
proposal and its EIA or IEE.4
10.
ADB review missions will assess financial intermediaries monitoring of FIL
subborrowers procurement practices by reviewing, on a random basis, relevant
documentation obtained by financial intermediaries. To facilitate monitoring by ADB and
financial intermediaries, ADB may request that subborrowers obtain a preshipment
inspection certificate for items whose values exceed a certain limit, certifying the free on
board value and the country of origin of such procurement from an agency acceptable to
ADB.
3. Confidentiality
11.
In processing of subproject proposals and reviewing financial intermediaries and
ADB-assisted subprojects, ADB respects the confidentiality of commercially and market
sensitive information received from financial intermediaries and subborrowers, as well as
other sources, regarding subprojects and the financial position of financial
intermediaries.5
4
5
See OM Section F1 (Environmental Considerations).

See OM Section L3 (Confidentiality and Disclosure of Information).
OM Section D6/OP
Page 4 of 4
Basis:

cited therein.
This OM section is to be read with OM Section D3/BP.
Compliance:
For inquiries:
Questions may be directed to the Director, Finance and Infrastructure

Division, Regional and Sustainable Development Department.
15 December 2003
issued on 22 February 1988.

OM Section D7/BP
Page 1 of 9
OPERATIONS MANUAL
BANK POLICIES
DISASTER AND EMERGENCY ASSISTANCE

A.
Introduction
1.
The Asian Development Bank (ADB) has an integrated policy for managing its disaster
and emergency assistance, which links the phases of the disaster management cycle, from
prevention and mitigation through preparedness and recovery. The policy emphasizes not only
responding after the disaster strikes, but also supporting activities that anticipate and mitigate
the likely impact of disasters that might occur.
2.
Articles 2 [ii] and 14, of the Operating Principles of ADBs Charter states that the
mandate of ADB is to use its resources to finance development of its developing member
countries (DMCs) through loans, guarantees, and technical assistance (TA) to prepare, finance,
and execute development projects and programs that contribute to harmonious economic
growth of the region. Thus, ADBs mandate does not allow the institution to engage in
peacemaking, peacekeeping, or humanitarian relief. Other international aid agencies, regional
bodies, nongovernment organizations (NGOs), and the United Nations (UN) normally assume
these functions.
3.
ADBs disaster and emergency assistance activities will be implemented within the
context of working more closely with DMCs to help them adopt a new approach that
emphasizes preventive measures. Disaster rehabilitation and post-conflict reconstruction must
be seen by ADB and its DMCs as involving much more than just building new roads, bridges,
and schools. Such interventions should also strengthen or rebuild institutions, develop
appropriate policies, and train people. ADB will conceptualize and implement strategies for
short-term rehabilitation and reconstruction that lay the foundations for medium- and long-term
development and broaden its approach to post-disaster assistance, natural and non-natural, to
include prevention, mitigation, and preparedness.
B.
Definitions
4.
The term disaster means a sudden, calamitous event that seriously disrupts the
functioning of a community or society, causing widespread human, material, economic, or
environmental losses that exceed the communitys or societys ability to cope using its own
resources. Disasters can be caused by natural events,1 technological or industrial accidents,2 or
conflict.3 A post-conflict country is one emerging from violent, protracted conflict.
1
2
3
Examples are earthquakes, tidal waves, hurricanes, cyclones, volcanic eruptions, flood, droughts, or epidemics.
Examples are explosions, oil spills, nuclear reactor failures, or chemical mishaps.
Examples are regional conflicts, national or civil wars, or widespread community violence.
OM Section D7/BP
Page 2 of 9
5.
An emergency occurs after a disaster when unforeseen circumstances require
immediate action, and local capacity is insufficient to address and manage traumatic events.
Emergencies may involve deaths, injuries, displacement of people, disease, disability, food
insecurity, damage or loss of infrastructure, weakened or destroyed public administration, and
reduced public safety and security.4
6.
Emergency management, also referred to as disaster management, is defined as the
organization and management of resources, roles, and responsibilities to deal with all aspects of
emergencies, including preparedness, response, and rehabilitation. Emergency management
uses plans, structures, and predetermined arrangements to coordinate the efforts of
governments, voluntary and private agencies, and other organizations to deal effectively with
the entire spectrum of emergency needs.
7.
The disaster management cycle is a dynamic process that encompasses the classical
management functions of planning, organizing, staffing, leading, and controlling. It also involves
many organizations that must work together to prevent, mitigate, prepare for, respond to, and
recover from the effects of disaster. The four major components or phases of the disaster
management cycle are (i) development or prevention, (ii) disaster, (iii) emergency response or
transition, and (iv) recovery.
8.
The development or prevention phase refers to national development and its
inclusion in the disaster management cycle to impede the reoccurrence of a disaster and/or to
prevent it from harming communities or key installations. The emergency response or
transition phase immediately follows the disaster impact and applies to a short period when
emergency measures are needed to deal with the disasters immediate effects. Emergency
measures are mainly directed toward saving lives; protecting property; and dealing with the
immediate disruption, damage, and other effects the disaster causes in relation to
socioeconomic development patterns. Recovery is the process whereby communities and the
nation return to their normal level of functioning following a disaster. The recovery process can
be extremely protracted and take as long as 510 years or even longer, e.g., in the case of
post-conflict situations.5
C.
The Policy
9.
ADBs policy on disaster and emergency assistance is based on the following principles:
(i)
(ii)
Adopting a systematic approach to disaster management, including emergency

prevention and post-conflict reconstruction;
Mainstreaming disaster management as an integral part of the development
process;
Based on this definition, the 1997 Asian financial crisis would not be considered an emergency given its long
gestation and recovery periods and because it did not result in unexpected, large-scale deaths or the destruction of
vital infrastructure. ADB is equipped with a special program loan instrument to address such an event, primarily
through policy-based lending. (ADB. 1999. Review of ADBs Program Lending Policies. Manila.)
The length or importance of each phase may vary, and phases tend to overlap or merge. For instance, some
response activities may be initiated before a disaster, that is, during the prevention phase. Such activities might
include the precautionary movement of threatened people or communities to safe havens before a cyclone.
Similarly, recovery action often begins while the emergency response or transition phase is still operative. For
example, an emergency assistance team would probably begin collecting information immediately after an incident
of civil strife, and such information would be used for emergency assistance and recovery purposes.
OM Section D7/BP
Page 3 of 9
(iii)
(iv)
(v)
D.
Strengthening partnerships to maximize synergies among development and

specialized (relief) organizations to enhance the effectiveness of emergency aid
to DMCs, as no single agency or actor can provide all the resources needed to
cope with disasters and the resulting emergencies;
Using resources more efficiently and effectively to better support pre- and postdisaster activities; and
Improving organizational arrangements within ADB to plan, implement, and
communicate effectively on disaster and emergency-related assistance.
Scope of the Policy

1.
Phases for Asian Development Bank Intervention

a.
Development or Prevention Phase
10.
Prevention and preparedness activities entail planning and programming to enhance
DMCs capacities to identify and cope with their most vulnerable areas. Prevention and
preparedness should be mainstreamed into a countrys development process.6
11.
Mitigation measures, while identified in emergency programming during the transition
phase, should also be part of a countrys national development process. 7
b.
Emergency Response or Transition Phase
12.
In the wake of the disaster, immediate assistance must address rehabilitating highpriority physical and social infrastructure;8 revitalizing basic services, particularly education and
health care; and jump-starting economic productivity. After the emergency crisis period,
however, efforts shift to transitional social, institutional, and capacity requirements. These
include social and economic reintegration of displaced people, demobilization and reintegration
of former combatants, and restoration of basic administrative and governance services.
During the prevention phase, prevention and preparedness measures might include (i) developing regional,
national, and subnational emergency strategies; (ii) establishing an adequate institutional and regulatory
emergency framework; (iii) carrying out risk and vulnerability assessments, and developing concepts and
instruments for crisis prevention, conflict transformation, and peace building, and applying them in development
cooperation to institutionalize this important trans-sectoral theme; (iv) creating information and early-warning
systems and using information and communication technology to integrate with existing, real-time, global disaster
information networks; (v) equipping and training specialized personnel; and (vi) promoting the funding of national
trust funds and other mechanisms for sustainable financing of disaster preparedness in cooperation with the public,
private, and civil-society sectors.
Mitigation activities include (i) protecting critical infrastructure; reinforcing vulnerable structures; and adjusting
building, land-use, and zoning codes; (ii) constructing dams or dikes to prevent flooding and building breakwaters
in ports and low-lying coastal areas; (iii) acquiring hazard reduction technology; and (iv) strengthening governance
and social cohesion.
Such as water, sanitation, power, communications, and transport.
OM Section D7/BP
Page 4 of 9
13.
During the transition phase, emphasis will be on partnering with specialized (relief)
agencies.9
c.
Recovery Phase
14.
During the recovery phase, assistance will begin with a joint damage and needs
assessment with relevant partners to identify priorities; provide emergency, short-term
transitional assistance; and begin to design comprehensive medium- to long-term rehabilitation
and reconstruction programs for subsequent resource mobilization and implementation.
Immediate, short-term recovery will focus on transitional needs and the rehabilitation of critical
infrastructure, as well as on project preparation and capacity building. In the medium to longer
term, however, rehabilitation and reconstruction will be undertaken through normal development
projects. A comprehensive communications plan will be formulated during this phase in
anticipation of ADB involvement in subsequent strategic phases as appropriate.10
2.
Analytical Instruments
a.
Risk and Vulnerability Assessment
15.
The risk and vulnerability assessment will be drawn from existing information as
appropriate and promoted in close partnership with relevant shareholders and specialized
(relief) agencies. The assessment will complement the environmental and social assessments
in Country Strategy Programs. In preparing risk and vulnerability assessments the factors to be
evaluated, include vulnerability of critical facilities, quality of social and economic infrastructure,
and status of early-warning systems.
b.
Watching Brief
16.
In countries or areas of countries where the ADB portfolio is inactive due to factors such
as arrears, insecurity, or poor governance, watching briefs will help maintain ADBs knowledge
base and awareness of social and economic trends. The watching briefs will allow ADB to
respond quickly when conditions are ripe for emergency intervention and/or for resumption of
ADBs activities. Such briefs will typically be implemented through a third party, for example, an
NGO or UN partner agency already on the ground.
c.
Damage and Needs Assessment
17.
A damage and needs assessment mission, conducted in partnership with shareholders
and key local actors, will be a priority action after an emergency.
Examples might include (i) providing seeds and tools in tandem with the provision of food by the World Food
Program; (ii) supporting capacity building and emergency (immediate), short-term rehabilitation of social
infrastructure in partnership with the United Nations Childrens Fund (UNICEF) or the International Federation of
Red Cross and Red Crescent Societies to revitalize basic services and provide emergency medicines and
immunizations; and (iii) providing basic infrastructure, livelihood training, and employment schemes in cooperation
with a United Nations High Commission for Refugees repatriation and reintegration program.
10
ADB. 1994. Information Policy and Strategy of Asian Development Bank. Manila. See Operations Manual. Section
L3: Confidentiality and Disclosure of Information. Manila. Communications plan may elaborate the objectives,
audiences, messages, tools, activities, resources, timeline, evaluation, and activity.
OM Section D7/BP
Page 5 of 9
3.
Assistance Instruments
a.
Portfolio Restructuring and Use of Loan Savings
18.
In countries with operational portfolios, the first consideration in an emergency is to
review the possibility of restructuring ADB resources within and across existing projects and
sectors. The restructuring exercise is included as part of the initial damage and needs
assessment mission.
19.
ADB may agree to reallocate surplus funds from other loans to DMCs for disaster
rehabilitation.11 In special cases with particularly urgent rehabilitation needs, ADB may
reallocate outstanding loan proceeds for rehabilitation purposes in response to changed
government priorities because of the disaster and the resulting emergency. Conditions for such
reallocation will take into account possibilities for portfolio restructuring in DMCs within and
across sectors. However, this option will not be detrimental to normal lending operations in the
country and will be consistent with the governments priorities given the emergency.
b.
Emergency Assistance Loans
20.
Emergency Assistance Loans (EALs) emphasize rapid approval of short-term and small
loans to help rebuild high-priority physical assets and restore economic, social, and governance
activities after emergencies. The following paragraphs discuss the scope, terms, and conditions
of EALs.
21.
Scope. EALs are designed to mitigate immediate losses to priority assets, capacity, or
productivity rather than to provide relief or comprehensive reconstruction. EALs provide
immediate short-term transitional assistance.12 EALs should be linked with and complement
humanitarian relief efforts by other development partners to ease the transition from relief to
normal development. EAL use will be restricted to the transition phase and exclusively for
priority rehabilitation.
22.
Terms. Loans for priority emergency needs will be differentiated from large-scale
reconstruction assistance. EALs are generally smaller than normal development loans,
consistent with their focus on immediate short-term requirements, e.g., rehabilitating critical
infrastructure and meeting basic needs as identified by means of a damage and needs
assessment. A proposed EAL must be clearly justified; a clear relationship established between
its cost and amount; a time frame specified for implementation; and a completion period set,
normally up to 2 years for natural disasters and 3 years for a post-conflict situation,
exceptionally extended for at most 2 additional years when the level of destruction and
dislocation are deemed extreme, taking into account the DMCs weakened absorptive capacity
following a disaster. Normal development loans to address comprehensive, medium- to longterm reconstruction, including prevention and mitigation activities, should complement EALs.
11
See Operations Manual. Section H6: Use of Surplus Loan Proceeds. Manila; ADB. 1992. Streamlining Board
Documents on Project Loan and Technical Assistance. Manila.
12
This may include (i) rehabilitating priority water services, power, transport, and communications infrastructure;
(ii) regenerating livelihoods and boosting productivity; (iii) providing transitional safety net support and revitalizing
basic social services; and (iv) preparing for planned, comprehensive reconstruction investments.
OM Section D7/BP
Page 6 of 9
23.
Conditions. Given that the burdens created by sudden and unpredictable emergencies
fall hardest on the poor, emergency assistance operations for DMCs in groups A, B1, and B2
should normally be financed on Asian Development Fund (ADF) terms and conditions.13 ADF
allocations to support post-conflict operations will be made on the basis of the IDA-13
framework for post-conflict assistance. This system will sharpen the focus on performance but
provides for judgment to take account of the complexities and heterogeneity of post-conflict
situations.
24.
ADF-financed EALs will carry interest of 1% per year and a maturity of 40 years,
including a grace period of 10 years, with repayment of principal at 2% a year for the first 10
years after the grace period and 4% a year thereafter.14 For ordinary capital resources (OCR)
loans, in particular to DMCs in group C, a grace period of up to 8 years and maturity of up to 32
years will apply. If the borrowers request is justified, total interest for the grace period, and the
front-end fee and commitment charge, if applicable, can be estimated and included in the loan
amount. The estimated total interest for the entire grace period and the front-end fee and
commitment charge, if applicable, can be allocated under the interest during construction
category in the loan allocation. ADB financing may exceed the countrys cost-sharing limit
because of exceptional circumstances.15
25.
In the context of ongoing negotiations on the eighth replenishment of ADF, donor
members have endorsed a proposal that a portion of ADF resources should be allocated on a
grant basis to poor DMCs emerging from conflict.16
26.
Eligibility Criteria. Following are the eligibility criteria for EALs:

(i)
(ii)
(iii)
(iv)
(v)
13
The government or an internationally legitimate governing authority will make an

official request for assistance.
The potential impact on economic, social, and governance needs and priorities
has been identified in a damage and needs assessment, as appropriate.
In the case of chronic natural hazards, e.g., flooding or drought, normal
reconstruction and development investments should be used if possible.
However, when the event involves significant economic dislocation, an EAL may
address immediate needs and/or expedite the preparation of a normal project.
The security risks to ADB staff, particularly in the case of conflict-driven
emergencies, must be at an acceptable level for engagement as determined by
the UN.
The level of burden and risk sharing among partners, especially shareholders
and other key local and international actors, should be appropriate.
See ADB. 2003. Operations Manual. Section A1: Classification and Graduation of Developing Member Countries.
Manila. ADB. 2001. Policy on Performance-Based Allocation for Asian Development Fund Resources. Manila.
14
ADB. 1974. Terms of Special Funds Loans. Manila; ADB. 1998. Review of the Loan Terms for the Asian
Development Fund. Manila.
15
See ADB. 2002. R 247-02: Review of Cost-Sharing Limits for Project Financing as an Element of ADBs 1998
Graduation Policy. Manila.
16
In low-income post-conflict countries, the availability of early financial support can be an important component of
normalization. Focus will be on early action to restart the economy; contribute to the reestablishment of a
framework for governance, policy, and law reform; rehabilitate basic social services and key infrastructure; and
help war-affected populations and communities, including support for income-generation programs, reintegration of
combatants, and other assistance to vulnerable groups.
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27.
Conditionality. EALs will be used exclusively for the prompt restoration of services and
will not attempt to address medium- to long-term economic rehabilitation investments or sector
or institutional problems unrelated to the emergency. This implies that EALs should not include
conditionalites linked to macroeconomic policies. EALs may, however, include conditionalities
related to the underlying causes of the emergency that are directly related to emergency
preparedness, mitigation, and prevention measures, e.g., hazard mapping, infrastructure
design, and land use. An EAL may also include conditionality in relation to improved
governance processes that will help prevent a reoccurrence of a similar disaster or that will
mitigate the damage should such a disaster occur again.
28.
Policy Dialogue. Processing of an EAL may involve policy dialogue, in particular in
post-conflict situations.
29.
Project Analysis. Appropriate financial and economic rates of return will be flexibly
used with the emphasis on least-cost, high-impact, and rapid solutions not prejudicial to quality
assurance in rehabilitation or reconstruction work. Although rigorous rates-of-return analysis
may not be feasible, estimates in an order of magnitude should be provided and justified as
much detail as possible.
30.
Cost Recovery. ADB will not insist on stringent cost recovery practices for an EAL, as
its main purpose is the immediate rapid restoration of damaged basic structures, infrastructure,
and productive activities.
c.
Normal Development Loans
31.
Normal lending is often appropriate as an immediate next step after an EAL. Such
comprehensive financing adheres to normal loan terms, conditions, and policies, and may be
similar to sector or program lending vehicles with relevant sector conditionalities. Prevention,
mitigation, and preparedness activities will be incorporated in development loans.
32.
ADB could also consider the feasibility of providing assistance for setting up catastrophe
insurance schemes through public-private partnerships in the insurance industry and cautiously
exploring the use of capital markets to develop such insurance. This precautionary approach
would provide a mechanism to promote mitigation measures, for example, by setting premiums
according to local hazards or risks and issuing policies conditional upon the attainment of
certain land-use practices.
d.
Technical Assistance for Disaster and Emergency
33.
TA for disaster and emergency can provide funds for recovery from conflict and natural
disasters. This assistance can provide emergency support to meet immediate short-term
requirements in the wake of a disaster and to enhance the reach and impact of an EAL.
Assistance may cover (i) building national and regional capacity for emergency surveillance,
preparedness, mitigation, and prevention linked to an EAL; (ii) preparing an interim operational
strategy (IOS); and (iii) preparing emergency assistance programs and/or projects. This
technical assistance may also be appropriate for initiating time-sensitive, critical components of
OM Section D7/BP
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early emergency assistance programs.17
E.
Strategic Partnerships
34.
ADB will strengthen partnerships to maximize synergies among development
organizations to enhance the effectiveness of emergency aid to DMCs. During the transition
phase, ADB will place emphasis on partnering with specialized (relief) international and/or
bilateral agencies from ADB member countries. During the recovery phase, assistance will
begin with a joint damage and needs assessment with relevant partners to identify priorities. In
particular, ADB will partner with regional institutions18 so that DMCs can enhance the quality of
regional and subregional surveillance and early-warning systems, with particular emphasis on
using information and communication technology for improved preparedness.
35.
Because relief and development play important complementary roles in dealing with
emergencies, and given that the mandate of ADB prohibits it from taking on a humanitarian
and/or political role, ADB can most effectively leverage its assistance only through partnerships
of the public and private sectors and civil society. ADB expects that counterpart requirements
for ADB loans will be satisfied by recognizing the full range of resources contributed to the
emergency effort by national private and public entities as well as by other bilateral and
multilateral agencies. In this context, ADB gives priority to coordinating with other agencies to
obtain the best possible resource mobilization and complementarity.
Basis:
This section is based on:

ADB. 2004. Doc. R71-04: Disaster and Emergency Assistance Policy. Manila.

ADB. 1974. Doc. R33-74: Terms of Special Funds Loans. Manila.
ADB. 1992. Doc. R212-92: Streamlining Board Documents on Project Loan and
Technical Assistance. Manila.
ADB. 1994. Doc. R143-94: Information Policy and Strategy of Asian
Development Bank. Manila.
ADB. 1995. Doc. R115-83: Review of the Banks Policy on Supplementary
Financing of Cost Overrun of Bank-Financed Projects. Manila.
17
TA should primarily help build capacity in advance of emergency needs, and in the most extraordinary
circumstances support critical components of early emergency programs, e.g., (i) promoting knowledge and
technology transfer in removing rubble and cleaning up; repairing critical water, electrical, and sanitation services;
controlling and stabilizing buildings, terrain, and physical structures; (ii) acquiring critical equipment and supplies for
basic services; (iii) accessing emergency seeds and tools to jump-start productivity; and (iv) carrying out special
studies and surveys for rapid preparation of emergency activities.
18
For example, the Asian Disaster Preparedness Center in Bangkok, Thailand; Asian Disaster Reduction Center in
Kobe, Japan; International Institute for Disaster Risk Management in Manila, Philippines; and Pacific Disaster
Center in Hawaii, United States.
OM Section D7/BP
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ADB. 1998. Doc. R89-98, ADBs Anticorruption Policy, Manila
ADB. 1998. Doc. R205-98: Review of the Loan Terms for the Asian Development
Fund. Manila.
ADB. 1998. Doc. R204-98: A Graduation Policy for the Banks DMCs. Manila.
Compliance:
This section is subject to compliance review under ADBs accountability

mechanism.
For inquiries: Questions may be directed to the Director, Strategy, Planning, Policy and
Interagency Relations Division; Strategy and Policy Department.
OM Section D7/OP
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OPERATIONS MANUAL
DISASTER AND EMERGENCY ASSISTANCE

A.
Introduction
1.
This section describes how disaster and emergency assistance is managed in the Asian
Development Bank (ADB).
B.
Anchor for Emergency Assistance
2.
An anchor position for emergency assistance activities will be created in the Regional
and Sustainable Development Department (RSDD) to (i) review the application and
implementation of ADBs disaster and emergency assistance policy and practices,
(ii) coordinate ADBs emergency response and help the Office of Cofinancing Operations with
emergency resource mobilization, (iii) provide support and guidance to regional departments
staff and liaise with the ADBs internal emergency management system, and (iv) strengthen
partnerships and interagency relations. The anchor will also internally and externally promote
this policy.
3.
A secondment program from external partner agencies, in particular specialized
international and/or bilateral agencies from ADB member countries, could support the anchor for
emergency assistance, with professionals being seconded for 612 months (subject to
renewal). Seconded personnel will not be considered as consultants, but as specialized staff
from partner agencies who bring skills and perspectives different from and complementary to
those of ADB staff, in particular in post-conflict situations.
4.
The anchor for emergency assistance will develop a list of available or on-call specialists
to respond to specific needs for technical inputs. These can be obtained from ADB staff and/or
regional and global agencies on a consultant or partnership basis.1 In addition, a number of
regional and global climate and weather forecasting bodies could partner with ADB to provide
periodic information as part of country risk and vulnerability assessments.
Examples include (i) specialists in mine action from international NGOs, consulting firms, or the United Nations
Mine Advisory Services; (ii) specialists in earthquake-proof construction design from regional bodies such as the
Asian Disaster Preparedness Center and Asian Disaster Reduction Center; (iii) specialists in disaster risk
management from the International Institute for Disaster Risk Management; (iv) specialists in region-specific
emergency management from the Pacific Disaster Center; and (v) health specialists from the World Health
Organization.
OM Section D7/OP
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C.
Country and Regional Emergency Focal Points
5.
Regional departments (RDs) are responsible for policy implementation. Each of the five
regional departments will designate a focal point for emergency operations. These staff
members, in addition to regular duties, will be key components of an emergency network
coordinated by the anchor for emergency assistance. The staff members will participate in
critical staff meetings and provide a functional linkage between policies and operational
programming. RSDD sector specialists should be temporarily assigned to RDs to assist in
emergency activities.
6.
Each resident mission will designate one staff member who, in addition to regular duties,
will serve as the country focal point for contact in an emergency. These staff members will be
trained and electronically linked to the Manila-based emergency network. The staff members
serving as resident mission focal points will (i) play a central role in emergency risk assessment
and early warning; (ii) take primary responsibility for ongoing supervision, monitoring, and
reports on emergency activities in the countries; and (iii) coordinate emergency operations
closely with other agencies and actors.
D.
Criteria for Asian Development Bank Involvement in Disaster and Emergency

Assistance
7.
ADB adheres to the following minimum operational entry criteria:

(i)
(ii)
(iii)
E.
The security of ADB staff undertaking operations in conflict-affected areas is

guided by UN security norms and clearances, including formal arrangements
between ADB and concerned UN agencies regarding such matters as sharing
security-related information, monitoring staff movements, and providing
emergency evacuation when necessary.
A UN-recognized government or transitional authority will be in place and will
have formally requested assistance.
To the extent possible, risk and burden sharing with other key shareholders and
partners is encouraged.
Interim Operational Strategy
8.
In emergency situations where a country strategy program (CSP) is absent, outdated, or
inadequate to guide an emergency response and/or to resume activities, an interim operation
strategy (IOS) will be prepared. An emergency strategic document based on the watching brief
and a damage and needs assessment, it will provide critical policy recommendations for Board
consideration, thereby setting the parameters for action. The IOS, which will set out ADBs
short- to medium-term plan for emergency response, will identify immediate priority assistance
objectives (16 months) and medium-term objectives (618 months).2 Other components will
include (i) a proposed program of TA and investments to meet stated objectives; (ii) a financing
plan and ADB administrative budgetary requirements; and (iii) identification of potential
2
The speed and flexibility of an emergency response can be jeopardized by incomplete data, a common situation
when vital records have been destroyed or local capacity has been severely weakened. Therefore, an IOS may
contain less documentation and statistical analyses than normally required for a full-blown CSP. However, an IOS
must contain sufficient analysis to support the preparation of a short- to medium-term assistance plan, including the
requisite administrative budget arrangements.
OM Section D7/OP
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impediments to rapid disbursement, e.g., the countrys legislation or regulatory environment and
disrupted implementation processes. The IOS will highlight exceptional measures that may be
required to undertake the work and include an assessment of risks, entry and exit strategies,
and contingency responses. Finally, the IOS will also define benchmarks and performance
monitoring indicators and a schedule for periodic Board briefings.
9.
The IOS may incorporate activities in neighboring countries if their governments or
authorities endorse and participate in such activities. This is consistent with ADB support of and
expertise in regional strategy development and cooperation.
10.
ADB staff, with consultant support, will lead in developing the IOS, particularly in the
transition phase. The country team will lead in preparing an IOS for all or part of the country
under emergency conditions.3
F.
Processing of Emergency Assistance Loans
11.
After ADB has received a formal request for emergency assistance from the relevant
government or authority, the appropriate regional department, in close consultation with the
anchor for emergency assistance and the relevant resident mission, as appropriate, will address
issues that include the (i) choice of lending and financing instruments, (ii) administrative
budgetary requirements, (iii) action timetable, and (iv) partnership arrangements.
12.
The damage and needs assessment will be followed by a Report and Recommendation
to the President (RRP) and, if appropriate, an IOS. The IOS will make recommendations for
portfolio restructuring, within and across sectors, and for the appropriate use of loan savings.
Where feasible, the RRP4 may also include appropriate recommendations in this regard.
However, under no circumstances will portfolio restructuring be undertaken in a manner
inconsistent with ongoing development priorities and activities. Restructuring will be justified on
the basis of funds exceeding the amount required to achieve original project objectives and/or
changed circumstances whereby the original objectives are no longer relevant or can no longer
be implemented in the desired time frame. In either case, the DMC must approve any
restructuring proposal. All reallocations will be justified in the RRP or IOS, as appropriate, and
will be permitted with Board approval of the RRP or IOS.
13.
Loan negotiations will follow management consideration of the proposed EAL. The draft
RRP, along with loan documents, will be submitted to the Board for consideration. Processing
will not exceed 12 weeks, and special abbreviated Board consideration will be done within 1
week after RRP circulation. TA documentation will also be streamlined.
ADBs action plan to address the severe acute respiratory syndrome (SARS) outbreak, which may be seen as a
SARS IOS, provides one useful prototype. That action plan (i) established immediate priority assistance to the
Peoples Republic of China (PRC); (ii) identified medium-term objectives, including emergency regional TA;
(iii) highlighted desirable partnerships; and (iv) made recommendations for portfolio restructuring and processing.
The RRP for an emergency assistance loan would, at the minimum, cover the following areas: (i) description of the
emergency; (ii) objectives, scope, and coverage of the loan; (iii) initial assessment of the damage; (iv) government
action and preliminary assessment of the countrys capacity; (v) justification and initial estimate of resources
required and sources of financing; (vi) special administrative arrangements; (vii) coordination with other agencies;
and (viii) monitoring arrangements.
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14.
While EALs must comply with ADB safeguard policies pertaining to the environment,
involuntary resettlement, and indigenous peoples, and any future safeguard policies,5
expeditious processing needs procedural flexibility. For the environment policy, management
can waive the 120-day rule for disclosure of summary environmental assessment reports and
the two-step public consultation requirement for category-A projects (those with a potentially
significant environmental impact) on a project-by-project basis.
15.
In the case of policies on involuntary resettlement and indigenous peoples, even if the
initial poverty and social assessment identifies likely adverse effects, standard surveys and
consultation requirements based on the feasibility study may not be possible before Board
circulation. In such cases, a resettlement framework and/or an indigenous peoples development
framework will be included in the RRP and legal agreements for Board circulation. The RRP will
identify policy, procedures, and requirements to be applied during loan implementation. In all
cases, the RRP must justify any departure from standard procedures with reference to the
specific circumstances of the project and the EAL processing schedule.
G.
16.
Standard ADB operational policies, including those on procurement, consulting services,
financial management, and disbursement, should be liberally interpreted to ensure speedy and
effective rehabilitation in the case of emergency assistance.6
17.
Project implementation readiness will be assessed and accelerated as part of the initial
damage and needs assessment mission. Appropriate actions may include (i) establishing
appropriate project implementation bodies, (ii) formulating a comprehensive communications
plan,7 (iii) developing procurement and financial management systems, (iv) specifying
monitoring and evaluation indicators, and (v) providing for the timely release of funds to ensure
accelerated implementation.
18.
EALs will require more resources to prepare, appraise, and supervise than ordinary
loans because of the need for a speedy and transparent response. Thus, supervision and
monitoring of emergency projects must be enhanced to ensure quality and effectiveness under
conditions of urgency and flexibility. Procurement and disbursement arrangements must,
therefore, be expedited and safeguard policies modified (as deemed appropriate).
1.
Procurement
19.
ADBs emergency procurement policy stipulates that to expedite rehabilitation loans,
guidelines may be flexibly interpreted, including relaxing international competitive bidding
requirements. Existing policies on advanced procurement, retroactive financing, and local
5
See ADB. 2003. Operations Manual. Section F1: Environmental Considerations in ADBs Operations; Section F2:
Involuntary Resettlement; Section F3: Safeguard Policies on Indigenous Peoples (under preparation).
ADB. 1990. Streamlining of Loan Administration Procedures. Manila.
. 1991. Review of Domestic Preference Scheme. Manila.
. 1999. ADBs Guidelines for Procurement Under ADB Loans. Manila.
. 2001. Project Administration Instructions, Section 2: Consultants and Section 3: Procurement. Manila.
. 2003. Operations Manual. Section J2: Consultants; and J3: Procurement. Manila.
. 2003. Guidelines for Preparation and Presentation of Financial Analysis. Manila.
ADB. 1994. Information Policy and Strategy. Manila. See ADB. 2003. Operations Manual. Section L3: Policy on
Confidentiality and Disclosure of Information. Manila
OM Section D7/OP
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currency cost financing should be followed. To the extent possible, ADB will encourage the
procurement of domestic goods and services to stimulate local economic recovery. For the
procurement of civil works, force account should be used only when bidding is not practical.
Local competitive bidding with a short bidding period should be used to procure civil works for
immediate emergency assistance.
20.
For goods and services, prudent international shopping is recommended, with the
bidding period reduced from 30 to 715 days. In the case of local contractors, a registration
system that lists approved contractors based on criteria such as experience and financial and
technical capacity may be used. Postqualification could be used for nonregistered contractors.8
Consultants recruited and contractors prequalified or selected under ongoing loans could be
used without resorting to new bidding and prequalification. ADB should follow procurement
procedures using normal commercial procurement practices for the private sector, and
government procurement procedures for public sector procurement where such procedures are
functioning and appropriate.
2.
Disbursement
21.
EALs may include quick-disbursing components but are not program loans. Quickdisbursing components of an EAL should only be used to finance a list of imports identified as
necessary for an effective recovery program. Disbursements should be allowable up to 100% of
eligible project costs. Imprest accounts should be used wherever possible to expedite
disbursements, and a specific increase in ceilings on imprest funds should be allowed given that
immediate and large disbursements are key to effective and timely emergency assistance.
22.
A sector lending approach and active community participation are preferable to support
flexible subproject selection and to enhance the ownership by and direct benefits to the most
affected and vulnerable groups. To balance the need for speed and flexibility with concerns
about fraud and corruption, ADB should ensure that basic internal controls are built into the
systems and stringent monitoring mechanisms put in place. Intensive supervision, perhaps from
the resident mission, will be encouraged to provide frequent checks on performance.
3.
Retroactive and Supplementary Financing
23.
For immediate emergency responses, no more than 30% of loan proceeds should be
used for retroactive financing of expenditures. These must have been incurred and paid for after
the emergency occurred. In the case of reallocations of existing loans, expenditures will have to
be incurred before the effective date of the reallocation for reimbursement by ADB.
Supplementary financing may be required if ongoing ADB projects experience serious damage
from a disaster. If several projects are affected, a new rehabilitation project could handle
damage to all such projects together with damage sustained elsewhere.
4.
Consulting Services
24.
In emergency situations, implementation capacity is typically stressed, with the
governments technical capacity often stretched in the case of natural disasters and depleted in
the case of civil strife. Thus, TA is often useful, with project preparatory TA focusing on
feasibility and sector studies, and advisory TA concentrating on capacity building and policy
8
ADB normally requires prequalification.
OM Section D7/OP
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reform. Such TA should complement the proposed EAL. Direct selection, negotiation, and hiring
are desirable when justified to expedite technical services required in emergency situations.
Time-consuming competitive bidding processes should be avoided wherever possible. Qualified
and existing consulting services on the ground should be extended and retrofitted to address
emergency needs.
H.
Participation
25.
Participatory processes are an integral part of ADBs work, with the focus on enhancing
poverty reduction through shareholder inputs and ownership. ADB considers that nurturing
public, private, and civil-society participation in all areas of operations is vitally important, and
nowhere is this imperative more critical than in emergency preparedness and crisis response.
Even though the time frame may be more compressed than under normal circumstances given
the exigencies of emergency assistance, ADB will continue to use an extensive consultative and
participatory process in project design to the extent possible. Effective communications facilitate
this process.
I.
Coordination
26.
In providing technical and financial assistance, particularly during the damage and needs
assessment, in the course of resource mobilization and management, and throughout
implementation, ADB forges working relationships with partners at all levels. ADB plays a key
role in such international bodies as the UN Economic and Social Council, Multilateral Banking
Committee, and various NGO forums on emergency preparedness. NGOs, civil society, and
relief and humanitarian agencies represent significant partners who must help bridge the gap
between relief and development programming. ADB multi-shareholder consultation, popular
participation, and local ownership of the reconstruction and development process are essential.
27.
The work of damage and needs assessment mission will incorporate a well-planned
communications aspect. The mission will be kept informed of developments by the government
and will maintain lines of communication with relevant shareholders. The public will be informed
of ADB actions as appropriate.
J.
Performance Evaluation and Auditing
28.
Emergency assistance activities should adhere to standard ADB performance evaluation
requirements.9 Standard ADB auditing procedures should apply to EALs, but a special audit
focusing on governance, financial accountability (e.g., certification of accounts), and
transparency should be carried out soon after the completion of emergency projects.
ADB. 1989. Guidelines for Preparation of Program Performance Audit Reports. Manila.
. 1993. Guidelines for Preparation and Presentation of Financial Analysis. Manila.
. 1994. Report of the Task Force on Improving Project Quality. Manila.
. 1995. Technical Assistance Completion Report. Manila.
. 2000. Guidelines for Preparation of Project Performance Audit Reports. Manila.
OM Section D7/OP
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Basis:
This section is based on OM Section D7/BP and the documents cited therein.
Compliance:
This section is subject to compliance review under ADBs accountability

mechanism.
For inquiries: Questions may be directed to the Director, Strategy, Planning, Policy and
Interagency Relations Division; Strategy and Policy Department.
OM Section D9/BP
Page 1 of 9
OPERATIONS MANUAL
BANK POLICIES (BP)
CREDIT ENHANCEMENT OPERATIONS
A.
Introduction
1.
requires the Asian Development Bank (ADB) to promote public and private capital investment
for the development of the Asia-Pacific region and to cooperate with a wide range of institutions
in doing so. Article 11 of the Charter stipulates guarantees as one of three basic operational
modalities of ADB, along with loans and equity investments. Article 11(iv), in particular, allows
ADB to carry out its operations "by guaranteeing, whether as primary or secondary obligor, in
whole or in part, loans for economic development participated in by the Bank." Article 14
stipulates the operating principles applicable to ADBs operations. Article 14(xiv) specifies that
ADB should be guided by sound banking principles in its operations. Article 15 gives ADB
discretion to extend loans or guarantees to an entity other than a developing member country
(DMC) without a guarantee from the DMC. Under Article 15.1, ADB is required to reserve the
right to terminate its liability under its guarantees with respect to interest by offering to purchase
the guaranteed obligation at par plus interest accrued from the date of default to the date ADB
exercises its buyout option.
2.
Credit enhancement products (CEPs) are risk-sharing and mitigation instruments that
facilitate ADBs operations in line with para. 1. ADBs policy with regard to CEPs is set out in the
Review of ADBs Credit Enhancement Operations.1 It is based on the following objectives and
guiding principles:
(i)
Client and development orientation. CEPs will benefit ADBs sovereign and
nonsovereign clients in DMCs. They are an integral part of ADBs operations and
their application will be demand driven. They will be grounded in and consistent
with country strategies and partnership frameworks agreed with DMCs to support
development goals, approaches, and priorities articulated in ADBs operational
framework, including the Charter and various policy and strategy documents.
(ii)
Effectiveness and efficiency. CEPs will increase the effectiveness and efficiency
of ADBs assistance in terms of its development impact. ADB will therefore (a)
forge effective partnerships with a wide variety of financing partners to mobilize
risk-taking capacity for its sovereign and nonsovereign operations (thereby
leveraging its balance sheet, filling gaps in the market, promoting investment in
countries or sectors, and encouraging participation by financing partners in
transactions they would not otherwise want to participate in); (b) focus on its
comparative advantages (assuming long-term and/or sovereign risk) while letting
its financing partners focus on their comparative advantages (assuming short-term,
medium-term, and/or commercial risks); (c) build on the preparatory work
ADB. 2006. Review of ADBs Credit Enhancement Operations. Doc. R168-06. Manila.
OM Section D9/BP
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OPERATIONS MANUAL
BANK POLICIES (BP)
undertaken by financing partners; and (d) seek to cover the operational cost of its
credit enhancement operations, including risk-adjusted cost of capital, as
applicable to its sovereign and nonsovereign operations.
(iii)
Market orientation. ADB will seek to complement, rather than compete with, other
financing partners and not distort markets where they exist. In the absence of
efficient financial markets, CEPs seek to foster market development. In any case,
CEPs will conform as closely as possible to best industry practices.
(iv)
Competitiveness. ADB will seek to ensure the competitiveness of all financing

benefiting from CEPs in the interest of its DMC clients.2
(v)
Innovation and flexibility. The policy encourages innovation, new product

development, and flexibility in application.
(vi)
Transparency and risk awareness. ADBs triple-AAA rating is central to its

operations. In light of this, CEPs will (a) follow a principle of risk sharing and
transfer to diversify and reduce risk concentration and leverage ADBs balance
sheet for greater overall development impact; and (b) be applied in a transparent
manner, with sound risk assessments and standards that are in line with industry
practice for the risks assumed and those applied by ADB for its comparable direct
financing operations, as appropriate.
(vii) Sustainability, safeguards, and other ADB policies. Beneficiaries of CEPs will
comply with ADBs environmental and social safeguard policies and other policies
applicable to ADBs operations.
B.
Purpose
3.
ADBs CEPs are instruments intended to facilitate cofinancing and financing
partnerships. They are designed to reduce, eliminate, and/or better allocate a range of risks
facing ADBs commercial financing partners and to leverage ADBs own capital base. CEPs
support ADBs developmental objectives by facilitating investment, trade, and capital flows into
DMCs.
C.
Product Scope and Scale
4.
CEPs are differentiated into two broad categories: guarantees and syndications.
5.
Guarantees allow ADB to assume commercial and/or political risks arising under debt
instruments provided by other financing partners. Guarantees may be unconditional or
conditional and take the form of credit guarantees or political risk guarantees, but are not limited
2
For example, ADB would help the borrower to (i) solicit competitive proposals from prospective cofinanciers, and
(ii) carry out a systematic evaluation of such proposals based on criteria agreed with the borrower and in
accordance with best practice.
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OPERATIONS MANUAL
BANK POLICIES (BP)
to such forms. Guarantees increase ADBs risk exposure, but generally to a lesser extent than
would be the case under an equivalent direct loan, and create less administrative work during
implementation.
6.
Syndications enable ADB to transfer some or all of the risks associated with its loans
and guarantees to other financing partners.3 Syndications thus decrease and diversify the risk
profile of ADBs financing portfolio. Syndications may be arranged on an individual, portfolio, or
any other basis consistent with industry practices. Syndications may be made through a variety
of structures, including the following:
3
4
(i)
Fronting arrangements, which allow ADB to transfer or pass through all risks and
share associated recovery rights with syndicate members with respect to a loan or
guarantee provided by ADB under its name. Fronting arrangements constitute
funded risk participations by third parties whereby ADB does not assume any credit
risk on the underlying project. ADB also does not assume any counterparty risk on
the performance of the financing partner. These arrangements include the lenderof-record (LOR) and guarantor-of-record (GOR) structures, whereby all the
financial risk of the LOR or GOR tranche is typically borne by the syndicate
members or, with regard to funding risk, by the borrower. The borrower has no
contractual relationship with the institutions that participate in either an LOR or a
GOR structure. ADB maintains responsibility for the administration of an LOR or
GOR structure, including collecting and transferring payments of interest and
repayments of principal under an LOR structure and recoveries under any LOR or
GOR structure. A form of LOR widely known in the marketplace is the B loan.4
Fronting arrangements may combine various forms of CEPs. For example, ADB
may provide a political risk guarantee for the benefit of B loan participants.
(ii)
Nonfunded risk participation arrangements,5 which enable ADB to transfer risk

and to share any associated recovery rights with respect to a loan or guarantee
provided by ADB with one or more syndicate members. Under such arrangements,
ADB may provide funding or risk-taking capacity against an undertaking by the
syndicate member to compensate ADB in case of loss, for example, when ADB
has better access to long-term, fixed rate local currency than its financing partners.
In such instance, ADB may assume counterparty performance risk with respect to
syndicate members. As with the LOR and GOR, upon default by the borrower and
payment of scheduled payment by the participant, the risk participant will not have
the right to step into the rights of or subrogate ADB against the borrower.
Depending on whether ADB retains risk or not, there may or may not be a contingent financial liability to ADB.
A B loan is a tranche of a direct loan nominally advanced by ADB (usually in foreign currency), subject to eligible
financial institutions taking funded risk participations within such a tranche. It complements an A loan funded by
ADB.
Such arrangements might also be referred to as reinsurance depending on the parties involved and how and what
risks are transferred.
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OPERATIONS MANUAL
BANK POLICIES (BP)
(iii)
Sell-down arrangements, which allow ADB to fully pass on certain risks through
transfers or assignments without any further contractual obligation by ADB with
regard to the risk passed on.
7.
Risks Covered. Guarantees and syndications allow ADB to share a wide range of risks
that are inherent to its own lending operations with eligible partners. These include, but are not
limited to, the following:
(i)
political risks associated with expropriation, currency inconvertibility or nontransfer,

political violence, breach of contract, and other events arising from political causes;
and
(ii)
credit risks associated with a borrowers inability to fulfill its debt service and
repayment obligations on time because of events of a commercial nature.
8.
Risk Sharing. Guarantees will be structured with a view to aligning the interests of ADB
and its financing partners by ensuring that the financing partner shares some of the
transactional risk. As a general principle, ADB will seek risk-sharing arrangements that set
ADBs net exposure under a guarantee at the lowest level required to mobilize the necessary
financing while maintaining a participation that is meaningful to its financing partners. However,
within its prudential and other limits, ADB may be permitted to guarantee up to 100% of principal
and interest under a financing partners debt instrument if this is required from a business
perspective.6
9.
Eligible Financing Instruments. CEPs may support a variety of financial instruments
that constitute debt obligations, but may not support financing provided under official
development assistance.7 Debt obligations can be funded or unfunded and take many forms,
including, but not limited to, (i) senior, subordinated, mezzanine, and convertible debt; (ii) project
or limited recourse finance; (iii) tier 2 capital raised by banks; (iv) shareholder loans; (v) capital
market debt instruments, including synthetic or structured securities, and related underwriting
and liquidity support arrangements; (vi) performance, bid, advance payment, and other payment
bonds and forms of bond issuances; (vii) letters of credit, promissory notes, bills of exchange, or
other forms of trade finance instruments; and (viii) other forms of scheduled or contingent
liabilities that constitute debt.
10.
Eligible Financing Partners. CEPs may be undertaken with a wide range of
international and local financing partners in the public or private sector, including, but not limited
6
For example, ADB may guarantee 100% of principal and interest in the case of guarantees for securitizations with
respect to the assets held by an originator. In such cases, ADB will usually seek to share and mitigate risks further
through syndication arrangements.
As defined by the Development Assistance Committee of the Organization for Economic Co-operation and
Development, this comprises financial flows to developing countries and multilateral institutions provided by official
agencies (including state and local governments or their executive agencies), with each transaction meeting the
following test: (i) it is administered with the promotion of economic development and welfare of developing
countries as its main objective; and (ii) it is concessional, with a grant element of at least 25% (calculated at a
discount rate of 10%).
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BANK POLICIES (BP)
to, commercial banks, development banks, insurance companies, pension funds, capital market
participants, export credit agencies, export-import banks, suppliers, investors, insurers,
reinsurers, and other commercially-oriented entities. ADB may share risks with official agencies
(that is, those that exercise a public policy mandate) provided they do not obtain their
transactional capital from official development assistance sources and do comply with marketbased principles in their operations, including the provision of commercial financing terms.8 ADB
will assess on a transactional basis the suitability of financing partners to participate in any
guarantee or syndication arrangement.9
11.
In addition to the foregoing criteria, the following criteria apply to syndicate members
under LOR and nonfunded risk participation arrangements: (i) for foreign currency loans, the
transactional financing cannot be sourced from the country of the borrower or the project;10 and
(ii) a syndicate member cannot require national content or tied procurement for its financing.
12.
Further to the criteria in para. 10, the following additional criterion applies to participants
under guarantee and GOR arrangements: for guarantees of foreign currency loans, the
guaranteed funds must be sourced offshore, or at the time the guarantee is issued, it had to
have been possible for the guaranteed funds to have been transferred outside the country of the
borrower or the project.
13.
Eligible Countries and Obligors. Any country eligible for loans from ADBs ordinary
capital resources or from the Asian Development Fund can benefit from ADBs CEPs. CEPs can
support sovereign, subsovereign, or nonsovereign borrowers, with or without direct sovereign
indemnity or counterindemnity from the host country.
14.
Sovereign Counterindemnities. Sovereign counterindemnities for guarantees are
important risk mitigation instruments for ADB. For nonsovereign operations, they are optional,
but in some cases may be required from a business perspective to make a transaction happen.
A sovereign counterindemnity may enable ADB to apply sovereign loan equivalent-based
pricing (para. 21), to extend tenors, and to increase limits, as transactions benefiting from such
counterindemnity are not subject to ADBs nonsovereign exposure limits. For nonsovereign
operations, a sovereign counterindemnity may be considered, in particular, if (i) the DMC or the
project benefits from improved financial terms that translate into public benefits, or (ii) the
obligor is owned in whole or in part by the public sector or is under direct or indirect control of
the sovereign. Counterindemnities may also be appropriate for political risks that are under the
control of the host government. For countries that can borrow only from Asian Development
In case of financing partnerships on noncommercial terms with official agencies, other arrangements for parallel or
joint cofinancing that do not entail credit enhancement and risk transfers may take place, including contractual
arrangements on procedural coordination or administrative and agency functions provided by ADB.
9
This will also include a consideration of the participants financial health or creditworthiness.
10
However, for local currency loans, domestic institutions or offices or branches of a foreign institution that sources
financing locally in the country of the borrower are eligible to be syndicate members. (While there is no
convertibility or transferability risk with a local currency loan, the syndication structure still benefits borrowers by
simplifying administration and documentation, as ADB is the sole lender of record, and by completing the clients
financing plan.)
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BANK POLICIES (BP)
Fund resources,11 sovereign counterindemnities will be considered only if the underlying project
has a strong development impact and does not undermine the countrys debt sustainability.12
15.
Participation Requirement. Any ADB financing instrument13 can satisfy the participation
requirement for a guarantee provided that both the guarantee and ADBs anchor intervention
have the same development objective and relate to the same sector or project, and that the
guarantee is processed according to standards that are no less rigorous than those for direct,
noncontingent investments by ADB, taking into account (i) the types of risks being guaranteed,
(ii) the risks to ADB inherent in the guaranteed obligations, and (iii) the recourse to ADB
following a payment under the guarantee.
16.
Guarantee Facilities. ADB can provide guarantees through individual transactions or
through facilities under which ADB may issue multiple guarantees. A guarantee facility may be
processed as a multitranche financing facility,14 and should have a predefined aggregate
exposure limit and a defined range of guaranteed risks and eligibility criteria for multiple
guarantees to be issued by ADB there under. Once the Board approves a facility, management
may approve subsequent transactions issued under the facility in accordance with procedures
set out in the framework financing agreement and/or the related report and recommendation of
the President with respect to the facility. Each guarantee issued under a facility will require an
appropriate level of due diligence and analysis of the risks assumed by ADB and ADBs
recourse following payment under a guarantee. This will include, but not be limited to, an
appropriate and satisfactory review of legal, commercial, and financial matters.
17.
Timing. Guarantees can be processed for approval at the time of processing and
approval of the project or program that satisfies the participation requirement (the anchor
investment), or at any time thereafter during implementation of the anchor investment and
before ADB closes the related loan, equity investment, or technical assistance account.
Syndications can occur before the financial close or during the tenor of the underlying ADB
financing depending on market conditions; the status of the associated project; and the need for
ADB to adjust its portfolio exposure from time to time, as necessary. If a guarantee is presented
to the appropriate authorities for consideration subsequent to the approval of the report and
recommendation of the President or technical assistance paper for the underlying anchor
11
Group A countries under ADBs graduation policy. See ADB. 1998. A Graduation Policy for the Banks DMCs.
Manila.
12
Although the underlying loan would normally be financed from market sources, the counterindemnity for any CEPs
provided by ADB may be counted against the Asian Development Fund lending ceiling for the country. The final
assessment in this regard will be made during processing, and will also take the project structure, the scope of
coverage, and the countrys debt sustainability (including the ability of the country or project to indemnify ADB with
foreign exchange in case of default) into account. The assessment of debt sustainability would normally entail
consultations and understandings with the International Monetary Fund, as appropriate.
13
Such as project loans, program loans, multitranche facilities, sector loans, sector development programs, equity,
project grants, technical assistance grants, or any other financing form that the Board may approve.
14
The Pilot Financing Modalities and Instruments Project (R194-05) approved the use of a multitranche financing
facility (paras. 3443), and approved its application to guarantees (para. 42). ADB. 2005. Pilot Financing
Modalities and Instruments. Manila.
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BANK POLICIES (BP)
investment, a separate paper detailing the guarantee arrangements will be prepared for
consideration by such appropriate authorities.15
18.
Tenors. Tenors of CEPs are subject to risk considerations and market conditions. They
should normally not exceed the maximum tenor of ADBs ordinary capital resources lending
operations, as may be adjusted from time to time, and there is no minimum tenor. One of the
key objectives in providing syndications in the form of fronting and nonfunded risk participations
is to extend tenors.16
19.
Currencies. CEPs may be denominated in any currency in which ADB can efficiently
intermediate, including the borrowers local currency.17 For guarantees in any currency, all
relevant approvals required in the host country with respect to the funding by ADB of such
guarantees must be in place. Issues that must be considered with respect to such funding are (i)
the timing ADB requires to obtain such local currency in view of the payment obligation under
the guarantee, and (ii) the pricing at which ADB would obtain such funding (which may not be
reflected in the pricing of the guarantee and guaranteed loan to which ADB would subrogate).
D.
Pricing
20.
Fee Structure. Pricing comprises fees to compensate for the cost of capital, risk, and
general operations (adjusted for market conditions, as appropriate), as well as fees to cover
transaction-specific costs of processing and implementation. Pricing can be on an all-in basis
to improve comparability and transparency (with the various components calculated separately).
The Pricing and Credit Enhancement Committee will consider terms and approve pricing for
each CEP.18
21.
Guarantee Fees. Guarantee fees may differ depending on whether ADB benefits from a
sovereign counterindemnity or not. If a counterindemnity is partial (that is, it covers only
selected risks, amounts, or periods), the final price blends the price applicable for the respective
parts. ADB will charge guarantee fees as follows:
(i)
15
Guarantees without sovereign counterindemnity. For guarantees that do not

benefit from sovereign counterindemnity (both for public and private sector
obligors), fees will be market-based and take into consideration, among other
things, (a) relative risk, (b) market price indicators, and (c) project-specific
considerations.
The Pricing and Credit Enhancement Committee (PCC) will review any risk sharing arrangement (including any
sell-down arrangement) that will effect a reduction in the risk of any existing ADB commitment. Any approval by
the PCC of such risk sharing arrangement will be reported to Management and the Board through quarterly risk
management reports prepared by RMU.
16
In some cases, however, CEPs may be for short tenors if the underlying obligations are short term, such as traderelated products.
17
In accordance with the policies governing ADBs loan products based on the London interbank offered rate and the
local currency loan product. See ADB. 2006. Enhancements for Asian Development Banks Loan and Debt
Management Products. Manila; and ADB. 2005. Introducing the Local Currency Loan Product. Manila.
18
The Risk Management Unit is developing guidelines for risk assessment and risk-based pricing. The Office of
Cofinancing Operations will provide market comparator information.
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BANK POLICIES (BP)
(ii) Guarantees with sovereign counterindemnity in support of financing to public

sector obligors. Where ADB guarantees financing with the benefit of a sovereign
counterindemnity (para. 14) to a sovereign or an entity or entities owned in majority
(more then 50%, directly or indirectly), by such a sovereign, ADBs guarantee fee
will be based on sovereign loan equivalency.19 Such pricing will not exceed ADBs
ordinary capital resources sovereign lending spread (after any waivers or
surcharges that may apply) for an analogous sovereign loan and will take into
account the lower operating cost of guarantees.
(iii) Guarantees with sovereign counterindemnity in support of financing to
private sector obligors. Where ADB guarantees financing with the benefit of a
sovereign counterindemnity (para. 14) other than financing described in subpara. (ii)
above, ADB may charge either (a) a market-based guarantee fee to avoid market
distortions or to avoid suppressing market development (not less than the sovereign
loan equivalency, as specified in subpara. [ii] above), or (b) a guarantee fee based
on sovereign loan equivalency. Where a market-based fee is charged and where
ADBs risk is effectively mitigated through the counterindemnity, ADB will retain for
its own account only the fee that equates to sovereign loan equivalency applied to
the counterindemnified amount,20 with any remainder being applied in a transparent
manner for the benefit of the project and/or the government, as mutually agreed
with the government.21
22.
Syndication Fees. In relation to syndications that involve ADB retaining counterparty,
documentation, underwriting, or other syndication-related risk, ADB may charge or pay marketbased ceding commissions, risk participation fees, and/or other customary fees.
23.
Administrative and Other Fees. ADB may charge or pay administrative and other fees
that are specific to the processing and implementation of a CEP, consistent with industry
practice. Fees for applications and processing, arranging syndications and guarantees
(including capital provisioning for undrawn amounts), brokerage, commissions or other fees,22
as appropriate, may be charged or paid by ADB on a case-by-case basis in accordance with
best industry practices. A schedule of applicable standard fees to be charged or paid by ADB,
as approved by the Pricing and Credit Enhancement Committee, may be issued from time to
time to prospective financing partners for information and transparency.
19
As determined by the Treasury Department from time to time.

For transactions where the sovereign counterindemnity covers only part of ADBs total guaranteed amount or only
certain types of risks, ADB will retain the sovereign guarantee fee on a blended basis, with prorated distribution
between the sovereign guarantee fee (for the guarantee portion with sovereign counterindemnity) and the market
comparable pricing (for the portion without sovereign counterindemnity).
21
For example, by paying any difference between the market price and the fee retained by ADB into an appropriate
reserve held in trust by ADB or by an acceptable third party. Such reserve could then be applied, for example, for
output-based aid, or for related capacity-building activities. This allows a more transparent and targeted application
of any implied subsidies that may arise out of the counterindemnity, and avoids a situation where such subsidies
are passed on to private sector obligors or financing partners without benefits to the public in the DMC.
22
This could include, for example, fees for the cost of expert consultants or reimbursement of discretionary expenses
by ADB staff directly associated with a project.
20
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BANK POLICIES (BP)
24.
Payment Arrangements. Fees will be paid to ADB by the assigned beneficiary of a
guarantee (guarantee holder) or other acceptable party, either directly or indirectly through an
administrative agent, as a lump sum or in agreed periodic installments either in advance or in
arrears, in line with market practice, and taking ease of administration into account. Fees related
to syndications can be paid upfront, at the time related agreements are signed, or spread over
the life of the syndication, as appropriate.
Basis:

ADB. 2006. Review of ADBs Credit Enhancement Operations. Doc. R16806. Manila.
For other background information and reference, see

ADB. 2006. ADBs Financing Partnership Strategy. Doc. Sec.M56-06. Manila.
Compliance:
For inquiries:
Questions may be directed to the principal director, Office of Cofinancing

Operations.
18 December 2007
This supersedes OM Section D9/BP
Prepared by the Office of Cofinancing Operations

OM Section D9/OP
Page 1 of 5
OPERATIONS MANUAL
CREDIT ENHANCEMENT OPERATIONS
A.
Functional Responsibilities and Accountabilities
1.
Functional Responsibilities. The processing of credit enhancement products (CEPs)
requires close consultation between operational departments (regional departments and the
Private Sector Operations Department); the Office of Cofinancing Operations (OCO); and other
service departments, including the Controllers Department, the Office of the General Counsel
(OGC), the Risk Management Unit (RMU), and the Treasury Department. Operational
departments will lead the processing, structuring, and due diligence of projects benefiting from
Asian Development Bank (ADB) financing and maintain the primary relationship with the
borrower. In doing so, such departments will coordinate closely with OCO with regard to the use
of CEPs.1 OCO will perform the key functions related to arranging syndications and maintain the
primary relationship with financing partners and syndication members.2 These functions include
(i) undertaking due diligence related to counterparty and other risks associated with
syndications; and (ii) arranging and finalizing any syndication to manage ADBs net exposure in
compliance with ADBs relevant statutory, strategic, and prudential limits. OCO will also provide
technical and policy advice to operational departments on the development and processing of
guarantees; lead product development and related knowledge management activities; and lead
and coordinate the management of relationships with financing partners (para. 9).
B.
Processing and Administration of CEPs
2.
Alignment with ADBs Business Processes. Processing of CEPs is usually linked to
the processing of ADBs lending operations. When a CEP is undertaken in conjunction with an
underlying ADB loan, equity investment, or technical assistance project, the CEP will be
processed in conjunction with that loan, equity investment, or technical assistance project for
consideration by the Board in a single report and recommendation of the President (RRP).3
When a guarantee is linked to ADB financing that was already previously approved, including,
for example, a technical assistance, sector, policy, or project loan; an equity investment;
multitranche financing; or a guarantee facility, a separate RRP detailing the guarantee
arrangements will be prepared for approval by the Board. In such cases, the processing steps
for guarantees will be similar to those that would apply if ADB were processing a direct loan to
the underlying obligor whose obligations are guaranteed. The Pricing and Credit Enhancement
Committee (PCC) will review any risk sharing arrangement (including any sell-down
arrangement) that will effect a reduction in the risk of any existing ADB commitment. Any
Within the project team, OCO will carry out functions related to the processing of CEPs as appropriate and as
agreed with the project team leader at the beginning of the process.
Such functions will be executed in close consultation with the relevant operational department as well as with the
RMU and the OGC (para. 3).
This excludes sell-down arrangements.
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OPERATIONS MANUAL
approval by the PCC of such risk sharing arrangement will be reported to Management and the
Board through quarterly risk management reports prepared by RMU.4
3.
The following activities related to CEPs will normally be carried out at various stages of
the project cycle:
(i)
Project origination to concept clearance. The potential for CEPs will be

considered at an early stage of the project cycle and will take informal consultation
with the market into consideration. The concept clearance paper the project team
prepares for the proposed financial assistance will describe any proposed CEP,
identify its benefits, and present any key issues to be considered. Upon concept
clearance, OCO specialists will be assigned to support the project team in relation
to CEP-related matters, as agreed with the project team leader.
(ii)
Initial terms and pricing clearance. The PCC will meet shortly after concept
clearance and prior to due diligence to establish broad parameters for the
proposed CEP. The terms and conditions of any guarantee or syndication
proposal, including indicative pricing, shall only be submitted to prospective
financing partners following endorsement of such terms and conditions by the
PCC.5 The PCC may meet intermittently during the project processing cycle to
provide further endorsement as required.
(iii)
Due diligence. The project team, with the assistance of the OCO and the OGC
and in close consultation with the RMU, will conduct financial, business, and legal
due diligence, as well as due diligence for safeguard and other policy compliance.
OCO will lead the due diligence related to counterparty and other risks associated
with syndications in close collaboration with the operational department processing
ADBs investment.
(iv)
Credit assessment. In accordance with applicable policy and procedures, the

RMU will conduct an independent assessment of the risk analysis for the proposed
CEP, together with the project risk assessment, and will provide its credit review
and recommendations prior to submission of the proposed financing for
management review.
(v)
Management review. A draft RRP that describes the proposed CEP will be
circulated for interdepartmental review and comment and will then be presented for
The PCC comprises representatives from the Controllers Department, the Office of Cofinancing Operations, the
Office of the General Counsel, the Private Sector Operations Department, regional departments, the Risk
Management Unit, and the Treasury Department, as well as the managing director general. A member from a
nonoperational department chairs the committee.
The PCC may, at its discretion, elect to authorize the project team to communicate generic indicative terms and
conditions to prospective financing partners prior to its endorsement.
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OPERATIONS MANUAL
management review in accordance with the procedures that apply to nonsovereign
operations.6
(vi)
Board approval. Except in the case of sell-down arrangements, an RRP

describing the proposed CEP will be submitted for Board consideration and
approval in accordance with the procedures that apply to nonsovereign or, as the
case may be, sovereign operations.
(vii) Approval and execution of guarantee and syndication arrangements. CEP

arrangements may only be executed after the PCC has cleared pricing and
commercial terms. Such clearance, if given with respect to pricing, may be of an
acceptable range of prices and, if given with respect to commercial terms, may be
of both proposed terms and acceptable alternatives. Guarantee and syndication
agreements between ADB and financing partners must be executed in accordance
with the provisions of paragraphs 2.7 and 2.8 of Administrative Order 1.03.
(viii) Administration. Guarantees will be administered in accordance with ADBs
project administration instructions. OCO will provide centralized credit
enhancement and syndication services, including monitoring credit enhancement
and syndication arrangements across ADB, communicating with syndication
partners, and providing other related services. In case of a claim under a
guarantee or a default under a loan that has been syndicated, the claims
committee (para. 4) will provide specific guidance.
4.
Claims committee. To ensure sound risk management, a claims committee will be
established to provide guidance on actions to be taken with respect to a claim or potential claim
under a guarantee or a default or potential default under a loan that is syndicated. The
membership of the claims committee will be similar to that of the PCC (footnote 4). The claims
committee will convene if and when required upon notification by the operational department in
charge of project administration. It will do so as soon as any problem arises that could result in a
claim or loan default.
C.
Product Development, Innovation, and Knowledge Management
5.
Product Development. OCO will be responsible for drafting, maintaining, and updating
staff instructions and other guidelines for processing and implementing guarantees and
syndications and claims management. OCO will also be responsible for developing relevant
intermediation products, services, and approaches, which may require regular consultations
with the market on new market trends and requirements. The OGC will continue to develop and
maintain standard documentation for CEPs.
If a CEP is intended for financing sovereign operations, the standard procedures for sovereign operations apply.
Refer to OM Section D11: Processing Sovereign and Sovereign-Guaranteed Loan Proposals.
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OPERATIONS MANUAL
6.
Credit Enhancement Practice Group. The Credit Enhancement Practice Group, a
technical, interdepartmental working group composed of representatives from the Controllers
Department, the Office of Cofinancing Operations, the Office of the General Counsel, the
Private Sector Operations Department, regional departments, the Risk Management Unit, and
the Treasury Department,7 will
(i)
(ii)
serve as an interdepartmental knowledge-sharing and consultation platform, with

OCO as its secretariat and also being responsible for its management; and
coordinate and formulate collective views on and advise and mentor operational
departments in the processing of guarantee operations and the use of
syndication arrangements, in particular, for innovative applications of CEPs.
7.
The Credit Enhancement Practice Group will meet on a regular basis, at least twice a
year or more often, as appropriate, at the request of any of its members.
8.
Knowledge Management. OCO will function as a knowledge resource and CEP
competency center and will build awareness of ADBs cofinancing products and approaches
within ADB and with ADBs financing partners. OCO will also be responsible for developing
appropriate information and training materials; carry out knowledge-sharing and training events;
and formulate inputs pertaining to CEPs in relation to supporting ADB-wide regional and
thematic initiatives, such as for regional capital market development, infrastructure finance, or
trade promotion.
D.
Relationship Management and Awareness Building for Credit Enhancement

Operations
9.
Relationships with financing partners involved in guarantee operations and syndications,
including commercial banks, political risk insurers, and other potential or actual syndicate
members, will be led and coordinated by OCO at the institutional level, while operational
departments will maintain working relationships with such financing partners in relation to
specific projects. OCO will also promote the dissemination of information on ADBs CEP
products and services and keep financing partners updated on relevant developments.
E.
Policy Monitoring and Coordination
10.
OCO will monitor progress in policy implementation and will report such progress
annually to the Board through the report on cofinancing and financing partnership operations.
OCO will coordinate implementation of the credit enhancement operations policy and lead the
formulation of any further staff instructions, guidance notes, or other related documents that
may be required.
In addition, the Office of the Auditor General may participate as an observer.
OM Section D9/OP
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OPERATIONS MANUAL
Basis:
This OM section is based on OM Section D9/BP and the documents cited

therein.
Compliance:
This OM is subject to compliance review.
For inquiries:
Questions may be directed to the principal director, Office of Cofinancing

Operations.
18 December 2007
This supersedes OM Section D9/OP

OM Section D1/BP
Issued on 2 May 2012
Page 1 of 8
OPERATIONS MANUAL
BANK POLICIES (BP)
These policies were prepared for use by ADB staff and are not necessarily a complete treatment
of the subject.
LENDING POLICIES FOR SOVEREIGN AND SOVEREIGN-GUARANTEED BORROWERS
(Ordinary Capital Resources)1
A.
Definitions
Cap
A ceiling that sets an upper limit for a floating interest rate.
Floor
A floor that sets a lower limit for a floating interest rate.
Collar
A combination of a cap and a floor that sets an upper and

lower limit for a floating interest rate.
Prepayment
Repayment of a loan in advance of the maturity period

specified in the loan agreement.
B.
Introduction
1.
The lending operations of the Asian Development Bank (ADB) consist of ordinary and
special operations pursuant to Article 9 of the Agreement Establishing the Asian Development
Bank (the Charter)2. Loans under ordinary operations are financed from ADB's ordinary capital
resources (OCR) described in Article 7 of the Charter. Article 11 specifies to whom ADB may lend
and the methods of operation. Article 13 authorizes lending by ADB in local currencies that are not
obtained from sales of gold or convertible currencies to finance local expenditures of a project.
Article 14 refers to the principles under which ADB's lending operations are conducted.
C.
Expenditures Financed by ADB
2.
ADB loans finance the foreign exchange costs and local expenditures of projects, subject
to the rules on cost sharing and eligibility of expenditures.3
D.
LIBOR-Based Loans
1.
Terms of Lending
3.
ADB offers its sovereign and sovereign guaranteed borrowers London interbank offered
rate (LIBOR)-based loans (LBLs) that carry a floating lending rate consisting of the 6-month
1
2
3
Applicable to London interbank offered rate (LIBOR)based loans and local currency loans made from ADBs
ordinary capital resources to sovereign and sovereign-guaranteed borrowers. See Operations Manual (OM) section
D10 for loans made to nonsovereign borrowers. Policy-based loans referred to in OM section D1 include stand-alone
policy-based loans and subprogram loans under the programmatic approach. See OM section D4 (Policy-based
Lending) for special policy-based lending and countercyclical support facility lending.
See OM section H3 (Cost Sharing and Eligibility of Expenditures for ADB Financing).
OM Section D1/BP
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BANK POLICIES
LIBOR or another relevant floating rate benchmark, as applicable, and an effective contractual
spread and, where applicable, a maturity premium fixed over the life of the loan. An LBL has
market-based features that provide a transparent basis for borrowers to compare the terms of
ADB loan products with those of other lenders and to be amenable to efficient intermediation by
ADB on the best possible terms.
4.
The LBL product provides a high degree of flexibility to borrowers, while providing low
intermediation risk to ADB. Borrowers are given (i) the choice of currency and interest rate basis;
(ii) various repayment options; (iii) the ability to change certain terms of the original loan
agreement at any time during the life of the loan, subject to certain conditions;4 and (iv) the option
to purchase a cap or a collar on the floating lending rate at any time during the life of the loan.
5.
Loans may be made on a floating-rate basis5 and may be denominated in euros, yen, US
dollars (standard currencies), or other foreign currencies in which ADB can efficiently
intermediate (nonstandard currencies). With a floating-rate loan, the lending rate is reset every 6
months on each interest payment date. The lending rate is the cost-base rate plus an effective
contractual spread (fixed spread less permanent credit) and a maturity premium, where
applicable, that is fixed in the loan agreement. The cost-base rate is equal to the 6-month LIBOR
for US dollar- and yen-denominated loans, and the 6-month euro interbank offered rate for
euro-denominated loans, or an appropriate floating rate benchmark for nonstandard currencies
other than for local currency loans, and is reset every 6 months.
6.
The effective contractual spread is 20 basis points for loans negotiated from 1 October
2007 to 30 June 2010, 30 basis points for loans negotiated from 1 July 2010 to 30 June 2011, and
40 basis points for loans negotiated on or after 1 July 2011.6 Borrowers may direct ADB to
implement a series of interest rate fixings automatically either by period or by amount. For project
loans, borrowers also may capitalize the interest.
7.
The maturity premium 7 is 10 basis points per annum for loans with an average loan
maturity8 of greater than 13 years and up to 16 years, and the maturity premium is 20 basis points
per annum for loans with an average loan maturity of greater than 16 years and up to 19 years.9
4
5
6
Borrowers may change the interest rate basis or currency of the original loan agreement, subject to certain minimum
and maximum amounts. However, borrowers may not revise or otherwise amend the term of the loan or the stated
grace period for the loan.
Borrowers may request an interest rate conversion (para. 15).
A fixed spread of 60 basis points net of a permanent credit of 40 basis points for loans negotiated from 1 October
2007 to 30 June 2010, a permanent credit of 30 basis points for loans negotiated from 1 July 2010 to 30 June 2011,
and a permanent credit of 20 basis points for loans negotiated on or after 1 July 2011.
The maturity premium is applicable to all LBLs (other than project design facility loans) for which formal loan
negotiations are completed on or after 1 April 2012.
In this OM Section D1/BP, average loan maturity means the weighted average time to repay a loan, which is
calculated as the average of the number of years until each principal repayment amount of the loan is due, weighted
by the principal repayment amounts. The method for calculating the average loan maturity is set out below:
Average loan maturity = Sum of weighted repayments
Sum of total repayments
The project team should notify the borrowers of the applicability of the maturity premium as early as possible in the
loan processing cycle. The maturity premium for a proposed LBL should be agreed with the borrower during the loan
fact-finding mission and reflected in the memorandum of understanding or aide-mmoire for the fact-finding mission.
OM Section D1/BP
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OPERATIONS MANUAL
BANK POLICIES (BP)
8.
LBLs provide for rebates and surcharges. Since the principle of automatic cost
pass-through pricing is maintained for LBLs, ADB returns the actual sub-benchmark funding cost
margin achieved to its LBL borrowers through rebates. A surcharge could arise if ADBs funding
cost is above the benchmark. The rebate and surcharge are calculated on 1 January and 1 July
each year, based on the actual average funding cost margin for the preceding 6 months for each
currency. Rebates and surcharges shall be applied to the upcoming interest period.
9.
For loans negotiated before 1 October 2007, ADBs Board of Directors may approve
certain waivers applicable to ADB loan charges, including the lending spread, front-end fee, and
commitment charge.10 Waivers will apply only to loans without arrears. The waiver mechanism
has been discontinued for loans negotiated on or after 1 October 2007.
10.
A commitment charge of 15 basis points per year is levied on undisbursed balances of all
project and policy-based loans, beginning 60 days after the applicable loan agreement is signed
and accruing when the loan becomes effective.11 For project loans, borrowers may capitalize the
commitment charge.
11.
The repayment term on an LBL is based primarily on the economic life of the project. The
financial condition of the borrowing entity and the revenue-earning capacity of the project may
also be taken into account. Subject to these primary project considerations, the repayment period
also takes into account the debt-service capacity of the borrowing developing member country
(DMC). The loan term, which comprises the repayment term and the grace period, is subject to an
average loan maturity limit of 19 years.12 The grace period is based mainly on the time needed for
the project to become operational but may be modified to reflect country considerations (i.e., the
debt-service capacity of the borrowing DMC) and other project considerations (e.g., the social
benefits of the project and the revenue-earning capacity of the executing agency). Policy-based
loans and technical assistance loans have fixed repayment and grace periods that are shorter
than those for investment projects. ADB offers two types of repayment schedules for borrowers:13
(i) commitment-linked repayment schedules in which the loans repayment schedule starts from
the beginning of the interest period following loan signing, and (ii) disbursement-linked repayment
schedules in which disbursed amounts have individual repayment schedules that start from the
beginning of the interest period following disbursement. In either case, repayment can be made
on the basis of any of the following options: (i) annuity-style method, (ii) straight-line repayment,
10
The waivers that are in effect at any point are available at ADBs website.
Applicable to project and policy-based loans negotiated on or after 1 October 2007.
12
Applicable to all LBLs (other than project design facility loans) for which formal loan negotiations are completed on or
after 1 April 2012.
13
When loan signing is delayed beyond 1 year because of exceptional circumstances, and ADB consequently
approves an extension to the loan signing date, the repayment schedule may, if so requested by the borrower, be
revised at the time ADB approves the extension. The grace period and the loan term remain the same as approved
by the Board, with the grace period starting from the time ADB approves the extension.
11
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(iii) bullet repayment, and (iv) custom-tailored repayment to match the cash flow projections of the
borrower.14 ADB does not participate in debt rescheduling agreements for sovereign loans.
2.
Prepayment and Cancellation of Loan
12.
Borrowers may prepay in part or in full the disbursed and outstanding loan balance at any
time during the life of a loan by notifying ADB in writing at least 45 days before the prepayment.
Partial prepayments are applied to the amortization schedule in inverse order of maturity, with the
most distant maturity being repaid first. Partial prepayment should be at least equal to the entire
principal amount of any one or more maturities of the loan. In case of financial intermediation
loans, the disbursed amount that has been withdrawn last should be repaid first.
13.
For floating-rate loans, borrowers may prepay outstanding amounts on the interest
payment date of the loan without a prepayment premium. However, prepayments of floating-rate
loans on dates other than interest payment dates are charged a prepayment premium based on
the difference, if any, between the rate at which the proceeds from the prepayment can be
reinvested and ADBs funding cost for the period up to the next interest payment date. In the event
of prepayment of fixed-rate loans or floating-rate loans that involve conversions, and if the
corresponding hedge transactions have to be terminated, the borrowers are charged the
unwinding costs of the hedge transactions that ADB incurs.
14.
With the concurrence of the guarantor (if any), borrowers may cancel all or part of the
undisbursed loan balance at any time during the life of the loan without a fee, subject to the same
notice period.
3.
Loan Conversion Options
15.
Borrowers may request a currency conversion of all or a portion of the principal amount of
the loan after review of its original currency choice and interest rate structure. At any time after
loan effectiveness, borrowers may (i) for conversions to any standard currency, change the loan
currency of all or part of the undisbursed or disbursed loan amounts at any time during the life of
the loan; (ii) for conversions to any nonstandard currency in which ADB can effectively
intermediate (other than for conversions to a local currency), change the loan currency of all or a
part of the undisbursed or disbursed loan amounts at any time during the life of the loan, provided
that ADB can enter into the necessary hedging transaction; (iii) request an interest rate
conversion from floating to fixed or vice versa during the life of the loan; or (iv) establish an
interest rate cap or collar on a floating rate, subject to relevant swap market opportunities
available to ADB. The use of the conversion provisions in the loan agreement is subject to the
relevant provisions of the applicable loan regulations and conversion guidelines.15
14
Applicable to project loans negotiated after 1 January 2007. Bullet repayment refers to one single repayment at the
end of the loan term. Custom-tailored repayment refers to an amortization structure that would meet the exact
cash-flow structure of the project. However, such customization will be limited to determining the repayment structure
in (potentially uneven) percentage terms that cannot be changed after loan signing.
15
This is a unilateral document that ADB can change anytime to provide flexibility in executing conversion requests.
The guidelines set out the procedures for requesting, accepting, and effecting conversions as specified in the loan
agreement.
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16.
For conversions to a local currency, borrowers may request a conversion of all or a portion
of the withdrawn and outstanding amount of the loan on a case-by-case basis upon the advice of
the Treasury Department. Conversions to a local currency are permissible only for fully disbursed
loans. An annual fee of 2 basis points will be charged on the outstanding principal hedged amount
of the loan. Subject to availability in the local market, local currency loans, upon conversion, can
be offered at a floating rate or fixed rate.
17.
Local currency conversions of withdrawn and outstanding loan balances will be an
approximate hedge only. They do not include the lending spread or any potentially applicable
rebates, surcharges, or waivers, which will remain in the original loan currency.
18.
Before conversion to a local currency can be undertaken, the loan agreement shall be
amended to allow for the conversion. The loan regulations applicable to local currency ordinary
operations shall apply to that portion of the loan converted to a local currency.
E.
Local Currency Loans

1.
Terms of Lending
19.
In selected DMCs, ADB offers its borrowers local currency loans (LCLs) to finance the
local expenditures of a project. An LCL has market-based features that provide a transparent
basis for borrowers to compare the terms of ADB loan products with those of other lenders and to
be amenable to efficient intermediation by ADB on the best possible terms.
20
Loans may be made on a floating rate basis.16 With a floating rate loan, the lending rate is
typically reset every 3 or 6 months on each interest payment date. The lending rate is the
cost-base rate plus an effective contractual spread (fixed spread less permanent credit) and a
maturity premium, where applicable, that is fixed in the loan agreement. The cost-base rate
depends on whether financing in a local currency is based on back-to-back funding or the
pool-based approach.17 For back-to-back funding, the cost-base rate comprises ADBs cost of a
funding transaction undertaken to finance a specific loan, including related swap costs and
negative carry, if any. For a pool-based funding approach, the cost-base rate is based on the local
floating-rate benchmark (equivalent to LIBOR), adjusted by ADBs funding spread over or below
the benchmark.
21.
The effective contractual spread is 20 basis points for loans negotiated from 1 October
2007 to 30 June 2010, 30 basis points for loans negotiated from 1 July 2010 to 30 June 2011, and
40 basis points for loans negotiated on or after 1 July 2011.
16
17
Borrowers may request an interest rate conversion (para. 28).

The Treasury Department will advise whether funding for a specific project will be undertaken on a back-to-back or
pool basis.
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22.
The maturity premium18 is 10 basis points per annum for loans with an average loan
maturity of greater than 13 years and up to 16 years, and the maturity premium is 20 basis points
per annum for loans with an average loan maturity of greater than 16 years and up to 19 years.19
The repayment term of an LCL is subject to an average loan maturity limit of 19 years.20
23.
A commitment fee of 15 basis points per year is levied on undisbursed balances of all
LCLs, beginning 60 days after signing of the applicable loan agreement and accruing when the
loan becomes effective.
24.
LCLs funded under the pool-based approach provide for rebates and surcharges. Since
the principle of automatic cost pass-through pricing is maintained for LCLs, ADB returns the
actual sub-benchmark funding cost margin achieved to its qualifying LCL borrowers through
rebates. A surcharge could arise if ADBs funding cost is above the benchmark. The rebate and
surcharge are calculated on 1 January and 1 July each year based on the actual average funding
cost margin for the preceding 6 months.
2.
Prepayment and Cancellation of Loan
25.
Borrowers may prepay in part or in full the disbursed and outstanding loan balance during
the life of a loan by notifying ADB in writing at least 45 days before the prepayment. However,
prepayment charges will apply based on the estimated negative carry, if any, that ADB incurs as a
result of the prepayment for the remainder of the term of the prepaid loan. As in prepayments of
LBLs, the negative carry would be calculated based on the difference, if any, between the rate at
which the proceeds from the prepayment could be reinvested and ADBs funding liability for the
prepaid amount. If a fixed-rate loan is prepaid, and the corresponding hedge transactions
terminated, the borrowers will be charged the unwinding costs of the hedge transaction, if any. No
prepayment charge will apply for floating-rate loans funded under the pool-based funding
approach if prepayments occur on interest payment dates.
26.
Borrowers may cancel all or part of the undisbursed balance at any time. No cancellation
charge will apply if ADB follows a pool-based funding approach for the specific local currency. For
back-to-back funding, if ADB has agreed with the borrower to pre-fund the local currency
requirement for a particular loan, and the borrower later decides to wholly or partially cancel the
loan, a cancellation charge will apply based on the same principle used for prepayments (i.e., to
compensate ADB for negative carry costs, if any, resulting from the loan cancellation).
27.
Charges for prepayment and cancellation, and their calculation principles, will be included
in the loan documents to ensure full transparency for borrowers.
18
The maturity premium is applicable to all sovereign-guaranteed LCLs for which formal loan negotiations are
completed on or after 1 April 2012.
19
The project team should notify the borrowers of the applicability of the maturity premium as early as possible in the
loan processing cycle. The maturity premium for a proposed sovereign-guaranteed LCL should be agreed with the
Borrower during the loan fact-finding mission and reflected in the memorandum of understanding or aide-mmoire for
the fact-finding mission.
20
Applicable to all sovereign-guaranteed LCLs for which formal loan negotiations are completed on or after 1 April
2012.
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3.
Interest Rate Conversion Options
28.
Borrowers will be allowed to change the interest rate basis of an LCL at any time during
the life of the loan by requesting a conversion to fix or unfix their interest rate, subject to relevant
swap market opportunities available to ADB in the local market. The terms and conditions that
ADB can achieve by executing the necessary hedging transactions will be passed on to the
borrower, plus a transaction fee of 6.25 basis points, except for the first series of interest rate
conversions for which no fee shall be charged.
4.
Currency Substitution
29.
The local currency loan agreement includes a currency substitution clause. This will allow
ADB to temporarily substitute another currency for the loan currency selected by the borrower if
an extraordinary situation arises that prevents ADB from providing the selected currency for
funding the loan because of access constraints in the local currency capital market.
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Basis:

ADB. 2011. Doc. 240-11. Review of the Asian Development Banks Loan Charges
and Allocation of 2011 Net Income. 14 December. Manila.
ADB. 2010. Doc. R38-10. Review of the Asian Development Banks Loan Charges
and Allocation of 2009 Net Income. 12 April. Manila.
ADB. 2007. Doc. R210-07. Review of the Asian Development Bank's Loan
Charges. 7 December. Manila.
ADB. 2006. Doc. R221-06. Enhancements for the Asian Development Banks
Loan and Debt Management Products. 27 November. Manila.
ADB. 2005. Doc. R195-05. Introducing the Local Currency Loan Product. 25
August. Manila.
ADB. 2001. Ordinary Operations Loan Regulations (Applicable to LIBOR-Based
Loans Made from ADBs Ordinary Capital Resources), 1 July. Manila.
ADB. 2001. Doc. R79-01. Revision 1, Final. Review of Asian Development Bank's
Financial Loan Products. 19 June. Manila.

For inquiries: Questions may be directed to the Assistant Treasurer, Financial Policy and
Planning Division, or the Assistant Treasurer, Funding Division, Treasury
Department.
2 May 2012
Prepared by the Treasury Department and

OM Section D1/OP
Page 1 of 1
OPERATIONS MANUAL
LENDING POLICIES FOR SOVEREIGN AND SOVEREIGN-GUARANTEED BORROWERS
(Ordinary Capital Resources)
This Operations Manual section does not contain operational procedures.
2 May 2012
Prepared by the Treasury Department and

OM Section D10/BP
Issued on 2 January 2013
Page 1 of 8
OPERATIONS MANUAL
BANK POLICIES (BP)
NONSOVEREIGN OPERATIONS1
A.
Introduction
1.
The Asian Development Bank (ADB) undertakes nonsovereign operations to
provide direct financing and/or risk mitigation to entities, or for projects or business
activities, in developing member countries (DMCs). Nonsovereign operations refer to
any loan, guarantee, equity investment, or other financing arrangement that is (i) not
guaranteed by a government; or (ii) guaranteed by a government under terms that do
not allow ADB, upon default by the guarantor, to accelerate, suspend, or cancel any
other loan or guarantee between ADB and the related sovereign.
2.
The Agreement Establishing the Asian Development Bank (the Charter) provides
the following general mandate and operating principles for nonsovereign operations:
(i)
Article 2(i) of the Charter specifies that one of the functions of ADB is to
promote investment in the region of both public and private capital for
development purposes.
(ii)
Article 11 authorizes ADB to provide or facilitate financing to any entity or

enterprise operating in a DMC, as well as to international or regional
entities concerned with economic development of the region.
(iii)
Article 11 also provides that ADB may carry out its operations by making
or participating in direct loans, by investing in the equity capital of an
institution or enterprise, and by guaranteeing loans for economic
development participated in by ADB.
(iv)
Article 12(4) states that if ADB invests in the equity of an enterprise, it

shall not seek to obtain a controlling interest, except where necessary to
safeguard its investment.
(v)
Article 14 stipulates the operating principles applicable to ADBs

operations. In particular, Article 14(xiii) provides that ADB shall not
assume any responsibility for managing an entity in which it has invested,
except where necessary to safeguard its investment. Article 14(xiv)
provides that ADBs operations must be guided by sound banking
principles.
This OM section covers nonsovereign operations other than nonsovereign technical assistance. OM
section D12 (Technical Assistance) addresses issues relating to nonsovereign technical assistance.
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B.
The Policy
3.
Nonsovereign operations aim to catalyze investments and capital flows in DMCs
through direct financing or risk-mitigation instruments. 2 The financing of nonsovereign
public sector entities, such as state-owned, subsovereign, and quasi-sovereign entities
(i) seeks to attract financing into public sector projects or institutions; (ii) generally
assists the decentralization process across Asia and the Pacific; and (iii) strengthens the
development of sustainable public sector institutions and suitable and predictable legal
and regulatory frameworks to support nonsovereign development in DMCs.3 The main
objective of nonsovereign operations is to promote economic development in DMCs,
while allowing ADB to generate sufficient profit to (i) sustain such operations without any
cross-subsidy from other ADB activities, and (ii) demonstrate the financial viability of
investments in DMCs. Nonsovereign investments are exposed to the full range of
commercial and political risks, and managing risk is therefore a priority. In addition to
developmental considerations, credit strength, financial viability, and good corporate
governance must play key roles in the selection, analysis, approval, and administration
of any nonsovereign financing.
4.
Capitalizing on ADBs strengths, nonsovereign operations in the private sector
generally focus on (i) infrastructure, and (ii) capital markets and finance (including
financial intermediaries, securities firms, and investment funds), while remaining
responsive to the changing needs of DMCs and investment opportunities in new sectors.
The targeted entities for nonsovereign operations in the public sector are normally
involved in providing access to public goods and services that have a high development
impact (such as water, wastewater, waste management, power, energy, transport, and
telecommunications) or improve business competitiveness. Nonsovereign financing may
be aimed at refinancing existing debt, including for projects that, although technically and
financially sound, may be impaired by problems with their financing structure (footnote 3).
C.
Scope of the Policy

1.
5.
Forms of Assistance
Financial assistance may be provided in one or more of the following forms:

(i)
equity investments;
(ii)
loans and other debt instruments (such as funded participations, bonds

and credit derivatives); and
ADB. 2001. Private Sector Operations: Review and Strategic Directions. Manila; and ADB. 2000. Private
Sector Development Strategy. Manila.
ADB. 2008. Pilot Financing Instruments and Modalities: Extension of Pilot Period for the Sub-sovereign
and Nonsovereign Public Sector Financing Facility. Manila; ADB. 2005. Pilot Financing Instruments and
Modalities. Manila; and ADB. 2011. Mainstreaming Nonsovereign Public Sector Financing. Manila.
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OPERATIONS MANUAL
BANK POLICIES (BP)
(iii)
guarantees (including credit guarantees, political risk guarantees, and risk

participations) of loans and other debt obligations.4
6.
Nonsovereign financing may be denominated in any of the major international
currencies and/or in local currencies.5
2.
Policy and Operational Requirements

a.
Eligibility of Financing Recipient
7.
To be eligible for ADB assistance, the proposed recipient of ADBs nonsovereign
financing must be
(i)
established or operating in a DMC; and
(ii)
majority owned by private entities (that is, more than 50% of its voting
capital is held by entities that are not owned or controlled by the state or
state-owned entities); or, if the proposed recipient is majority owned by
public entities 6 (that is, more than 50% of its voting capital is held by
entities that are owned or controlled by the state or state-owned entities),
it must be a local government or other subsovereign entity, or a stateowned entity that can contract and obtain financing independently from
the related sovereign and that can sue and be sued.
b.
Development Impacts
8.
Nonsovereign operations must have clear development impacts or demonstration
effects. ADBs assistance must
(i)
attract other financing partners by leveraging ADB's financial resources;

or
(ii)
complement, not substitute for, commercial sources of finance; or
(iii)
add value by influencing project design or structure to make it more

environmentally or socially friendly, create more jobs, improve delivery of
services, impart better skills or technology, or raise the standards of
corporate governance.
ADB. 2006. Review of ADBs Credit Enhancement Operations. Manila; and OM section D9 (Credit
Enhancement Operations).
ADB. 2006. Enhancements for the Asian Development Banks Loan and Debt Management Products.
Manila; and ADB. 2005. Introducing the Local Currency Loan Product. Manila.
Residing in the same country as the recipient of ADB's nonsovereign financing.
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c.
Technical Feasibility, Financial and Economic Viability,

and Environmental and Social Soundness
9.
ADB must evaluate the technical feasibility, market prospects, financial and
economic viability, commitment to best practices of corporate governance, and
environmental and social soundness of each proposed nonsovereign financing. In
addition, for each financing recipient, ADB must evaluate the integrity, experience,
success record, financial resources, and competence of the sponsors and/or
shareholders and management.
d.
10.
8
9
10
11
12
13
14
Policy Compliance
ADB must assess each proposed financing to ensure that it

(i)
complies with the relevant provisions in ADBs policies on poverty

reduction, 7 safeguards (including environment, involuntary resettlement,
indigenous peoples), 8 governance, 9 anticorruption, 10 procurement
(including consulting services),11 and enhancing ADBs role in combating
money laundering and the financing of terrorism;12
(ii)
complies with the applicable country partnership strategy 13 and sector

policy;
(iii)
if credit enhancement operations are involved, complies with ADBs credit

enhancement policy;14
ADB. 2004. Review of the Asian Development Banks Poverty Reduction Strategy. Manila; and OM
section C1 (Poverty Reduction).
ADB. 2009. Safeguard Policy Statement. Manila; and OM section F1 (Safeguard Policy Statement).
ADB. 2000. Promoting Good Governance: ADBs Medium-Term Agenda and Action Plan. Manila; ADB.
2006. Second Governance and Anticorruption Plan. Manila; and OM section C4 (Governance).
ADB. 1998. Anticorruption Policy. Manila; ADB. 2006. Second Governance and Anticorruption Plan.
Manila; and OM section C5 (Anticorruption).
ADBs procurement policies are found in the Procurement Guidelines and the Guidelines on the Use of
Consultants (collectively Guidelines), as amended from time to time. In the case of nonsovereign public
sector transactions, particularly a concession or similar arrangements, it is necessary to determine
whether the relevant nonsovereign borrower is a public entity (in which case the Guidelines apply in the
same manner as in the case of sovereign transactions) or a public entity to be treated as a private entity.
In the latter circumstance, the application of the standard as set out for private sector concession or
similar type arrangements is permitted (under Guidelines, S. 3.13) provided the borrowing nonsovereign
entity is (i) legally and financially autonomous, (ii) operates under commercial law, and (iii) is not a
dependent agency of the government.
ADB. 2003. Enhancing the Asian Development Banks Role in Combating Money Laundering and the
Financing of Terrorism. Manila; and OM section C6 (Enhancing ADBs Role in Combating Money
Laundering and the Financing of Terrorism).
OM section A2 (Country Partnership Strategy).
ADB. 2006. Review of ADBs Credit Enhancement Operations. Manila; and OM sections E1
(Cofinancing) and D9 (Credit Enhancement Operations).
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D.
(iv)
complies with the applicable laws and regulations of the host country;
(v)
is not engaged in an industry on the negative list (as determined by ADB

from time to time), 15 currently including arms, ammunition, and other
military or paramilitary materials; radioactive and associated materials,
nuclear reactors, and parts thereof, and fuel elements (cartridges) nonirradiated for nuclear reactors; alcoholic beverages and tobacco
(manufactured, unmanufactured, or refuse); and environmentally
hazardous goods, the manufacture, use or import of which is prohibited
under the laws of a DMC where a nonsovereign project is located or
international agreements to which a DMC is a party;
(vi)
complies with the prudential exposure limits; and
(vii)
is reviewed and monitored by independent risk function in accordance

with international best practices and sound banking principles.16
Government Assurances
11.
In accordance with the requirements of ADB's policy on equity operations17 and
ADB's policy on private sector operations18, assurances have been sought from DMC
governments to confirm ADB's privileges and immunities as provided in the Charter as a
condition to ADB undertaking private sector operations in the concerned DMC. These
assurances have typically been provided through the execution of framework
agreements with DMC's, but may also be obtained through the governments noobjection19 provided for each private sector operation undertaken in the relevant DMC.20
E.
Government No-Objection
12.
ADB finances a project in a DMC only if the government has no objection. 21
Accordingly, the governments no-objection for each financing must be obtained before
the first disbursement by ADB of such financing, and preferably before the financing is
submitted to the Board of Directors for approval.
15
16
17
18
19
20
21
The complete negative (prohibited investments) list for nonsovereign projects is available in the ADB
Portal under Business Processes/Compendium of BP Clarifications. This should be applied in
conjunction with the prohibited investment activities list outlined in Appendix 5 of the Safeguard Policy
Statement.
ADB. 2007. Review of Prudential Exposure Limits for Nonsovereign Operations. Manila; and OM section
D13 (Investment Limitations on Nonsovereign Operations).
ADB. 1983. Equity Investment Operations by the Bank. Manila.
ADB. 1985. Lending to the Private Sector without Government Guarantees. Manila.
See para. 12.
Private sector operations include equity investments, loans and guarantees.
Article 14(iii) of the Charter.
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F.
Credit Enhancement Operations
13.
Consistent with ADBs mandate to enter into financing partnerships as a way to
leverage its resources and mobilize public and private capital investment in DMCs,22
ADB shall consider syndications or other risk-sharing arrangements with financing
partners (such as financial institutions and insurance companies) in connection with its
nonsovereign operations.
G.
Business and Credit Processes
14.
All nonsovereign operations will be undertaken and processed in accordance
with OM section D10/OP, which sets out, among other things, new procedures for the
credit approval process, credit monitoring and management, and workout and recovery.
OM section D10/OP supersedes the procedural requirements set out in OM section D9
on Credit Enhancement Operations for nonsovereign operations that include guarantees
or syndication arrangements.
H.
Accountability Mechanism
15.
Nonsovereign operations are subject to the ADB accountability mechanism.23
I.
Operations Evaluation
16.
Nonsovereign operations are subject to performance evaluation by the
Independent Evaluation Department.24
Basis:

ADB. 2011. Mainstreaming Nonsovereign Public Sector Financing.
Manila. August (Doc. R133-11).
ADB. 2009. Private Sector Development and Nonsovereign
OperationsA Model for Improved Strategic Alignment,
Interdepartmental Collaboration, Development Effectiveness, and
Risk Management (Doc. IN.87-09).
ADB. 2008. Pilot Financing Instruments and Modalities: Extension
of Pilot Period for the Sub-sovereign and Nonsovereign Public
Sector Financing Facility. Manila. August (Doc. R177-08).
22
23
24
ADB. 2006. Review of ADBs Credit Enhancement Operations, August. Manila; and OM section D9
Credit Enhancement Operations).
OM section L1 (ADB Accountability Mechanism).
OM section K1 (Operations Evaluation).
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ADB. 2005. Pilot Financing Instruments and Modalities. Manila.

August (Doc. R194-05).
ADB. 2005. Revision of the Summary Procedure. Manila. September
(Doc. R249-05).
ADB. 2001. Private Sector Operations: Review and Strategic
Directions. Manila. August (Doc. R122-01).
ADB. 2000. Private Sector Development Strategy. Manila. March
(Doc. R78-00).
ADB. 1985. Lending to Private Sector without
Guarantees. Manila. September (Doc. R93-85).
Government
ADB. 1985. Bank Assistance to the Private Sector. Manila. June (Doc.
R58-85).
This OM section must be read with OM section D10/OP.
ADB. 2010. Procurement Guidelines. Manila. April.
ADB. 2010. Guidelines on the Use of Consultants. Manila. April.
ADB. 2009. Safeguard Policy Statement. Manila. June.
ADB. 2007. Review of Prudential Exposure Limits for Nonsovereign
Operations. Manila. March (Doc. R54-07).
ADB. 2006. Review of Loss Provisioning Policy for Nonsovereign
Operations. Manila. November (Doc. R263-06).
ADB. 2006. Review of ADBs Credit Enhancement Operations. Manila.
ADB. 2005. Introducing the Local Currency Loan Product. Manila.
ADB. 2005. The Public Communications Policy of the Asian
Development Bank: Disclosure and Exchange of Information. Manila.
March.
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ADB. 2002. Pricing of Local Currency Loans in Private Sector
Operations. Manila. 18 October (Doc. R215-02).
ADB. 1995. Strategy for the Banks Assistance for Private Sector
Development. Manila. 17 February (Doc. R56-95).
ADB. 1994. Guidelines on Rescheduling of Loans to Private
Enterprises without Government Guarantee. Manila. (Approved by the
President on 21 January).
ADB. 1994. Provisions for Investment Losses in the Banks Private
Sector Operations. Manila. 10 January (Doc. R15-94).
ADB. 1990. Second Review of Private Sector Operations. Manila.
5 October (Doc. R146-90).
Compliance:
For inquiries:
Questions may be directed to the Director, Strategy, Policy and

Interagency Relations Division, Strategy and Policy Department; and
the Head, Office of Risk Management.
Prepared by the Strategy and Policy Department

2 January 2013
and the Office of the General Counsel and
This supersedes OM section D10/BP
issued on 13 July 2012.
OM Section D10/OP
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NONSOVEREIGN OPERATIONS1
A.
Introduction
1.
This section describes the procedures by which nonsovereign operations are
undertaken by the Asian Development Bank (ADB).2
B.
Integration in Country Partnership Strategies and Business Plans
2.
The country partnership strategy3 serves as an integrated business platform for
sovereign and nonsovereign operations. It generally includes nonsovereign development
initiatives to improve the nonsovereign environment, publicprivate partnerships, and
other financial partnerships.4 It ensures synergies between sovereign and nonsovereign
operations, and incorporates nonsovereign development discussions in sector road
maps.
3.
The following principles are applied in the incorporation of nonsovereign
operations into the country partnership strategy and indicative rolling country operations
business plan:
3
4
5
(i)
All proposed nonsovereign operations are reviewed against ADBs

broader policies and strategies to ensure consistency.
(ii)
Nonsovereign operations are pursued within agreed upon sector road

maps. Individual projects will depend largely on market conditions and
demand.
(iii)
Indicative rolling country operations business plans generally indicate a

potential financing envelope by priority sector, distinguishing between
nonsovereign public and private sector operations.5
This OM section does not include nonsovereign technical assistance, which is covered by OM section
D12 (Technical Assistance).
A nonsovereign operation refers to an ADB financing that is (i) not guaranteed by a government; or
(ii) guaranteed by a government under terms that do not allow ADB, upon default by the guarantor, to
accelerate, suspend, or cancel any other loan or guarantee between ADB and the related sovereign (see
also OM section D10/BP, para. 1).
OM section A2 (Country Partnership Strategy).
ADB. 2006. Further Enhancing Country Strategy and Program and Business Processes. Manila.
Where deemed possible and appropriate, specific transaction information on nonsovereign public sector
financing should be reflected in the country operations business plan.
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C.
Responsibility of Operations Departments and Teamwork
4.
The Private Sector Operations Department (PSOD) has primary responsibility for
the processing of nonsovereign transactions, including equity investments, loans, and
guarantees.6
5.
To ensure close collaboration and teamwork between PSOD and regional
departments, both can be represented on project teams as appropriate.
6.
Project teams process nonsovereign transactions in consultation and
coordination with other departments and offices concerned and in accordance with
ADBs approved policies and programs. For the purposes of this section, the processing
department is referred to herein as the operations department.
7.
Upon the request of the project team, the Office of Anticorruption and Integrity
(OAI) may provide advice on significant concerns related to integrity or money
laundering and the financing of terrorism. Such advice may be provided at any stage.
However, OAIs role is to advise and make recommendations; it will not endorse any
decision taken by the operations department or Management. The decision on whether
to proceed with the project in question, and, if so, on what terms, remains with
Management and the operations department.
D.
Approval Authority
8.
All nonsovereign financing proposals are submitted to the Board of Directors for
approval, with the exceptions noted in paras. 9 and 10. Proposals may be submitted for
Board consideration under summary procedure if they meet the following eligibility
criteria:7
(i)
the amount of ADB's total financial assistance does not exceed $50
million;
(ii)
the project does not involve any exception to an existing ADB policy;
All public sector nonsovereign transactions approved by the Board or concept-cleared by the Investment
Committee as of 31 December 2011 will continue to be processed and administered by the regional
departments. Responsibility for other public sector nonsovereign transactions has been transferred from
the regional departments to PSOD as of 31 March 2012.
The recommendation to submit a specific project proposal to the Board through summary procedure is
initiated by the department responsible and endorsed by the director general to the vice-president for the
latters endorsement and transmittal to the President. The President makes the final decision on the
procedure to be adopted for Board consideration of the proposal when the Report and Recommendation
of the President is submitted to the President for approval. See ADB. 2005. Revision of the Summary
Procedure. Manila.
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(iii)
the financial assistance does not include a major policy reform

component;
(iv)
the project does not involve an important new approach for ADB in the
developing member country concerned;
(v)
the project does not have the potential for significant adverse
environmental, economic, and/or social impact, particularly on vulnerable
groups that may be unable to absorb such an impact; and
(vi)
the project does not involve the use of a complementary financing

scheme or a novel financing arrangement.
9.
The President is delegated the approval authority for supplementary equity
investments not exceeding $2 million each in existing investee companies that are
performing and are expected to perform satisfactorily, subject to prompt reporting to the
Board.8
10.
The President is delegated the approval authority for (i) loan restructuring
proposals where no additional ADB funding is involved; and (ii) funding of costs and
expenses related to divestments or investment recovery operations of nonsovereign
transactions, up to a cumulative amount not to exceed $2 million, net of cash proceeds
from the divestments or investment recovery operations.
E.
Business and Credit Processes
11.
The business process description below covers the credit approval process,
monitoring and management, and workout and recovery, and includes the roles and
responsibilities of the Office of Risk Management (ORM) and the relevant operations
department.
12.
The credit process for nonsovereign operations focuses on the credit risk aspects,
covering the approval, monitoring and management, and workout of individual
transactions. The process is based on sound banking principles and good corporate
governance. The primary objective is to provide and reinforce a systematic means of risk
recognition and structuring through the approval and monitoring process, and, as
needed, workouts.
1.
13.
The major stages in the credit approval process are as follows:

(i)
Credit Approval Process
concept review,
ADB. 2001. Private Sector Operations: Review and Strategic Directions. Manila; and ADB. 1995.
Strategy for the Banks Assistance for Private Sector Development. Manila.
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OPERATIONS MANUAL
(ii)
(iii)
(iv)
(v)
transaction review,
final review,
board approval, and
closing.
14.
Proposed nonsovereign transactions are evaluated at the concept review and
final review stages by the Investment Committee comprising the vice-president, private
sector and cofinancing operations (VPPC); vice-president operations group 1 (VPO1) or
vice-president operations group 2 (VPO2), depending on who is responsible for the
geographical region in which the transaction is located; vice-president, finance and risk
management (VPFR); general counsel; director general of PSOD; director general of the
Regional and Sustainable Development Department (RSDD); director general of the
relevant regional department; and the head of ORM.
15.
An Investment Committee meeting (ICM) is held only if a majority of the
committee members, their officers-in-charge (OICs), or their designated representatives
(director level or higher) are present. Unless a designated representative is the OIC for a
committee member, the Investment Committee secretariat (ICS) must be notified in
writing of such designation. The ICM will be chaired by VPPC, if the proposed
transaction is led by PSOD. Similarly, VPO1 or VPO2 will chair the ICM for transactions
led by one of the regional departments under his or her mandate. The ICM must include
at all times the chairing vice-president, (except as provided in the next sentence),
director general of the relevant operations department, and the head of ORM (or their
respective OICs). VPO1, VPO2, or VPFR may act as chair of the Investment Committee
for a PSOD-led transaction if VPPC is out of the office and has requested in writing to
the ICS that the concerned vice-president act in such capacity. Similarly, VPPC, VPO1,
VPO2, or VPFR may act as chair of the Investment Committee for a transaction led by a
regional department, if the responsible vice-president is out of the office and has
requested in writing to the ICS that he or she act in such capacity. The committee may
invite other ADB staff to participate in the discussions for a particular transaction on a
case-by-case basis.
16.
The Investment Committee is assisted by the ICS comprising representatives of
ORM, PSOD, RSDD, Office of the General Counsel (OGC), and the relevant regional
department at director level or higher. The ICS for a particular transaction is chaired by
the representative of the relevant operations department. No member of a project team
may be a member of the ICS for that transaction.
a.
Concept Review
17.
The purpose of the concept review is to ensure (based on available information
and subject to due diligence and negotiations) that a proposed transaction generally
complies with the developmental, lending, financial, procurement, safeguards, and risk
management principles and policies of ADB before significant resources and costs have
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OPERATIONS MANUAL
been assigned or expended. To ensure that market conditions and risks are taken into
account at this stage and subsequently, the operations department consults and tries to
reach agreement with ORM before negotiating with a client on the transaction structure,
pricing range, security package, and other general terms and conditions. If required by a
client as a condition for the provision of information for the operations department to
process the transaction, the operations department may sign a confidentiality agreement
prepared by OGC during the concept review; otherwise, the operations department may
sign a confidentiality agreement following endorsement by the Investment Committee as
described in paras. 43 and 44. The operations department may also sign an initial
mandate letter (using OGCs form) for the specific purpose of conducting initial due
diligence in preparation of concept review. In such cases, the scope of due diligence
should be limited to initial fact-finding required for concept review.
18.
The process of consultation between the operations department and ORM is
based on and facilitated by a deal pipeline sheet which is submitted by the operations
department to ORM. This outlines key details of all the proposed transactions, e.g.,
purpose, amount, product (debt or equity), possible security structure, sponsor
information, timing of the transaction, and project team leader. The deal pipeline sheet is
updated by the operations department at least once a month, and when transactions are
identified requiring discussions with ORM.
19.
The operations department should carry out integrity due diligence and, where
there are indicators of potential integrity issues, consult with OAI. These steps and any
other subsequent findings or discussions must be recorded and filed in a project integrity
file.
20.
The concept review involves the steps described in paras. 2129.

(i)
Business Plan
21.
The operations department conducts a preliminary analysis to determine whether
a proposed transaction is potentially viable. It then provides ORM with the sponsor's
business plan if this is available. If the business plan and other relevant information are
available, the project team (comprising staff from relevant departments, including OGC
and RSDD where appropriate) conducts a preliminary risk rating based on the internal
credit rating system (ICRS) on a scale of nonsovereign operations (NSO) 1-13, with D
being default, and provides ORM with an advance copy for discussion. The rating scale
for debt and credit guarantees is in Appendix 1 and the rating definitions are in Appendix
2. For non-project finance transactions, ratings are expressed in two ways: one for the
borrower (the obligor), referred to as the obligor risk rating (ORR); and one for the
transaction, referred to as the facility risk rating (FRR). For project finance transactions,
ratings are expressed as an implied project rating (IPR) and a final project rating (FPR).
ORM provides all the necessary assistance to the project team in this regard, including
on the interpretation of rating guidelines and the inputting of financial statements into
standard rating templates, and advises on systemic factors such as country, regulatory,
and industry risk.
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OPERATIONS MANUAL
22.
If a business plan is not available, ORM and the operations department decide
whether the transaction can proceed to the concept review paper (CRP) stage, and be
assigned a preliminary risk rating (ORR and FRR or IPR and FPR) based on the
assessment of basic transaction information.
(ii)
Concept Review Paper
23.
The operations department prepares a CRP and discusses it with ORM along
with the preliminary risk rating (ORR and FRR or IPR and FPR) before interdepartmental
circulation. The CRP should contain the project teams discussion of any issues related
to integrity, money laundering, or financing of terrorism, and possible mitigation
measures. Following interdepartmental review (including by ORM), the project team
updates the CRP by incorporating comments, as appropriate, and prepares a matrix of
substantive comments. 9 ORM's input is provided in the form of a credit note as
described in para. 25.
24.
The CRP and the credit note are then sent to the ICS at least 5 business days
before the ICM. For some transactions and with the agreement of the head of ORM, the
director general of the relevant operations department may recommend to the ICS that
consideration by the Investment Committee is not necessary. In that case, the director
general of the relevant operations department approves the CRP after the ICS has
circulated it to the Investment Committee members for information and if no Investment
Committee member has objected to the ICM not being held after 5 business days. If any
Investment Committee member objects within the applicable period, the CRP is
reviewed and considered by the Investment Committee under the processes described
in paras. 2628.
(iii)
Preliminary Risk Rating and Credit Note
25.
ORM reviews the CRP as well as the risk rating proposed (ORR and FRR or IPR
and FPR) by the project team. The project team and ORM attempt to reach agreement
on the preliminary risk rating (ORR and FRR or IPR and FPR); in the event there is no
agreement, ORM assigns a preliminary risk rating (ORR and FRR or IPR and FPR). At
the same time, ORM prepares a credit note for the transaction and performs checks on
policy compliance and exposure limits. If ORM has any concern or reservation with
respect to the transaction at any stage, it reflects these concerns or reservations in the
credit note. The preliminary risk rating (ORR and FRR or IPR and FPR) and credit note
are submitted to the ICS at least 5 business days before the ICM.
ADB. 2006. Private Sector Development: A Revised Strategic Framework. Manila.
OM Section D10/OP
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(iv)
Investment Committee Review
26.
The ICS reviews the CRP, the preliminary risk rating (ORR and FRR or IPR and
FPR), and credit note and drafts an issues memorandum in the course of preparing for
the ICM. The issues memorandum captures the risk rating (ORR and FRR or IPR and
FPR), summarizes the key issues of the transaction, and reflects any difference of views
among the ICS members. All ICS members endorse the issues memorandum. The ICS
chair coordinates inputs from the various ICS members and schedules an ICS meeting,
if appropriate. The ICS chair circulates these documents to Investment Committee
members at least 3 business days before the ICM. The issues memorandum also points
out any integrity, money laundering, or financing of terrorism issues that have not been
(or are unlikely to be) resolved or mitigated.
27.
If recommended by the director general of the operations department, the ICS
determines whether the Investment Committee should consider a transaction through a
meeting or on a no-objection basis. If the ICS agrees that a no-objection process is
appropriate, it circulates the relevant documents with such a recommendation to the
Investment Committee and provides at least 3 business days for any Investment
Committee member to respond. If during this period any Investment Committee member
requests a discussion, an ICM is arranged by the ICS.
28.
The Investment Committee decides whether to proceed with a transaction, and
may provide comments endorsing or amending the transaction structure, the due
diligence, profitability and cost recovery, possible security package arrangements, or any
other key requirements. The ICS chair is responsible for preparing and circulating the
ICM's agenda. The ICS chair is also responsible for preparing the minutes of all ICM
proceedings and for coordinating inputs to the minutes from all ICS members to ensure
comments and guidance from the Investment Committee are accurately reflected and
take into account each Investment Committee member's comments and support for the
transaction.
(v)
Mandate Letter
29.
Following approval of the CRP by the director general of the relevant operations
department (para. 24) or by the Investment Committee (para. 28), the project team may
draft a mandate letter (using OGC's form) to be signed by the client. A mandate letter
may also be signed before CRP approval for the specific purpose of conducting initial
due diligence in preparation of concept review. Any suggestions or guidance from the
director general of the relevant operations department or the Investment Committee
shall be duly reflected in the mandate letter. Aside from transaction-specific points, the
mandate letter provides that the client bears all of ADBs expenses in processing the
transaction, including the fees and expenses associated with due diligence experts
engaged by ADB. If the operations department agrees to cap the client's liability for any
expense incurred by ADB in processing the transaction (including, without limitation, the
legal expenses), any shortfall is borne by the operations department. The experts
required will vary from case to case, and may cover technical, investment plan,
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OPERATIONS MANUAL
commercial, financial, procurement, legal, safeguard, and other matters. The project
team provides a copy of the mandate letter to ORM.
b.
Transaction Review
30.
In the transaction review stage, the project team works closely with ORM as the
transaction is further developed and due diligence undertaken. ORM provides advice
and recommendations to the project team on due diligence items from a credit
perspective and on the structuring of the transaction, aimed at addressing, among other
matters, critical credit concerns, and determining appropriate security packages or other
credit support, pricing, and other relevant terms and conditions. The project team and
ORM undertake detailed reviews of relevant background transaction materials, including
the business plan, financial model and all the key assumptions supporting pro-forma
financial statements (including cash flow, balance sheet, and profit and loss accounts),
and compliance review (covering integrity, money laundering, or financing of terrorism
due diligence issues; corporate governance; and market checking). The project team
also starts to prepare a credit file.
31.
The transaction review involves the following steps.

(i)
Due Diligence
32.
The project team manages and/or undertakes comprehensive due diligence to
evaluate the key risk aspects of the transaction, including the technical, market,
financial, economic, legal, corporate governance, compliance (e.g., development
objectives, procurement, integrity, money laundering, or financing of terrorism; and
market checking), and the social and environmental aspects of the proposed transaction.
The project team discusses and agrees with the client on the basic terms and conditions
(including the structure in terms of debt and equity, the security package, and the pricing
range), taking into account guidance from the Investment Committee and in consultation
with ORM. If due diligence reveals material and adverse risks that were not reasonably
described in the CRP, the project team will consult with ORM promptly after identifying
such risks. The project team shall consult with OAI if significant integrity, money
laundering, or financing of terrorism issues are identified during due diligence. The
project team also examines the integrity, experience, track record, financial resources,
and competence of the project sponsors and management. Transactions are expected
to follow sound banking principles. The project team distinguishes between commercial,
sponsor, and project risks. Given its independent function, ORM generally does not
participate in due diligence. However, in cases where the complexity and/or unique risk
profile of the transaction warrants, ORM may participate in due diligence with the project
team to ensure a comprehensive risk assessment of the transaction. In addition, ORM
may also conduct independent missions as it deems necessary. ORM will bear the cost
of its due diligence activities.
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33.
The project team requests the relevant government for the required no-objection
to the transaction as early as practicable during due diligence.
34.
The project team documents its due diligence findings in a due diligence report.
Where ORM participates in due diligence, its findings are documented separately. The
project team updates the risk rating (ORR and FRR or IPR and FPR), based on the
information available during the due diligence, discussions with the client, and market
information in accordance with the guidelines described in para. 21. Once the due
diligence is completed, the project team proposes a final risk rating (ORR and FRR or
IPR and FPR) for the transaction and provides ORM with an advance copy of such
rating for discussion. ORM provides all necessary assistance to the project team in this
regard.
(ii)
Creation of Credit File
35.
To ensure the availability of all the key information on a transaction, the project
team develops and makes available to ORM a credit file. The project team starts
preparing the credit file after the approval of the CRP by the Investment Committee. The
credit file is updated in tandem with the processing schedule so it comprehensively
documents the transaction, including all due diligence reports and the proposed final risk
rating (ORR and FRR or IPR and FPR).
36.
The credit file enables ORM, as an independent reviewer, to assess the various
risks and the measures to mitigate them within the structure of the transaction.
Documentation on any meetings or missions (in the form of a back-to-the-office report)
conducted during the different stages of the transaction are included in the credit file.
(iii)
Risk Rating and Credit Note
37.
Based on the information in the completed credit file, and the proposed final risk
rating (ORR and FRR or IPR and FPR), the project team and ORM agree on the final
risk rating (ORR and FRR or IPR and FPR). If there is no agreement, ORM will assign
the final risk rating (ORR and FRR or IPR and FPR). In addition, ORM prepares the final
credit note for the transaction, based on the credit file and discussions with the project
team, and performs compliance checks regarding deviations from policy or breaches of
limits.
c.
Final Review
38.
The final review provides an opportunity to ensure specific issues previously
identified at the ICM have been adequately addressed, and for significant changes or
open issues to be considered and resolved before submission of the transaction to the
President and the Board. The operations department may consult with OAI if there are
outstanding integrity, money laundering, or financing of terrorism issues. ORM and the
project team jointly determine the acceptability of a transaction for submission for final
review and advise the ICS accordingly. The credit note must include ORMs
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OPERATIONS MANUAL
recommendation that the transaction should continue to final review. Any disagreement
between the operations department and ORM can be escalated for evaluation by the
respective heads of department as necessary. In exceptional cases, a transaction may
continue to final review without ORMs favorable recommendation if the director general
of the relevant operations department provides a written representation regarding the
overwhelming developmental benefits expected from the transaction; or, if the director
general of the relevant operations department provides a written representation that the
disagreement only relates to pricing. The ICS then schedules a suitable date for the
Investment Committee to conduct the final review of each transaction. If final review
does not take place within 12 months from the previous ICM, the project team consults
with the ICS, which shall determine the next course of action by consensus among the
ICS members.
39.
The final review involves the following steps.

(i)
Report and Recommendation of the President (RRP)
40.
The project team prepares and circulates a draft RRP through the concerned
director general of the operations department for interdepartmental review. Following
interdepartmental review, the project team revises the draft RRP to take into account the
comments received. The project team also prepares a matrix of comments for
consideration by the Investment Committee. The RRP includes the final risk rating (ORR
and FRR or IPR and FPR) for the transaction and a section on risk issues endorsed by
ORM, including a disclosure of integrity, money laundering, or financing of terrorism
issues as endorsed by the Investment Committee.
(ii)
Final Review Memorandum
41.
The project team is responsible for preparing the final review memorandum
(FRM) for the transaction. The FRM includes the final risk rating (ORR and FRR or IPR
and FPR), confirms the resolution of specific issues previously raised, identifies
significant changes or open issues (including integrity, money laundering, or financing of
terrorism issues) that must be resolved before circulation of the RRP, and highlights any
areas of concern that require the attention of the Investment Committee or the Board.
ORM must sign off on the FRM.
(iii)
Finalization of Term Sheet
42.
Before completing the drafting of final transaction documentation, the project
team will prepare a term sheet. The agreed term sheet summarizes the key indicative
terms upon which ADB will consider financing the transaction. ORM will review the draft
term sheet, and may provide suggestions related to credit and other issues (e.g., term,
pricing, financial covenants, security package). The term sheet must be signed or
initialed by the client before the Investment Committee will consider endorsing the
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transaction. However, the Investment Committee may still consider the transaction in an
exceptional situation where a client cannot sign or initial the term sheet if (i) the
operations department and ORM have discussed and agreed on how to proceed; and (ii)
the director general of the relevant operations department has provided a written
explanation of the reasons for the client's inability to sign or initial the term sheet and
assurance that, notwithstanding such inability, the client has agreed to the terms and
conditions in the term sheet. If required by the client, the project team may initial the
term sheet.
(iv)
Investment Committee Endorsement
43.
The project team submits to the ICS the draft RRP (with a comments matrix), the
FRM, and the signed or initialed term sheet (or the unsigned or uninitialed indicative
term sheet and the written explanation and assurance from the director general in an
exceptional situation as described in para. 42) at least 5 business days before the
scheduled ICM. The ICS prepares a second issues memorandum that highlights all the
major issues for consideration at the ICM and identifies the changes in the transaction
since the concept review from a business and risk perspective. The second issues
memorandum is prepared using the final credit note for the transaction provided by
ORM, as well as comments from other departments. The ICS follows similar procedures
in preparing the second issues memorandum as for the first (para. 26). It circulates the
credit note, FRM, draft RRP (with the comments matrix) and the second issues
memorandum to the Investment Committee at least 3 business days before the ICM.
44.
The Investment Committee focuses on the resolution of any outstanding issues
raised in the second issues memorandum and comments raised during the
interdepartmental review of the draft RRP, as well as all material matters raised during
the ICM. The ICS chair prepares minutes of the ICM in the manner described in para.
28. When the Investment Committee has endorsed the transaction, the President's
approval will be requested to circulate to the Board (para. 46).
d.
Board Approval
45.
The project team is responsible for implementing the decisions recorded in the
ICM minutes (at both concept review and final review stages), as well as for revising the
draft RRP suitably. The project team ensures that all material issues relevant to the
approval are brought to the attention of the Board in the relevant sections of the RRP
(including an assessment of risks associated with the transaction), or during Board
consideration. If a transaction is not presented to the Board within 12 months of the ICM
final review and endorsement, the operations department should request guidance from
the ICS as to whether the Investment Committee must re-endorse the transaction before
the President's approval is requested to circulate to the Board (para. 46).
46.
The draft RRP is edited by the Office of the Secretary (OSEC) after Investment
Committee endorsement and returned to the project team leader for finalization. The
final RRP is cleared by ORM (with respect to the section on risk issues), OGC, and
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OSEC. The project team leader prepares a memorandum attaching the second issues
memorandum, the minutes of all ICM proceedings, and the RRP. The memorandum
requests approval to circulate the RRP to the Board for consideration and is forwarded
by the director general of the operations department, through the concerned vicepresident, to the President.
e.
Closing
47.
After Board approval, the project team negotiates outstanding commercial,
technical, and legal issues. Legal documentation for the proposed financing transaction
is prepared by OGC in close consultation with the project team and with the assistance
of external counsel retained and instructed by OGC if required. The project team should
ensure that all funding issues have been cleared with the Treasury Department before
closing.
48.
The project team prepares a closing certificate after Board approval but always
before signing of the related legal documentation. The closing certificate specifies the
negotiated terms and conditions, security package, and pricing that the project team and
the client have agreed upon, and confirms that what has been negotiated is not
materially or adversely different from the basic transaction description, terms and
conditions, security package, and minimum pricing approved by the Investment
Committee and the Board. If appropriate, the closing certificate highlights changes for
the record, and notes any departure from standard documentation. The director general
of the relevant operations department endorses the closing certificate and OGC and
ORM either sign off on it, or provide additional comments on the changes as required, or
recommend that the changes require further approval at the appropriate level. The ICS
considers all changes and decides whether such changes require reporting to or
approval by the Investment Committee. If circulated to the Investment Committee, the
Investment Committee considers all such changes and, if necessary, recommends to
the President (through the chairing vice-president) that material changes be reported to,
or be approved by the Board.
49.
The governments no-objection to the transaction must be received or be
deemed to have been received10 before any disbursement may be made by ADB. If the
no-objection has not been received or been deemed to have been received within 12
months after Board approval, a request to extend the waiting period for up to an
additional 6 months may be approved by the relevant vice-president. If the no-objection
has not been received within 18 months after Board approval or if all the transaction
documentation has not been signed within 12 months after Board approval, the
transaction must be presented to the Investment Committee for re-endorsement. The
Investment Committee considers all changes and, if necessary, recommends to the
10
Deemed no-objection applies only to DMCs that have pre-agreed with ADB to have deemed no-objection
in case they do not raise objections to a transaction within a specified period.
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President (through the chairing vice-president) that material changes be reported to, or
be approved by the Board.
2.
Credit Monitoring and Management
50.
Monitoring of loans, guarantees, and equity investments (including equity
investments in private equity funds (PEFs) starts once legal documents have been signed.
The primary objective of monitoring is to maintain the quality of assets through early
identification and timely management of problems and opportunities.
a.
Responsibilities of the Operations Departments
51.
The operations departments have the primary responsibility for monitoring and
management of their investments until final loan repayment or asset disposal, unless a
transaction has been deemed to be at risk and the responsibility has been transferred to
ORM.
52.
The operations department manages the relationship with the borrower or
investee company, regularly reviews and reports on the progress and credit quality of
the transaction, monitors and tracks the status and adequacy of collateral and security,
and undertakes all actions necessary to protect ADBs interests. The head of the project
administration unit of the operations department has the overall responsibility for
monitoring and reviewing the process.
53.
The operations department appoints an investment officer to be responsible for
the administration of each transaction. The investment officer maintains a complete and
current credit file containing all documentation relating to the transaction, including the
storage of the complete credit file in e-Star.
54.
For equity investments in PEFs, ADB appoints a qualified representative to the
fund's advisory committee, advisory board, or comparable forum, when allowed under
the funds documentation. The ADB representative is nominated by the director of the
concerned department and approved by the director general. The ADB representative
will participate in advisory committee events and annual partners and/or shareholder
meetings, and will devote sufficient time and care to discharge key duties as stipulated
under the fund documents. The ADB representative will review (or endorse or decline,
where the funds legal documentation permits) valuations proposed by the fund manager
according to his or her own best professional judgment. The ADB representative will
represent and protect the financial and developmental interests of ADB and will
discharge his or her functions to achieve the investment objectives of ADB as set out in
the RRP. The ADB representative will make all documents received in this capacity
available to ADB, include them in the credit file, and document his or her interaction with
the fund.
55.
The investment officer prepares and submits monitoring reports to ORM
regularly. For all debt, guarantee, and equity transactions, monitoring reports will be
OM Section D10/OP
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OPERATIONS MANUAL
submitted at least once a year, with the first submission due no later than 12 months
after Board approval. For debt and guarantee transactions, obligors rated NSO 10 to 12
on a stand-alone basis, IPR of NSO 10 to 12, and FRR of NSO 12 to D require quarterly
reviews (para. 63 [xi]). In addition, transactions with ORR of NSO 12 and FPR of NSO
12 also require quarterly reviews, provided that if such rating is solely driven by the
country rating cap, the head of ORM may decide if the transaction may be exempted
from the watch list. ORM may also decide that transactions on the watch list may be
subject to less frequent monitoring and review requirements after consideration of the
unique nature and risk profile of the transaction. Unless transferred to ORM (para. 68),
transactions with ORR or FPR of NSO 13 and D require monthly reviews; however, the
head of ORM can determine on a case-by-case basis that quarterly or annual
reviews are more appropriate. Equity transactions on the watch list (para. 63 [xi] [b])
require quarterly reviews.
Watchlist
Impaired
Standalone Obligor Risk Rating 10-12
n/a
Obligor Risk Rating
12
13-D
Facility Risk Rating
12-D
n/a
Implied Project Rating
10-12
n/a
Final Project Rating
12
13-D
Note: Watchlist and Impaired transactions that have not
been transferred to ORM are subject to quarterly and
monthly reporting, respectively, unless determined
otherwise by the head of ORM.
56.
The monitoring report should include complete financial information on all
relevant counterparties as well as
11
(i)
for debt and guarantee transactions, a rating proposal produced by the

relevant rating tool and other risk metrics as agreed from time to time
between the operations departments and ORM;
(ii)
for direct equity investments, the net asset value, a description of the
valuation methodology, a spreadsheet with the most recent valuation, exit
options, and a recommendation as to the preferred exit strategy; and
(iii)
for indirect equity investments in PEFs,11 comments on key risk issues,

findings, and developments over the reporting period, value creation
activities of the fund manager, overall valuation changes, and other key
aspects (reporting may differ depending on whether the fund is in an
early, medium, or late stage to capture specific issues).
Indirect equity investments in PEFs refer to equity investments made by private equity funds in privately
held or listed companies on behalf of ADB and other limited partners as investors in the funds.
OM Section D10/OP
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OPERATIONS MANUAL
57.
If monitoring reports are not submitted when due, the director general of the
respective operations department may request an extension or modification of the
review schedule from the head of ORM. If a monitoring report is overdue and an
extension has not been granted, if so requested by the head of ORM, the division that
processed the relevant transaction will not be allowed to present any new transactions to
the Investment Committee until the deficiency has been corrected.
58.
The operations department will immediately notify ORM and OGC of any
breaches of covenants, requests for consents, waivers, or amendments to the legal
documents or any other credit-related changes to the transaction structure. All requests
for consents, waivers, or amendments to any legal document, all restructuring proposals
not covered in para. 59, all changes to the security package or any other credit-related
changes to the transaction structure must be approved by ORM except where the
consents, waivers, amendments, or changes relate to environmental and social
safeguards or otherwise pertain to noncredit matters, the review and approval of which
should follow the process laid out in paras. 78-81. ORM determines whether the
consents, waivers, amendments, or changes fall within such exceptions and advises the
operations department accordingly within 2 business days after receipt of all relevant
documents.
59.
For restructuring of performing debt and guarantee transactions that will result in
an increase in the average life of ADBs facility by more than 1 year and/or will result in a
change in key terms and conditions that will result in a material change in ADBs risk
profile, the operations department will submit such restructuring proposals to the
Investment Committee for approval. For equity investments that exceed the holding
period indicated and approved in the RRP, the operations department will obtain
Investment Committee approval for the revised holding period and exit strategy. For
equity investments in PEFs, such approval will usually be sought by way of circulating
the request to the Investment Committee on a no objection basis, unless a member of
the ICS or the Investment Committee requests approval through a formal Investment
Committee meeting.
60.
If the risk of a transaction deteriorates materially, the operations department
advises ORM immediately.
61.
For equity investments, upon full exit from the investment, the operations
department will prepare an exit note that provides a final summary of performance with
respect to investment objectives, including actual returns versus expectations, actual
holding period versus that originally approved, satisfaction of developmental mandate,
challenges and lessons learned, if any.
62.
If at any time during project administration the operations department discovers
that the covenants and conditions relating to integrity, money laundering, and financing
of terrorism have not been complied with, the project team should (i) report this, or any
new information that raises integrity concerns, to ORM and OAI for guidance as regards
OM Section D10/OP
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OPERATIONS MANUAL
possible corrective actions to be taken; and (ii) ensure appropriate reporting to
Management or the Board, where warranted.
b.
Responsibilities of the Office of Risk Management
63.
ORM is responsible for conducting independent reviews of the quality of all
nonsovereign debt, guarantee, and equity transactions. ORM starts its monitoring
process upon the signing of legal documents and agreement on the format of the
required monitoring reports with the operations departments. ORM determines the
appropriate frequency of the monitoring reports for each transaction and advises the
operations department accordingly. As regards individual transactions, ORM's major
responsibilities are
(i)
to verify that monitoring reports are complete, delivered on time, and in

accordance with the required format, and to alert the head of the project
administration unit of any shortcomings;
(ii)
for debt and guarantee transactions, to review and approve the proposed
risk rating (risk ratings for equity transactions will also be reviewed and
approved when a suitable rating methodology has been developed);
(iii)
for transactions with an ORR or FPR of NSO 13 and D, to recommend

specific provisioning and plans to reduce exposure;
(iv)
for equity transactions, to assess the valuation of equity investments in

terms of their methodology and accuracy, and to comment on the
feasibility of the proposed hold and/or exit recommendation (an exit
proposal is reviewed by ORM before it is submitted to the Investment
Committee);
(v)
for equity investments in PEFs, to review the valuations proposed in the

monitoring report, the key risk issues, and major developments of the
fund, such as mandate compliance, investment and divestment activities,
value creation, and other issues; to discuss issues with and make
recommendations to the ADB representative on related matters including
valuation issues; and to endorse the funds risk categorization as the
result of the assessment process;
(vi)
to alert the director general of the relevant operations department and the
head of ORM of any serious credit deterioration in a transaction not
highlighted by the investment officer or head of the project administration
unit;
(vii)
for restructuring proposals of performing debt and guarantee transactions,

to assess the viability and reasonableness of the restructuring plan and
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OPERATIONS MANUAL
the impact on risk ratings; and for extension of holding periods and
revision of exit strategy of equity investments, to evaluate the viability and
reasonableness of the exit strategy and the impact on risk categorization,
valuation, and return implications;
(viii)
to approve consents, waivers of and amendments to loan covenants and

terms and conditions in other legal documents, restructuring proposals,
and all changes to the security package, upon recommendation by the
operations department and in consultation with OGC, subject to the
exception noted in para. 58;
(ix)
for fully divested equity investments, to review the exit note and provide a
closing opinion on the actual performance of the investment against the
investment objectives set out in the RRP and other subsequent
approvals;
(x)
to recommend submissions to the Investment Committee for the approval

of substantive issues or changes to transactions, and to prepare an
independent opinion via a credit note;
(xi)
based on increased risks or adverse trends, and after consultation with

the operations department, to place transactions on the watch list in
accordance with the following guidelines:
(a)
For debt and guarantee transactions:
Banking and corporate transactions: if the stand alone ORR is NSO 10 to

12, or if the ORR is NSO 12, or if the FRR is NSO 12 to D. The decision
to place transactions on the watch list will consider the assessment of
group support and likelihood of systemic support to the obligor when
appropriate;
Project finance transactions: if the IPR is NSO 10 to 12, or if the FPR is
12;
(b)
For equity transactions:
Equity transactions perceived as potentially impaired, indicating that

enhanced monitoring is required; and
(xii)
to conduct, on its own initiative, and in cooperation with the operations

departments, any country, sector, product, or group review it deems
necessary.
64.
ORM monitors events and developments in countries and sectors that may affect
the risk profile of the portfolio. ORM may request an assessment from the operations
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OPERATIONS MANUAL
department with respect to the impact of changes in circumstances or economic
conditions on an individual transaction. Such impact assessments are generally
delivered by the operations department within 15 days from the date of the request.
65.
ORM has the responsibility to keep the internal credit rating system updated with
respect to ratings. Changes in sovereign ratings and systemic rating changes will be
reflected in the ratings for individual transactions and the operations departments will be
advised.
66.
The operations departments or ORM may recommend to the Investment
Committee the sale of a performing12 transaction (debt or equity investment) (i) once its
objectives are achieved, (ii) to reduce portfolio concentration, (iii) to avoid the impact of
individual credit deterioration, or (iv) generally to facilitate effective use of ADB's capital.
Such sale is subject to the approval of the President. Where proposed divestments are
market-sensitive or involve the potential disclosure of market-sensitive information,
circulation of Investment Committee information outlining such transactions may, at the
request of the director general of the relevant operations department or the head of
ORM, be restricted to the members of the Investment Committee. ORM will report
regularly to the Investment Committee on divestments of performing transactions. ORM
may also recommend to the Investment Committee the purchase of insurance or similar
instruments to modify concentrations and enhance the efficiency of ADB's economic
capital utilization. Such a purchase is subject to the approval of the President.
3.
Workout and Recovery
67.
In keeping with sound banking principles, nonperforming and impaired assets will
be managed independently from the operations department that originated the
transaction. ORM has the primary responsibility for the management of such assets, with
the prime objective of protecting their value.
68.
Debt and guarantee transactions with an ORR or FPR of NSO 13 or D and equity
transactions perceived to be impaired will be transferred to ORM unless both the
operations department and ORM agree that this would not be appropriate. The
operations department may also transfer transactions on the watch list to ORM if such a
transfer is considered necessary to preserve the value of the investment. To effect a
transfer, the operations department issues a handover memo to be acknowledged by the
head of ORM. The memo includes appropriate contact persons of the obligor and other
stakeholders, a description of the current situation, and a strategy recommendation. The
operations department further advises the obligor and other stakeholders that the
account has been transferred.
12
Separate processes are established under this OM for disposition of nonperforming assets.
OM Section D10/OP
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OPERATIONS MANUAL
69.
ORM may request the assistance of the relevant operations department that
originated the transaction throughout the workout process.
70.
ORM presents a monthly memorandum to the Investment Committee on
significant developments in the nonperforming portfolio.
71.
ORM adjusts the fair value of each nonperforming transaction as events occur
and presents quarterly reports to the Controller's Department.
72.
ORM will initiate and lead the workout process if it determines that restructuring
is the best course of action to protect ADB's interests. Workout is undertaken only when
it is expected to improve ADBs prospects for recovery, as demonstrated by financial
projections showing that, after the restructuring, the entity will be able to service its debts
from future cash flows with an adequate safety margin. If restructuring is not feasible,
ADB will have to resort to exit options such as a direct sale or liquidation of the asset.
During the workout and exit processes, ORM will liaise closely with OGC and the
operations department, and seek advice from other departments as appropriate.
73.
Information on distressed assets is considered confidential. During the workout
process, ORM interacts with the obligor and may share information with other equity and
debt holders. Disclosure of information to other parties is restricted, and any media
queries should be routed through the Department of External Relations.
74.
Workout plans and decisions to realize losses, release any rights or security
interests, make material changes in transactions, and divestment of nonperforming
assets are approved by the President.
75.
Within the scope of the President's delegated authority described in para. 10,
proposals to increase ADB's exposure are endorsed by the Investment Committee for
approval by the President.
76.
When managing nonperforming or impaired assets, ADB may incur costs that,
under the terms of the relevant legal documents, are for the account of the clients but
which, because of the circumstances, need to be covered by ADB to protect its interests.
These costs (which may include consulting costs, legal fees, travel costs, utility charges,
and security fees) may be irrecoverable. Such costs will be charged against the
respective operations department's budget and reserve, unless ORM has been allocated
a budget for these costs.
77.
The quarterly risk management report provides the Board with information on
provisions, write-offs, commitments of new funds, and, where material, extensions of
maturity, subordination, and agreed reductions in amounts due.
OM Section D10/OP
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OPERATIONS MANUAL
F.
Change in Scope
78.
In the event of a change of scope, structure, or implementation arrangements of
a nonsovereign transaction, as against those described in the closing certificate, the
director of the division supervising the transaction will consider whether the change is
major or minor. 13 The director consults with OGC, ORM, and the Guarantee and
Syndications Unit of PSOD (GSU-PSOD) (if the change affects a guarantee or
syndication), to determine whether the change is major or minor. If such a consultation is
not conclusive, the relevant director general will decide. If it is minor, the director may
approve it. The head of ORM must approve all minor changes that relate to consents,
waivers, amendments, or changes, subject to the exceptions described in para. 58.
79.
The memorandum approving a minor change of scope is copied to the
Controllers Department (if the change affects booking and disbursement procedures),
the Treasury Department (if the change affects funding, disbursements, etc.), GSUPSOD (if the change affects a guarantee or syndication), the Environment and
Safeguards Division of the Regional and Sustainable Development Department (if the
change affects environmental and social safeguards), OGC, and ORM. It must always
contain a summary of the views of each department that provided comments.
80.
When the relevant director or director general considers the proposed change to
be major, a draft memorandum setting out the change is circulated to ORM, OGC, the
Environment and Safeguards Division of the Regional and Sustainable Development
Department, the Controllers Department (if the change affects booking and
disbursement procedures), GSU-PSOD (if the change affects a guarantee or
syndication), and other departments and offices concerned for interdepartmental
comments. The Board must approve a major change that fundamentally alters the
structure, outcome, or risk profile of the proposed financing transaction. Otherwise, the
vice-president concerned approves the major change, provided the head of ORM
endorses all the major changes that relate to consents, waivers, amendments, or
changes, subject to the exceptions described in para. 58. After receiving
interdepartmental comments, the vice-president concerned decides whether Board
approval is required.
81.
If Board approval is required, a board paper (on a no-objection basis) is
submitted by the director general through the relevant vice-president for the Presidents
endorsement to circulate to the Board.
G.
Specific Loss Provisioning and Write Down
82.
ADB follows the Generally Accepted Accounting Principles, which require an
institution to estimate the impairment in the value of its investment portfolio.
13
For safeguards requirements of changes in scope, PAI 5.02 will be followed.
OM Section D10/OP
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OPERATIONS MANUAL
83.
A specific provision is necessary for credit exposures with ORR or FPR of NSO
13 or D. A write-down is necessary for equity investments if the fair value is below the
ADBs carrying book value and if the impairment is considered other than temporary.
The amount of the provision or write-down for these exposures is charged to the income
statement.
84.
ORM is responsible for assessing the fair value of impaired investments and
whether or not an equity investments impairment is other than temporary. It
communicates this information to the Controllers Department, which then compares the
fair value to the investments carrying book value to calculate a provision or write-back
(loans and guarantees) or a write-down (equity investments).
85.
ADBs exposure to equity investments is reported at estimated fair values. For
equity investments that are listed on a regular stock exchange, the fair value of those
equity investments is reflected by their market values. For investments that are not
listed, an assessment of impairment is based on the difference between the fair value
and the carrying book value of the equity investments. If the impairment is deemed to be
permanent, ADB will write down the invested amount of the investment in the balance
sheet and charge it to the income statement. For those impairments that are deemed to
be temporary, ADB may provide a loss reserve in the equity section of the balance
sheet. This treatment for equity investments will no longer be applicable when ADB
adopts fair value accounting.
86.
For each nonsovereign transaction, the project team in the operations
department is responsible for making available to ORM the information used to
determine the inputs in estimating expected loss, and projected cash flows, if required
(including information from GSU-PSOD, as necessary, where ADB has issued a
guarantee).
H.
Custodianship of Finance Documents
87.
All original executed financing documents relating to an investment are received
by OGC in the first instance and submitted by OGC to OSEC for safekeeping.
88.
Original share certificates or other securities are usually deposited with a
custodian (which could be a central bank or other appropriate financial institution) upon
OGCs request. OGC is responsible for retrieving share certificates or other securities
from the custodian, for example if they are required in connection with a disposal of such
shares or securities by ADB. The operations department is responsible for maintaining a
record and preparing quarterly reports confirming the details and location of share
certificates or other securities relating to its equity investments.
I.
Environmental and Social Safeguards and Other Policies
89.
Nonsovereign operations must comply with all relevant ADB policies and
operational procedures including ADB's safeguards (OM section F1), incorporation of
OM Section D10/OP
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OPERATIONS MANUAL
social dimensions (OM section C3), governance (OM section C4), anticorruption (OM
section C5), combating money laundering and the financing of terrorism (OM section
C6), consultants (OM section J2), procurement (OM section J3) and operations
evaluation (OM section K1).
J.
Disclosure of Information
90.
Nonsovereign operations are subject to the applicable requirements on
disclosure of information of the Public Communications Policy (OM section L3).
K.
Representation on the Board of Investee Companies
91.
ADB may require a company in which it has a direct equity investment to provide
ADB with the right to nominate a member to its board of directors. Such a nominated
member may be an independent expert or an ADB staff member with expertise in the
relevant industry and business conditions. Any staff member appointed to a board of
directors shall consider any conflicts of interests between his or her duties to ADB14 and
his or her duties as a director under applicable laws and regulations and comply with any
instructions issued by Management. The selection of the nominee director is approved
by the director general of the relevant operations department or, if the proposed
nominee director is the director general, by the responsible vice-president.
L.
Effectiveness
92.
This section is effective immediately. All nonsovereign transactions that begin
processing after the issuance of this OM section shall comply with all of its procedures
and requirements. Nonsovereign transactions that are being processed or are under
administration at the time of issuance of this section shall comply with the procedures
and requirements set forth in this section that are appropriate to their stage of
processing or administration when the section was issued. The relevant operations
department and ORM shall agree on the specific application of this OM section to
nonsovereign transactions being processed or under administration before the
effectiveness of this OM section. In the event there is no agreement, ORM will make the
final determination.
Basis:
This OM section is based on OM section D10/BP and the documents

cited therein.
Compliance:
14
Administrative Orders 2.02 and 2.04 regarding duties and responsibilities of staff members and
misconduct by staff.
OM Section D10/OP
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OPERATIONS MANUAL
For inquiries:
Questions may be directed to the Director, Strategy, Policy and

Interagency Relations Division, Strategy and Policy Department; and
the Head, Office of Risk Management.

2 January 2013
and the Office of the General Counsel and
This supersedes OM section D10/OP
issued on 13 July 2012.
OM Section D10/OP
Appendix 1
Page 1 of 1
OPERATIONS MANUAL
Rating
NSO 1
NSO 2
NSO 3
NSO 4
NSO 5
NSO 6
NSO 7
NSO 8
NSO 9
NSO 10
NSO 11
NSO12
NSO 13
Rating Definition
Lowest expectation of credit risk in ADB's nonsovereign operations. The repayment
of a facility rated NSO 1 is highly unlikely to be adversely affected by foreseeable
events.
Very low credit risk. The borrower's capacity to meet financial commitments in a
timely manner is considered very strong. The repayment of a facility rated NSO 2 is
unlikely to be adversely affected by foreseeable events.
Low credit risk. The borrower's capacity for payment of financial commitments in a
timely manner is considered strong. However, this capacity may be vulnerable to
changes in circumstances or in economic conditions.
Low credit risk. The borrower's capacity for payment of financial commitments is
considered strong. However, adverse changes in business and economic conditions
may weaken this capacity over time.
Low to medium credit risk. The borrower has a good debt service capacity. However,
adverse changes in business and economic conditions may weaken this capacity
over time.
Medium credit risk. The borrower has a good debt service capacity. There is a
possibility of credit risk developing, particularly as the result of adverse economic
change over time. However, business or financial alternatives may be available to
allow financial commitments to be met.
Medium credit risk. The borrower has adequate debt service capacity. There is a
possibility of credit risk developing, particularly as the result of adverse economic
change over time. However, business or financial alternatives may be available to
allow financial commitments to be met.
Medium credit risk. The borrower has adequate debt service capacity. There is a
possibility of credit risk developing, particularly as the result of adverse business or
economic change.
Significant credit risk. The borrower has adequate debt service capacity. However,
adverse changes in business or economic circumstances would probably impair the
borrower's capacity to meets its financial commitments in a timely manner; or there is
a possibility of a country or external event that could hinder repayment of the facility.
Significant credit risk. The borrower has weak debt service capacity. Adverse
changes in business or economic circumstances would probably impair the
borrower's capacity to meets its financial commitments in a timely manner, or there is
a possibility of a country or external event that could hinder repayment of the facility.
Significant credit risk. The borrower has a very weak debt service capacity. The
borrower appears able to meet his financial obligations during the next 12 months,
but adverse changes in business or economic circumstances would impair its
capacity to meet financial commitments in a timely manner; or there is a possibility of
a country or external event that could hinder repayment of the facility.
High credit risk. The borrower is dependent upon favorable business or economic
conditions to meet its financial commitments. There is a high likelihood, within the
next 12 months, of the borrower becoming unable to meet its debt service
obligations; or of a country or external event that would hinder the timely repayment
of the facility.
Very high credit risk. It appears unlikely that the borrower will be able to repay the
facility in accordance with the contract. The borrower's capacity for meeting its
financial commitments is solely reliant on sustained favorable business or economic
conditions. The borrower may be in technical default or may have defaulted to some
commercial lenders.
The borrower has defaulted and the facility is placed in nonaccrual status
Moody's/S&
P equivalent
AAA, AA,
A+, A
A3/A
Baa1/BBB+
Baa2/BBB
Baa3/BBB
Ba1/BB+
Ba2/BB
Ba3/BB
B1/B+
B2/B
B3/B
CCC+
CCC, CC, C
D
OM Section D10/OP
Appendix 2
Page 1 of 2
OPERATIONS MANUAL
DEFINITIONS OF RATINGS
Stand-alone rating, implied project rating, and bank intrinsic strength. The first step
in the credit review process is to assess the obligors intrinsic or stand-alone credit quality to
arrive at a stand-alone rating. The stand-alone obligor risk rating (ORR) is measured based on
quantitative factors such as financial strength and qualitative factors such as management
quality and industry position. In the project finance rating tool, the stand-alone ORR is
equivalent to the implied project rating1 while in the bank credit rating tool, the stand-alone ORR
is equivalent to the bank intrinsic strength (BIS).2
Obligor risk rating. After the stand-alone ORR has been measured, the next step in the
rating process is the application of country ceiling or country risk to arrive at an ORR. The ORR
captures the probability that the obligor will default on its obligations. In the corporate rating tool,
the stand-alone ORR is adjusted for group support and capped at the applicable local or foreign
currency country ceiling to arrive at an ORR. In the bank credit rating tool, the BIS is adjusted
for systemic support3 and capped at the applicable local or foreign currency country ceilings to
arrive at an ORR.4
Facility risk rating and final project rating. The third step in the credit review process
is to evaluate the facility. The FRR contains factors that affect loss given default, such as
guarantees, priority and security, documentation and covenants, and tenor. The procedure aims
to ensure that two facilities with the same rating and the same security have the same rate of
expected loss. The expected loss rate of a facility is defined as the product of the probability of
default by the obligor and the assumed loss given default in the facility. In the project finance
rating tool, the implied project rating is adjusted for country risk, the risk of force majeure and
the existence of credit enhancements to obtain a final project rating.
Graphically, the sequence is as follows:

Corporate or Bank Ratings
Inputs
Financial
strength
Qualitative
factors
3
4
Standalone
rating
Adjustments
Support or
drainage
Country
ceiling
Obligor
risk
rating
Inputs
Guarantee
Priority and
security
Covenants
Tenor
Facility
risk
rating
The credit assessment of a project finance transaction combines qualitative and quantitative assessment of a
project's cash flow and leverage with qualitative judgments to arrive at a stand-alone or implied project rating. The
implied project rating is adjusted for country risk, the risk of force majeure and the existence of credit
enhancements to obtain a final project rating.
The BIS measures a bank's financial strength given its operating environment, on a stand-alone basis, relative to
all other banks globally. However, the probability of default is based on the bank's ORR. In addition to the BIS, the
ORR considers the probability that the bank will receive support from the government when needed, as well as
the likelihood that the sovereign will interfere with the bank's ability to honor domestic and foreign currency
obligations.
An assessment of the willingness and ability of a sovereign entity to support a distressed financial institution.
In the case of a project finance transaction, an ORR is not assigned.
OM Section D10/OP
Appendix 2
Page 2 of 2
OPERATIONS MANUAL
Project Ratings
Inputs
Market risk
Financial strength
Technology, construction,
operations
Legal structure
Implied
project
rating
Adjustments
Country ceiling
Force majeure
Credit
enhancements
Final
project
rating
OM Section D11/BP
Page 1 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
PROCESSING SOVEREIGN AND SOVEREIGN-GUARANTEED LOAN PROPOSALS1
A.
The Policy
1.
Guided by its country partnership strategies (CPS) for its developing member countries
(DMCs), ADB prepares and implements development projects and programs that seek to
maximize development impact and optimize ADB's returns on its investments. ADB closely
involves the government of the DMC, the borrower (if this is not the government), the executing
agency, other stakeholders, and the project beneficiaries at all stages of the project cycle,
beginning with project identification. ADB helps its DMCs to formulate and, if necessary, to
reformulate projects so that they are viable. ADB ensures that the positive impacts of its
investments are maximized and that they do not have any significant negative impacts. All
sovereign and sovereign-guaranteed loans, including project loans, sector loans, program
loans, credit lines to development finance institutions, technical assistance loans, and
multiproject loans follow similar processes.2
B.
Scope of the Policy

1.
Scrutiny of Projects during Processing
2.
As a matter of policy, ADB examines different aspects of a project at key stages and
involves the borrower, project beneficiaries, and other stakeholders. These stages include
project identification, design and preparation. Loan negotiations are conducted with the
borrower, and the project is considered by the Board for approval.
2.
Safeguards
3.
ADB has established a set of safeguards related to the environment, resettlement and
indigenous people. It ensures that these safeguards are complied with in all its projects. ADB
assumes responsibility for conducting due diligence and for reviewing, monitoring, and
supervising projects throughout the ADBs project cycle in conformity with the principles and
requirements embodied in its safeguard policy statement.3
Policies described in this OM section are also applicable to proposals to be financed by Asian Development Fund
(ADF) grants and by both a loan and an ADF grant.
Sovereign and sovereign-guaranteed loans are those extended to a government or guaranteed by a government.
Emergency assistance loans, subsovereign and nonsovereign loans are processed differently. This OM section
does not aim to give a comprehensive description of the operational policy and procedures for a multitranche
financing facility. See OM Section D3 (Sector Lending), OM Section D4 (Program Lending), OM Section D5 (Sector
Development Programs), OM Section D7 (Disaster and Emergency Assistance), OM Section D10 (Private Sector
Operations), OM Section D12 (Technical Assistance), and OM Section D14 (Multitranche Financing Facility).
See ADB. 2009. Safeguard Policy Statement. Manila. The safeguard policy statement shall become effective on 20
January 2010.
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BANK POLICIES (BP)
3.
Disclosure of Loan Documents to the Public4
4.
It is the policy of ADB to list all loans to be processed on its website (www.adb.org). A
project or program information document (PID) is prepared and made publicly available in
conformity with the requirements of ADB's public communications policy.5
.
5.
The report and recommendation of the President (RRP) is made available to the general
public no later than 14 calendar days after approval of the loan by the Board. The borrower is
informed of this policy before loan negotiations and, during loan negotiations, it can indicate
whether there is information contained in the RRP that it considers confidential. If this
information conforms to the public communications policys exceptions to presumed disclosure,
the Board is advised in the circulation memorandum that the RRP has a restricted distribution.
Following Board approval, the concerned department then removes the confidential information
before disclosing the document, while leaving a reference to the deleted material (with the
reason for its removal). Any redaction or the withholding of such documents for public disclosure
purposes must be based on the exceptions to presumed disclosure specified in the public
communications policy.6
4.
Cost Sharing between ADB and DMC7
6.
The country cost-sharing ceiling for loans and Asian Development Fund (ADF) grants is
generally set for each DMC in the course of CPS preparation. The ceiling may be revised or
confirmed during preparation of the subsequent CPS, or on a stand-alone basis when
warranted. Project cost-sharing is based on specific sector, client, and project considerations
and sound banking principles. ADBs share in the project cost may exceed or fall below the
country cost-sharing ceiling, provided ADBs share in the aggregate cost of the portfolio of
projects in a DMC does not exceed the country cost-sharing ceiling over the CPS period.
5.
Board Consideration
7.
All projects and programs financed by sovereign and sovereign-guaranteed loans are
approved by the Board on the recommendation of the President. Some projects undergo full
Board discussion before approval, others follow the summary procedure process for approval.8
Under the summary procedure process, although full loan documentation is submitted to the
Board, financial assistance (a loan9 or ADF grant) is not normally discussed by the Board unless
any Board member shall so request. To be eligible for Board consideration under summary
4
5
7
8
9

The initial PID for a sovereign or sovereign-guaranteed loan and/or ADF grant project that is made publicly
available no later than 30 calendar days following approval of a project concept paper will include key project
information from the concept paper.
See ADB. 2005. The Public Communications Policy of the Asian Development Bank: Disclosure and Exchange of
Information, Manila; and OM Section L3 (Public Communications).
See OM Section H3 (Cost Sharing and Eligibility of Expenditures for ADB Financing).
See ADB. 2005. Revision of the Summary Procedure. Manila.
Including a technical assistance loan. Emergency projects that meet the above criteria may also be considered
under summary procedure.
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BANK POLICIES (BP)
procedure, the financial assistance must be consistent with the relevant CPS and must meet all
the following conditions.
10
(i)
The amount of ADB financial assistance should not exceed $200 million for
sovereign and sovereign-guaranteed operations.
(ii)
The project should not involve any exception to an existing ADB policy.
(iii)
The financial assistance should not be for a program, a sector development

program,10 or a project with a major policy reform component.
(iv)
The project should not involve an important new approach for ADB in the
developing member country concerned.
(v)
The project should not have the potential for significant adverse environmental,
economic and/or social impact, particularly on vulnerable groups that may be
unable to absorb such impact.
(vi)
The project should not involve use of a complementary financing scheme or a

novel financing arrangement.
See OM Section H5 (Supplementary Financing) on the use of summary procedure for supplementary financing of
an investment component of a sector development program.
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BANK POLICIES (BP)
Basis:

ADB. 2009. Better and Faster Loan Delivery: Report of the Loan Delivery
Working Group. Manila (November).
Processes. Manila (August).
ADB. 2005. Cost Sharing and Eligibility of Expenditures for Asian
Development Bank Financing: A New Approach. Manila (August).
Bank: Disclosure and Exchange of Information. Manila (March).
ADB. 2005. Revision of the Summary Procedure. Manila (September).
ADB. 2004. Review of the Asian Development Banks Policy on the
Performance-Based Allocation of ADF Resources. Manila (December).
Strategy. Manila (June).
ADB. 2001. Streamlining the Approval Process of the Board of Directors
through More Efficient Use of the Summary Procedure for Loan Proposals.
Manila (July).
ADB. 1992. Streamlining of Board Documents on Project-Loan and Technical
Assistance. Manila (December).
ADB. 1988. Streamlining of Technical Assistance Loan Proposals. Manila
(November).
ADB. 1984. Streamlining of Loan and Technical Assistance Operations Manila
(September).

For inquiries: Questions may be directed to the Director of the Strategy, Policy, and
1 January 2010

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PROCESSING SOVEREIGN AND SOVEREIGN-GUARANTEED LOAN PROPOSALS
A.
Introduction
1.
The processes and instruments applicable to ADB sovereign and sovereign-guaranteed
loans are set forth below. 1
B.
Business Processes
1.
Project Concept Clearance
2.
A project loan is normally processed when it has been included in the indicative rolling
country operations business plan (COBP) and its concept has been approved by the operations
vice president.2 A loan proposal that has not been included in the COBP can be processed if the
operations vice president's approval is obtained based on a government request or its
agreement to the proposal. For all loan proposals, a concept paper is subject to internal review
and approval by the operations vice president. Concept paper clearance requires that sufficient
information be provided to enable the operations vice president to make a prima facie judgment
on the processing of the project and risk category assignment that will determine the quality
assurance approach to be followed.
3.
The concept paper includes the rationale, indicative impact, outcome, and outputs,
financing plan and implementation arrangements. It also includes the required due diligence
with details about the requirements for staff, staff consultants, or project preparation technical
assistance (PPTA). Terms of reference,3 consultancy requirements, and the implementation
arrangements of any PPTA should be attached to the project concept paper. The relevant
reference documents should be stored in the electronic knowledge repository to be established
for the project.4
4.
The project team leader and project team of the responsible operations department
prepare the draft concept paper, where appropriate in consultation with the resident missions
concerned. A departmental meeting is held to consider the draft concept paper. The meeting
determines the merits of the proposed project and, if it is supported, decides on the risk
1
Procedures described in this OM section are also applicable to proposals to be financed by Asian Development
Fund (ADF) grants and by both a loan and an ADF grant. All references to "projects" in this OM section also refer
to programs. Sovereign and sovereign-guaranteed loans are those extended to the government or guaranteed by
the government.
Policies described in this OM section are also applicable to loan proposals included in an annual indicative rolling
regional operations business plan.
The scope of any PPTA may include pre-implementation works and this should be reflected in the terms of
reference of consultants.
For further information on the proposed electronic knowledge repository, see ADB. 2009. Country Partnership
Strategy: Responding to the New Aid ArchitectureReport by the Country Partnership Strategy Working Group.
Manila.
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categorization to recommend to the operations vice president, based on the degree of project
complexity, risks, and readiness. After the meeting, a reconnaissance mission would normally
be undertaken to further develop and agree with the government the project concept and due
diligence requirements, including arrangements for PPTA or other project preparatory support.
5.
The concept paper is peer reviewed and necessary revisions are made (see para. 20).
The final concept paper, including the key issues and the proposed project risk category, are
submitted by the regional director general to the operations vice president for consideration and
approval.5 The operations department may subsequently recommend to the operations vice
president a change in the project risk category based on new information gathered during
project processing.
6.
Risk categorization and quality assurance process. At the concept clearance stage,
projects are allocated to one of the two categories depending on the level of complexity, risk,
and processing readiness. Categorization as a "low risk" project means that it has all of the
following features: (i) a loan amount not exceeding $200 million for projects (or not exceeding
$50 million for programs); (ii) a sound record of ADB's previous experience in the sector in the
concerned country; (iii) reasonable executing agency capacity in terms of externally financed
project administration; and (iv) safeguard categorization other than A. Unless the project is
designated as "low risk" on this basis, it will be considered and classified as "complex" and will
require closer scrutiny and a more intensive quality assurance process, including more in-depth
due diligence and management and peer review than that required for a "low risk" project.
7.
Project classification. Loan projects6 are classified by: type of financial product;
financial modality (in order to highlight partnerships); sector and subsector(s); location impact;
themes; and targeting. The classification may be tentative at the project identification/concept
stage and may be changed during processing. The primary responsibility for the classification of
a project rests with the initiating department.
8.
Design and monitoring framework.7 The design and monitoring framework is a design
tool that logically links the impact or rationale of a project, its outcome, expected outputs, inputs
and activities, key indicators (targets, timeframe, and baseline), key risks and assumptions, the
analysis that needs to be undertaken, the manner in which data are collected, the expected
beneficiaries, and the stakeholders. Conceptualization of the framework starts at the project
concept clearance stage and is refined as project processing proceeds. An initial draft of the
framework for the lending operation should be attached to the concept paper.8 Its final version
enables project implementation to be monitored, and indicates where and when any remedial
interventions need to be carried out.
6
7
8
Concurrently, the operations vice president approves the PPTA (if required) within his/her approval authority. In the
course of circulation of the project concept paper, the director general provisionally approves a small-scale PPTA
(if required) within his/her approval authority pending project concept clearance by the operations vice president.
In this context, loan projects include project loans, program loans, sector loans, and technical assistance loans.
See also OM Section J1 (Project Performance Management System).
The director signs the design and monitoring framework for circulation. A problem analysis should accompany the
DMF.
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2.
Safeguard Requirements
ADB adheres to environmental and social safeguards.9 ADB carries out project
9.
screening and safeguard categorization at the earliest stage of project preparation when
sufficient information is available for this purpose. Screening and categorization is undertaken to
(i) reflect the significance of potential impacts or risks that a project might present; (ii) identify
the level of assessment and institutional resources required for the safeguard measures; and
(iii) determine disclosure requirements.
3.
Project Design
10.
Project preparation and due diligence. Project design is an evolving process from the
time of conceptualization through the design stage to Board approval. The design process
involves the project team, the borrower, beneficiaries, consultants, development partners,
NGOs, and other stakeholders. The design process usually involves several steps, including
project preparatory support, project fact-finding, management review meeting (MRM) or staff
review meeting (SRM) depending on risk categorization, loan negotiations, and Board
consideration. The project team examines the project design in terms of its technical, financial,
macro- and microeconomic, institutional, sectoral policy, legal, and safeguard contexts, in
conjunction with the country partnership strategy (CPS), operational experience, and lessons
from evaluations of previous projects (available in the evaluation information system database
of the Independent Evaluation Department [IED]). Attention is also paid to institutional capacity,
cost estimates and financing plans, implementation arrangements (project readiness,
procurement, consulting services, project management, disbursements, accounting, and
auditing), and possible conditions or covenants. ADB coordinates with other funding agencies.
11.
Fact-finding. A loan fact-finding mission is conducted by the project team to confirm the
viability of the project10 after sufficient feasibility work has been undertaken either by the
government or through ADB's project preparatory support. This would normally be following
completion of surveys, initial design work, costing, safeguards, and due diligence to establish
the viability of the project. When ADB PPTA is provided, there should be close cooperation
between all concernedconsultants, government, and the fact-finding mission.11 Fact-finding in
the course of PPTA implementation ensures the project team remains fully involved and plays
an integral role in guiding project preparation; consultants have closer supervision and direction;
and the government is more closely involved in the project design. The fact-finding mission
would prepare a memorandum of understanding or aide memoire that outlines the agreement
with the government on the rationale, impact, outcome, and outputs of the project and on the
project administration manual (PAM)12 that details the project implementation arrangements.
9
See ADB. 2009. Safeguard Policy Statement. Manila. The safeguard policy statement shall become effective on 20
January 2010, and its operational procedures are laid out in OM Section F1 (Safeguard Policy Statement).
10
More than one mission may be fielded for this purpose. See Footnote 19.
11
Care should be taken to ensure that the functions and activities of the loan fact-finding mission staffed by ADB and
of the PPTA consultants are not co-mingled. This is because PPTAs are funded from special funds resources,
while loan processing by ADB staff is funded from internal administrative expenses, which are part of ordinary
capital resources, and each has to be separated from the other.
12
All references to "project administration manual" or "PAM" in this OM section should be read "facility administration
manual" in the case of the multitranche financing facility.
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Subsequent to the fact-finding mission, PPTA consultants would normally further refine the
project design to augment and improve project documentation and undertake preimplementation works.
12.
Project administration manual. The PAM includes all the information and schedules
describing project implementation.13 The PAM should be agreed with the government at factfinding.14 The PAM should also include project readiness filters covering major pre-project
implementation actions (e.g., government approvals, procurement, and resettlement) to ensure
a rapid start-up and enable early disbursement.
13.
Report and recommendation of the President (RRP). The RRP presents the project
proposal in sufficient detail for Board consideration. Sector assessments, detailed
implementation arrangements in the form of the PAM, and other supporting documents should
be presented as stand-alone linked documents.
4.
Quality Assurance Meetings
14.
The draft RRP is reviewed by peer reviewers (see para. 20) before it is submitted to the
MRM or SRM.15 For "complex" projects, an MRM is chaired by the operations vice president
with the director general, sector director, and project team in attendance. Other relevant parties
may be invited to join the meeting by the regional department or attend at their discretion. The
MRM will take decisions on further project processing. For "low-risk" projects, an SRM is
chaired by the director general, with the project team in attendance. Other relevant parties may
be invited to join the meeting by the regional department or attend at their discretion. The SRM
will take decisions on further project processing.
15.
The draft RRP presented to the MRM or SRM explains how eligible expenditures are to
be financed,16 and provides an assessment and justification for the financing of expanded
eligible expenditures.17 The MRM or SRM considers the project's viability, the readiness of the
project design and analysis, advance contracting under the loan,18 retroactive financing in
principle, risks and the control mechanisms associated with the proposed financing option, and
the due diligence that has been carried out. The MRM or SRM will decide whether to give the
13
In the case of a program loan, the development policy letter and policy matrix presented as part of the RRP should
specify required actions in the form of reform implementation and the PAM would be optional.
14
Thereafter, PAM should be reviewed by the Management review meeting (MRM) or the staff review meeting
(SRM), during loan negotiations, and by loan inception, midterm, and other review missions.
15
An invitation, with an attached issues note and comment matrix, to attend MRM or SRM is issued by the regional
director general (usually, two days prior to the meeting). It should be copied to all peer reviewers.
16
ADB financing may be provided in a variety of ways, including three options presented in OM Section J6
(Disbursement). When ADB proposes to finance up to 100% of eligible expenditures of every claim up to a point
where the balance of grant or loan amounts are fully disbursed, the RRP should indicate the associated risks and
the proposed control mechanism for Managements guidance.
17
18
To ensure that the executing agency has the capacity to carry out the actions needed for advance contracting, the
project team normally conducts procurement capacity assessment before the MRM or SRM during loan
processing.
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project team clearance to proceed with loan negotiations.19 MRM or SRM will also consider
whether to endorse a proposal for recourse to the Board summary procedure.20 The MRM and
SRM minutes should in all cases be signed off by the director general, and should be copied to
the operations vice president.
5.
Loan Negotiations
16.
Before loan negotiations, as part of the usual process of inviting the borrowers
representatives to loan negotiations, or at the specific request of the DMC through ADBs official
channel of communication in the DMC, the draft loan documents, including the RRP and the
PAM both reflecting peer reviewers' comments, will be provided to the borrower. The borrower
is advised that the documents do not commit ADB to finance the project or program, and may
be revised. The invitation to loan negotiations requires the borrowers negotiating team to
indicate any information or data in the loan documents that are to be treated as confidential. The
borrower submits a procurement plan for approval by ADB before loan negotiations. The
operations department reviews the procurement plan in consultation with Central Operations
Services Office (COSO) to obtain its concurrence. The project team leader leads the
negotiations, and, when these have been completed, the project counsel prepares minutes for
signature by both parties.
17.
For loans from ordinary capital resources, the borrower may request brief presentations
on the LIBOR-based loan product and associated debt management features from the Treasury
Department during loan negotiations.21 For loans from Asian Development Fund (ADF)
resources, the borrower determines the repayment currency out of the special drawing rights
currencies during loan negotiations. The borrower can change the repayment currency,
provided it gives sufficient advance notice to ADB.22
6.
Board Consideration
18.
When loan negotiations have been completed, the RRP is edited by the Office of the
Secretary (OSEC). If major changes to the RRP are not expected as a result of loan
negotiations, the RRP may be edited before loan negotiations start. When it has been edited,
the RRP is returned by OSEC to the project team leader for finalization. The loan agreement is
cleared by the Office of the General Counsel (OGC) and the final RRP is cleared first by OGC
(for clearance to circulate to the Board) and then by OSEC (for clearance for printing). The
project team leader prepares a memo to the President,23 with the RRP attached, requesting
approval to circulate the RRP to the Board. Usually, unless approved by the Management, at
least 21 calendar days are needed between circulation of the loan documents to the Board and
19
It is envisaged that a follow-up missions and/or a second SRM would be optional and undertaken if specifically
required by either the MRM or the first SRM. If a further mission is called for, loan negotiations should be
completed as part of the mission where possible.
20
ADB. 2005. Revision of the Summary Procedure. Manila.
21
See ADB. 2006. Enhancements for the Asian Development Banks Loan and Debt Management Products. Manila.
22
See ADB. 2005. Asian Development Fund Currency Management Proposal. Manila.
23
The memo should be coursed from the regional director general through the operations vice president. The
recommendation for the President's final decision on the summary procedure should be stated in the memo,
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Board consideration. After Board approval of the loan documents, the operations department24
is responsible for arranging the prompt signing of the loan agreement by the borrowers
representative, and for ensuring that any loan conditions have been met by the borrower. OGC
is responsible for declaring the acceptance of a legal opinion and that other documents that may
be required by the loan agreement are satisfactory to ADB.25
7.
Disclosure of Loan Documents
19.
Sovereign and sovereign-guaranteed loan and/or ADF grant agreements, related project
agreements, pertinent RRPs, and project information documents shall be made publicly
available in accordance with the requirements of the public communications policy.26
C.
Peer Review in the Course of Loan Processing
20.
A two-fold peer review process during processing of loans comprises: (i) a specific
cross-departmental review; and (ii) a sector-focused review. The cross-departmental review
takes place on specific technical aspects of the project design and implementation
arrangements. The Economics and Research Department (on economic analysis), Controllers
Department (on investment and financing plans, and disbursement), COSO (on procurement,
and DMF), IED (independent feedback on operations), Office of Cofinancing Operations (in
cases where cofinancing is proposed), Office of Regional Economic Integration (in cases of
interventions addressing regional cooperation and integration), the Regional and Sustainable
Development Department (on safeguards by the Environment and Safeguards Division), and
the Office of the General Counsel (on legal matters) should be engaged in this process.27 The
sector-focused review concentrates on technical advice on the sector concerned, whereby the
full RRP is sent to the head of the community of practice (CoP) to coordinate a comprehensive
sector-focused review of the proposal. Peer reviews' comments should focus on their areas of
direct expertise. Sector-focused peer reviewers are acknowledged in the RRP.
D.
Retrospective Stocktaking of Approved Loans
21.
ADB may undertake assessment of quality-at-entry of approved loans as part of a
biennial retrospective review of projects prepared and approved over a respective review period
to examine their quality, assess the areas for improvement and those where improvements are
needed.
24
The regional director general has the authority for loan and grant signing, and the authority to delegate this
function. See ADB. 2009. Better and Faster Loan Delivery: Report of the Loan Delivery Working Group. Manila.
25
See OM Section J5 (Effectiveness of the Loan Agreement).
26
See ADB. 2005. The Public Communications Policy of the Asian Development Bank: Disclosure and Exchange of
Information. Manila; and OM Section L3 (Public Communications).
27
Operations departments should copy draft RRPs or sections of RRPs for review and may consult with other
departments or offices, as well as the concerned resident mission, that may provide inputs specifically on technical
matters in the areas of their direct expertise.
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Basis:

therein.

1 January 2010

OM Section D12/BP
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BANK POLICIES (BP)
TECHNICAL ASSISTANCE
A.
Introduction
1.
The technical assistance (TA) operations of the Asian Development Bank (ADB) are
guided by the provisions of the Agreement Establishing the Asian Development Bank (the
Charter), particularly Articles 2(iii), 2(iv), 14(iii), and 21(vi).
B.
Definitions
2.
"Sovereign TA" means TA provided by ADB to a developing member country (DMC)
government(s) or in response to a request(s) by a DMC government(s).
3.
"Nonsovereign TA" means any TA other than sovereign TA.
4.
"Recipient" means a DMC, an agency, instrumentality or political subdivision of a DMC,
any entity or enterprise operating in the territory of a DMC, and any international, regional or
subregional agency or entity concerned with development in Asia and the Pacific to which TA is
provided.
5.
"Project preparatory technical assistance (PPTA)" means TA for project preparation.
6.
"Policy and advisory technical assistance (PATA)" means TA to finance sector-, policy-,
and issues-oriented studies.
7.
"Capacity development technical assistance (CDTA)" means TA to undertake
institutional and organizational capacity development and to support the implementation,
operation and management of ADB-financed projects.
8.
"Research and development technical assistance (RDTA)" means TA to strengthen
ADBs role as knowledge platform to address development issues of a global or Asia and
Pacificwide nature.
9.
"Regional technical assistance" means TA for more than one DMC for the purpose of
project preparation, policy advice, or capacity development. Regional TA is identified by the
prefix R.
10.
"Technical assistance cluster" means PATA, CDTA, or RDTA designed and processed
as a set of related subprojects within a medium- to long-term planning framework. TA cluster is
identified by the prefix C.
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BANK POLICIES (BP)
11.
"Small-scale technical assistance" means PPTA, PATA, CDTA, or RDTA for amounts up
to $225,000 with streamlined processing. Small-scale TA is identified by the prefix S.
12.
"TA loans" may finance detailed engineering for a project.
13.
"TASF-IV" means resources transferred to the Technical Assistance Special Fund
(TASF) in the context of the fourth regularized replenishment of TASF. These resources are
used exclusively for TA to Group A and B DMCs with access to the Asian Development Fund
(ADF) explicitly mentioned in the ADF donor report and for regional TA and RDTA for the
benefits of these ADF countries.
14.
"TASF-other sources" means resources transferred to TASF through voluntary
contributions, ordinary capital resources (OCR) net income transfer, and TASF income. These
resources can be used for TA for all ADB DMCs.
C.
The Policy
15.
ADBs TA operations1 are anchored in the strategic directions set out in (i) a country
partnership strategy (CPS), 2 (ii) a regional cooperation strategy, or (iii) research priorities of
ADB outlined in the work program and budget framework following deliberations of a strategic
forum convened by Management.3 TA operations contribute to the achievement of country and
regional development objectives. They facilitate the flow and efficient utilization of development
finance to DMCs and recipients within DMCs to enhance their development capacity. Through
its TA operations, ADB assists in (i) identifying, formulating, and implementing development
projects; (ii) formulating and coordinating development strategies, plans, and programs;
(iii) improving recipients institutional capabilities; (iv) undertaking sector-, policy-, and issuesoriented studies; and (v) improving the knowledge about development issues in the Asia and
Pacific region. ADB also uses TA to foster regional cooperation and integration among DMCs by
(i) promoting regional policy dialogue and providing policy advice; (ii) supporting capacity
building and institutional strengthening to help the integration of DMCs within the region and
with the rest of the world and to respond to cross-border issues; (iii) generating and
disseminating knowledge on regional cooperation and integration; and (iv) developing
partnerships with other stakeholders, including international institutions, policy makers, think
tanks, academic institutions, and nongovernment organizations. A design and monitoring
framework is prepared and used as a management tool to design, implement, monitor, and
evaluate each TA operation.4
1
2
3
Sovereign and nonsovereign TA.

See OM Section A2 (Country Partnership Strategy).
In exceptional cases when a CPS does not exist or the country is subject to considerable uncertainty, an interim
CPS might serve as a basis for ADB operations planning (footnote 2). A strategic forum will be organized annually
to shape ADBs research, development, and knowledge agenda. The strategic forum will be chaired by the VicePresident, Knowledge Management and Sustainable Development and attended by staff from operations and
knowledge departments.
The design and monitoring framework is not required for PPTA.
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BANK POLICIES (BP)
D.
Scope of the Policy

1.
Operations
a.
Types of Technical Assistance
16.
Project preparatory technical assistance. PPTA may be processed for a standalone
project or program, or a sector development program; a subprogram under the program cluster
approach; single sector lending for a series of subprojects; or a multitranche financing facility
comprising a series of tranches.5
17.
PPTA may be used for preparing

(i)
a feasibility study, which may include preliminary designs; preliminary

engineering; cost estimates; technical, financial, economic, and socioeconomic
analysis; environmental analysis; social impact assessment; a study for initial
benchmark indicators; project administration manual;
(ii)
in some cases, a preliminary sector survey or a sector review to identify issues

within a particular sector to be addressed by the project, or a master plan;
(iii)
pre-implementation works for the project;
(iv)
detailed engineering, including detailed designs, specifications, detailed cost

estimates, prequalification of bidders, and bidding documents; and/or
(v)
principally in the case of nonsovereign TA, contractual agreements or other

necessary legal or institutional arrangements to facilitate transaction financing
and/or project development and implementation.
18.
Policy and advisory technical assistance. PATA is usually extended in a sector- or
economy-wide context. It may be on a stand-alone basis or accompanying a project. In some
cases it may be project-specific. PATA assists in (i) preparing national and sector development
plans and programs, particularly in small DMCs; and (ii) carrying out sector-, policy-, and issuesoriented studies.
19.
Capacity development technical assistance. CDTA assists in (i) establishing or
strengthening organizations and institutions in DMCs; (ii) implementing, operating, and
managing ADB-financed projects; and/or (iii) enhancing knowledge management. CDTA plays
an important role in ADBs efforts to improve the technical, managerial, and financial capabilities
of recipients. CDTA is designed to meet the specific institutional and organizational
See OM Section D3 (Sector Loan); OM Section D4 (Program Lending); OM Section D5 (Sector Development
Program); and OM Section D14 (Multitranche Financing Facility).
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development needs 6 of the recipients and a systematic approach is adopted to assess the
capabilities of such institutions thoroughly.
20.
Research and development technical assistance. RDTA involves TA activities
conceived to address global or regional development issues which require further analysis or
understanding. The corporate medium-term research agenda is determined through an annual
strategic forum and confirmed in ADBs work program and budget framework. RDTA is usually
processed by the Economics and Research Department, Office of Regional Economic
Integration, or Regional and Sustainable Development Department, collaborating closely with
other departments. However, in some cases a regional or some other department may lead an
RDTA activity, if the regional or other department has specific expertise or is in charge of a focal
area.
21.
Small-scale technical assistance. PPTA, PATA, CDTA, and RDTA can be in the form
of small-scale TA (S-PPTA; S-PATA; S-CDTA or S-RDTA). TA is considered small-scale if ADB
financing does not exceed $225,0007 and the TA does not require substantial logistical support
from the recipient. Small-scale TA is a useful and convenient means of rapidly providing
expertise. Small-scale TA is most appropriate for (i) updating feasibility studies; (ii) initiating or
completing project preparation work; (iii) addressing narrowly defined development issues; and
(iv) financing assessments in an emergency situation as a rapid response tool.
22.
Technical assistance cluster. PATA, CDTA, and RDTA can be in the form of TA
cluster (C-PATA, C-CDTA and C-RDTA).8 TA cluster comprises a series of TA subprojects over
an extended period to address constraints in a DMC through a comprehensive and holistic
approach. TA cluster assumes a long-term perspective and partnership between ADB and the
DMC concerned and flexibility in the design of the subprojects. C-PATA, C-CDTA, and C-RDTA
are to support reforms and capacity building in a sector and/or a subsector, to strengthen
macroeconomic and development management, or to advance a cross-cutting theme in a DMC
or in the Asia and Pacific region.9 TA cluster is also useful in addressing ADB-wide research
topics that require a medium-term perspective (C-RDTA).
23.
Regional technical assistance. If a PPTA, PATA, or CDTA covers more than one
DMC, it is processed as regional TA (R-PPTA, R-PATA or R-CDTA). RDTA is the principal
6
7
8
The conventional approach of appointing consultants to advise an institution and/or to train staff under CDTA is not
appropriate if major structural changes are needed in developing member countries (DMC) public sector
institutions. For this purpose, proposals would need to be prepared, with the agreement of the DMC, for the
proposed change (e.g., commercialization in full or part, privatization, or closure).
The total cost of the TA, including the recipients provision, may exceed $225,000.
For details on TA cluster, see ADB. 1997. Review of the Banks Technical Assistance Operations. Manila (July).
Concerning PPTA, the paper states in Appendix 2, para. 4: PPTA is perceived as part of the processing of
investment projects. Therefore, it would be subject to close scrutiny by Management and not suitable for a
subproject of a TA cluster.
TA cluster may be used for regional technical assistance (C-R-PATA or C-R-CDTA) to assist groups of countries
facing similar constraints or development issues (e.g., the Central Asian Republics, the Pacific DMCs, or the DMCs
in the Greater Mekong Subregion).
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instrument for financing ADBs research agenda for Asia and the Pacific, which usually covers
more than one DMC.
24.
The table below provides an overview of the TA types in relation to the objectives.
Types of Technical Assistance
Objective
Identifying, formulating, and preparing development
projects (country or subregion)
Type
PPTA
Regional
R-PPTA
Cluster
...
SmallScale
S-PPTA
Enhancing the capacity of executing agencies and

other development partners, including support to
implement projects
CDTA
R-CDTA
C-CDTA
S-CDTA
Formulating and coordinating development strategies,

plans, and programs; and undertaking sector-, policy-,
and issues-oriented studies (country or subregion)
PATA
R-PATA
C-PATA
S-PATA
Undertaking sector-, policy-, and issues-oriented

studies (Asia and Pacific region)
RDTA
RDTA
C-RDTA
S-RDTA
= not applicable, C- = cluster, CDTA = capacity development technical assistance, PATA = policy and advisory
technical assistance, PPTA = project preparatory technical assistance, R- = regional, RDTA = research and
development technical assistance, S- = small-scale, TA = technical assistance.
b.
Approval Authority
25.
For technical assistance proposals.10 The President has the authority to (i) approve
TA financed on a grant basis from ADBs own resources and/or other sources provided that the
highest financing amount from any one source (ADB or cofinancing funds) does not exceed
$1.5 million; and (ii) report such approval to the Board. To enhance the independence and
effectiveness of the Independent Evaluation Department (IED), the director general, IED has
been granted authority to approve TA proposals to be implemented by IED up to $750,000.
10
When assessing the approval ceilings, the financing sources should be considered separately. If the TA is financed
by an ADB source and one or more grants from external sources and each of these grants does not exceed
$1.5 million, even if the combined amount of the grants for the TA is more than $1.5 million, the President will
approve the TA or in the case of PPTA, a vice-president. In case of CDTA, PATA, and RDTA financed by an ADB
source and one or more grants from external sources and each of these grants does not exceed $750,000, even if
the combined amount of the grants for the TA exceeds $750,000, a vice-president approves the TA. If the TA is
financed by ADB Special Funds and the total combined amount of these resources from Special Funds exceeds
$1.5 million, the Board of Directors will approve the TA.
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26.
The President may delegate to the vice-presidents authority to approve TA.11 The Board
has delegated to heads of departments or offices authority to approve small-scale TA up to a
ceiling of $225,000. The President reports all TA approvals to the Board.
27.
Grant-financed TA proposals in excess of the amounts referred to in para. 25 are
circulated to the Board for approval on a no-objection basis regardless of their source of
financing.
28.
TA loan proposals must be presented to the Board for approval.
29.
For change in technical assistance scope. The Board of Directors has the authority to
approve a major change in scope of TA where the cost of the change is more than $1.5 million.
The vice-presidents have been delegated the authority to approve a major change in scope of
TA where the cost of the change is $1.5 million or less. The President reports such approval to
the Board. The director general, IED has been granted the authority to approve a major change
in scope of TA that he or she has approved. 12
2.
Financing
30.
ADB normally finances all TA on a grant basis, except for PPTA for detailed engineering
services, which is financed through a TA loan. However, nonsovereign PPTA, which is financed
on a grant basis, to a private sector entity13 is subject to arrangements for recovery of the full
cost of the PPTA to the extent that the TA results in further financial assistance from ADB.
Nonsovereign PPTA to an entity that is not a private sector entity is financed on a grant basis
without arrangements for cost recovery. TA for graduated countries is provided on a
reimbursable basis.14
31.
Regional TA and RDTA covering various member countries, e.g., Group A and B DMCs
together with Group C and graduated and/or unclassified member countries, is provided on a
grant basis.15
a.
Sources of Funds
32.
TA grants may be sourced from ADBs own resources or from other resources external
to ADB.
11
Currently, the President has delegated to the vice-presidents the authority to approve TA up to $750,000 for PATA,
CDTA, and RDTA, and up to $1.5 million for PPTA. See ADB. 2008. Increasing the Impact of the Asian
Development Banks Technical Assistance Program. Manila (Doc. R87-08, May 2008).
12
ADB. 2002. Review of the Management and Effectiveness of Technical Assistance Operations of the Asian
Development Bank. Manila (Doc. R225-02, 28 October); ADB. 2004. Delegation of Approval Authority to Director
General, Operations Evaluation Department for Certain Technical Assistance Related Recommendations. Manila
(Doc. R272-04, 26 November); ADB. 2001. Business Processes for the Reorganized ADB. Manila (December).
13
A private sector entity is an entity that (i) is not a political division or subdivision of a DMC; and (ii) is not part of, or
controlled by, a governmental body or agency.
14
ADB. 2008. Review of the 1998 Graduation Policy of the Asian Development Bank. Manila.
15
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33.
TA loans are financed from ADBs OCR or from ADF resources subject to normal ADF
eligibility requirements.
34.
ADB Technical Assistance Special Fund. TASF relies on voluntary contributions from
developed and developing member countries. In view of the importance of a stable flow of
resources, TASF funds are, from time to time, mobilized through regularized replenishments
together with the ADF replenishments.
35.
In addition, ADB augments TASF resources through transfer of net income from OCR.
The amount of OCR net income, if any, to be transferred to TASF is decided by the Board of
Governors at the time of the annual net income allocation, based on a review of ADBs income
outlook and TA financing needs.
36.
The funds transferred to TASF through the regularized replenishments (concomitant to
ADF replenishments) are used exclusively for TA to Group A and B DMCs with access to ADF16
explicitly mentioned in the ADF donor report and for regional TA and RDTA for the benefit of
these ADF countries. 17 ADB ensures that resources of the fourth regularized replenishment
(TASF-IV) are used for these purposes by monitoring funding sources and utilization under the
TA program as described below.
37.
TA for Group A and B countries with access to ADF,18 regional TA that includes at least
one Group A or B country with access to ADF, and RDTA will be attributed to TASF-IV
resources, if available. TA or regional TA exclusively for Group C countries and Group A and B
countries with no access to ADF will be attributed to TASF-other resources.
38.
Other ADB special funds. Other ADB special funds may also be available for grant
financed TA.
39.
Unless otherwise provided in the document establishing a special fund, TA grants
financed under these modalities are subject to the same processes and procedures outlined in
this OM section.
40.
External sources. TA may be financed by bilateral, multilateral, or private sector
sources either in full or in part (cofinancing) under arrangements to be agreed upon. ADB
normally administers these resources.
16
ADF eligible countries under TASF-IV. Currently the following countries are eligible - Group A: Afghanistan,
Bhutan, Cambodia, Kiribati, Kyrgyz Republic, Lao Peoples Democratic Republic, Maldives, Mongolia, Nauru,
Nepal, Samoa, Solomon Islands, Tajikistan, Timor-Leste, Tonga, Tuvalu, and Vanuatu. Group B: Armenia,
Azerbaijan, Bangladesh, Federated States of Micronesia, Georgia, Pakistan, Palau, Papua New Guinea, Republic
of the Marshall Islands, Sri Lanka, Uzbekistan, and Viet Nam.
17
RDTA is assumed to benefit ADF countries, regardless of inclusion of ADF countries in the TA activities, because
they will benefit indirectly or directly through improved ADB operations from the knowledge generated. Regional TA
is eligible for TASF-IV resources if at least one Group A or B ADF country is included in the regional TA.
18
Myanmar and India currently have no access to ADF.
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41.
External sources comprise trust funds, grants provided under TA-specific cofinancing
agreements, and grants under fund channeling framework agreements. 19 Unless specified
otherwise in the document establishing the trust fund or in the cofinancing agreement, TA grants
financed under these modalities are subject to the same processes and procedures outlined in
this OM section as TA grants financed by ADBs own resources.
b.
Financing Arrangements
42.
The financing arrangements set forth below apply to sovereign TA. Financing
arrangements for nonsovereign TA are described in para. 30. Where cofinancing of TA is
involved, the financing limits outlined in the following paragraphs apply only to the ADB-financed
portion of the TA.
43.
Project preparatory technical assistance (feasibility studies). The full TA amount of
feasibility studies is financed on a grant basis.
44.
Project preparatory technical assistance (detailed engineering design). Standalone PPTA for detailed engineering design may not include a grant component and must be
financed by a TA loan. 20 The financing arrangements for stand-alone PPTA for detailed
engineering are as follows: (i) if sourced from OCR, the PPTA amount is repaid over a 15-year
period, including a grace period of 3 years, with no commitment charge and the rest of the loan
charges in line with sovereign and sovereign-guaranteed OCR loans; and (ii) if sourced from the
ADF, the lending terms will be similar to those of ADF investment loans.
45.
In the case of PPTA for detailed engineering accompanying a loan or a grant, or
processed as part of the loan or grant for the same project, the PPTA will be financed under the
same terms as the accompanying loan or grant, or the loan or grant of which it is a part.
46.
Project preparatory technical assistance (feasibility studies and detailed
engineering design combined). If the TA is for both a feasibility study and detailed
engineering, a grant equal to or less than the amount of the feasibility study component may be
provided, with the balance as a stand-alone PPTA loan or as a PPTA loan accompanying a loan
or grant for another project. In such cases, the viability of such a project should be established
to the satisfaction of ADB and the recipient before detailed engineering work starts. The standalone PPTA loan is subject to the terms given in para. 44.
47.
Policy and advisory and capacity development technical assistance. PATA and
CDTA, including in the form of cluster or regional TA, are financed on a grant basis. Mission
19
The Global Environment Facility is an example of the latter. The Office of Cofinancing Operations maintains an
updated list with available external funding sources and can make it available on request, and assist staff in
identifying the most suitable external funding source.
20
The need for DMCs to use this TA loan facility for detailed engineering is examined specifically and encouraged,
where required, by ADB country programming and other forms of missions.
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BANK POLICIES (BP)
leaders are encouraged to seek funding from external sources before or in conjunction with
TASF.
48.
Research and development technical assistance. RDTA, including in the form of TA
cluster, is financed on a grant basis.
49.
Cost sharing between ADB and the developing member country. Under the
framework on cost-sharing, 21 there is a country cost-sharing ceiling for loans (including TA
loans) and there is a separate country cost-sharing ceiling for TA and other grants, applicable to
the portfolio for a DMC over the period of the CPS. The cost-sharing policy is not applicable to
RDTA, regional, small-scale, or nonsovereign TA.
50.
Use of technical assistance for pilot-testing. A portion of a TA amount may be used
for pilot-testing projects with innovative approaches before large-scale implementation. The
amount allocated to pilot-testing normally should not exceed 30% of ADB financing for the TA.
Basis:

ADB. 2009. Better and Faster Loan Delivery. Manila.
ADB. 2009. Revised Operation Framework for the Japan Fund Poverty
Reduction. Manila.
ADB. 2008. Increasing the Impact of the Asian Development Banks Technical
Assistance Program. Manila.
ADB. 2008. Review of the 1998 Graduation Policy of the Asian Development
Bank. Manila.
Development Bank, 2008-2020. Manila.
ADB. 2007. Guidelines on the Use of Consultants. Manila.
Development Bank Financing: A New Approach. Manila.
Bank: Disclosure and Exchange of Information. Manila.
21
See OM Section H3 (Cost Sharing and Eligibility of Expenditures for ADB Financing). In case items covered by the
expanded list of eligible expenditures under OM Section H3 are envisaged for ADB financing, the proposal to that
effect should be stated in the TA report or final project concept paper submitted for PPTA approval.
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Strategy. Manila.
ADB. 2004. Delegation of Approval Authority to Director General, Operations
Evaluation Department for Certain Technical Assistance Related
Recommendations. Manila.
ADB. 2002. Review of the Management and Effectiveness of Technical
Assistance Operations of the Asian Development Bank. Manila.
ADB. 2001. Private Sector Operations Strategic Directions and Review.
Manila.
ADB. 1998. Review of the Loan Terms for the Asian Development Fund.
Manila.
ADB. 1997. Review of the Banks Technical Assistance Operations. Manila.
Processes. Manila.
ADB. 2001. Business Processes for the Reorganized ADB. Manila.
ADB. 1992. Streamlining of Board Documents on Project Loan and Technical
Assistance. Manila.
ADB. 1992. Arrangements for Lending from ADF and TASF Operations Funded
by ADF Contributions. Manila.
ADB. 1992. Use of OCR Income for TA Grants. Manila.
ADB. 1991. Replenishment of the Asian Development Fund and the Technical
Assistance Special Fund. Manila.
ADB. 1990. Second Review of Private Sector Operations. Manila.
ADB. 1988. Streamlining of Technical Assistance Operations. Manila.
ADB. 1988. Streamlining of Technical Assistance Loan Operations. Manila.
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ADB. 1987. A Review of Arrangements for Lending from ADF, TASF, Operations
Funded by ADF Contributions and ADB Lending Terms. Manila.
ADB. 1986. Technical Assistance Operations and Funding Arrangements.
Manila.
ADB. 1985. Bank Assistance to the Private Sector. Manila.
ADB. 1983. A Review of Lending Foreign Exchange for Local Currency
Expenditures of Projects. Manila.
ADB. 1983. Streamlining of Loan Administration. Manila.
ADB. 1977. Technical Assistance Operations. Manila.
ADB. Project Administration Instructions. Manila.
For inquiries: Questions may be directed to the Director of Strategy, Policy and Interagency
14 July 2011

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TECHNICAL ASSISTANCE
A.
Allocation and Monitoring of Technical Assistance Funds
1.
The country partnership strategy (CPS), regional cooperation strategy (RCS), and
country operations business plan (COBP) or regional cooperation operations business plan
(RCOBP) identify the priorities for grant-financed technical assistance (TA) at the country and
subregional levels. The priorities for research and development TA (RDTA) are identified
through the annual TA strategic forum.
2.
The demand or need for TA is documented in the various management information
systems and consolidated at the corporate level during the work program and budget framework
preparation and the subsequent preparation of operational resource parameters. Based on the
demand and the existing TA portfolio, Management allocates available TA resources for each
source of funding1 to the vice-presidents' groups, and separately to the departments and offices
reporting to the President or the Board of Directors. Vice-presidents decide on the allocation of
TA resources to the user departments and offices under their responsibility. Vice-presidents will
ensure that (i) project preparatory TA (PPTA) receives priority over other TA types; (ii) TA for
addressing development constraints in weakly performing countries or fragile states receives
priority over other TA requests; and (iii) TA for priority sectors under Strategy 20202 receives
preference over other TA proposals.
3.
During TA processing, departments and offices should indicate funding sources3 at the
concept paper stage (where applicable) and TA report stage 4 to allow monitoring of fund
utilization.
4.
The Controllers Department (CTL) records Technical Assistance Special Fund (TASF)
utilization under two categories (TASF-IV and TASF-other resources) and reports to
Management and the Strategy and Policy Department on a quarterly basis.
B.
Processing Technical Assistance
5.
A TA proposal is processed after it has been included in the approved COBP or
RCOBP.5 However, a TA proposal may also be processed any time during the year even if it is
1
The Technical Assistance Special Fund (TASF) resources should be presented separately for TASF-IV and TASFother sources.
2
ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank, 20082020.
Manila.
3
Including allocation from TASF-IV and TASF-other sources, where applicable.
4
The Controllers Department will check and comment on the attribution of TASF to the appropriate category when
reviewing the concept paper and/or TA report.
5
OM Section A2 (Country Partnership Strategy) and OM Section B1 (Regional Cooperation and Integration).
OM Section D12/OP
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not included in a COBP or RCOBP, provided concept clearance has been obtained based on a
request by a developing member country (DMC) government, or at the initiative of the Asian
Development Bank (ADB). Where a TA project is not included in a COBP or RCOBP, the
respective vice-president or the managing director general6 approves the concept.7
6.
The processing of a TA loan usually follows the same procedures as those for project
loans.8 A TA grant processed in conjunction with a loan is processed under the procedures for
loan proposals.
1.
Project Preparatory Technical Assistance
7.
Sovereign PPTA within the Management's approval authority is processed as an integral
part of the project concept clearance for an ensuing sovereign loan or Asian Development Fund
(ADF) grant,9 except in the case of stand-alone small-scale PPTA.10 For processing of larger
sovereign PPTA grant for feasibility study, a draft of the full TA report for subsequent Board
approval should be attached to the project concept paper for the ensuing sovereign loan and/or
ADF grant.
a.
Fact-Finding for Due Diligence
8.
Fact-finding for sovereign PPTA is normally conducted as part of the project
reconnaissance mission for an ensuing loan or ADF grant. The mission is fielded upon the
governments concurrence. In the course of fact-finding, an agreement is reached with the
executing agency and the government on the following general aspects:
(i)
the terms of reference of the consultants, preferably the selection method (and,
as applicable, the contemplated type of technical proposal) for consultant
recruitment and the proposed budget;
(ii)
field investigations and surveys to be conducted;
(iii)
a realistic implementation timetable and associated staffing schedules; and
The managing director general approves the concept paper for TA projects processed by the Department of
External Relations (DER), the Office of Regional Economic Integration (OREI), and the Office of the Special Project
Facilitator (OSPF).
7
PPTA and small-scale TA do not require concept clearance of their own.
8
OM Section D11 (Processing Sovereign and Sovereign-Guaranteed Loan Proposals). The procedures apply even
if the TA for detailed engineering may be financed as a grant from Asian Development Fund resources due to
country circumstances. Processing of a TA loan requires a report and recommendation of the President (RRP).
9
OM Section D11 (Processing Sovereign and Sovereign-Guaranteed Loan Proposals) provides further details on
the project concept clearance process.
10
Except in the case of stand-alone small-scale PPTA (S-PPTA) that is to be processed independently from project
concept clearance, all other S-PPTAs are approved provisionally by the regional director general concerned as part
of project concept clearance for ensuing loans and ADF grants. The stand-alone S-PPTA may be processed for
approval by the regional director general, when the TA resources for initial project preparatory work or prefeasibility study are required prior to project concept preparation.
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(iv)
the role and responsibility of agencies concerned with the TA project in the DMC
and implementation arrangements (e.g., counterpart contributions, establishment
and staffing of project office).
9.
A memorandum of understanding (MOU) describing the agreed project concept and TA
and indicating any relevant technical and logistical arrangements and government commitments
will be signed by ADB, the executing agency, and the government focal point responsible for
ADB operations. If circumstances do not allow the signing of the MOU, an aide-mmoire will be
left by the mission, to be subsequently confirmed in writing by the executing agency and focal
point. The mission leader submits a brief back-to-office report (BTOR). The signed MOU or an
aide-mmoire is normally attached to the BTOR.11
b.
Preparation, Review, and Approval
10.
The TA is registered for fund commitment, and the revised final project concept paper
and attachments are submitted through the relevant director and head of department to the
relevant vice-president. The vice-president approves grant-financed PPTA up to $1.5 million
concurrently with project concept clearance for the ensuing loan or ADF grant.12
11.
In case of Japan Fund for Poverty Reduction (JFPR) financing, the documentation is
discussed with the relevant Embassy of Japan in advance, and submitted to the Government of
Japan following the prevailing procedures for approval.13
12.
If the PPTA is larger than the Management's approval authority, or the PPTA is
processed and financed as a TA loan for detailed engineering, a full TA report is submitted by
the President to the Board for approval.14 The TA report is registered for fund commitment,15
edited by the Office of the Secretary (OSEC), cleared by the Office of the General Counsel
(OGC) from a legal point of view, and cleared by OSEC to ensure that the document is meeting
the ADB quality standards. The director concerned informs the recipient of the Boards approval
of the TA and of the sector division responsible for TA implementation.
11
The MOU or aide-mmoire is not required in processing regional TA.

PPTA approved by the vice-presidents are usually not edited and circulated to the Board. COSO, in consultation
with departments and offices concerned, prepares a quarterly report listing and describing all PPTA approved
within a quarter and circulates it to the Board.
13
ADB. 2009. Revised Operating Framework for the Japan Fund for Poverty Reduction. Manila. .
14
The full TA report should take the form of a report and recommendation of the President in the case of TA loans.
15
To ensure proper budget control of TA grants, TA grant proposals financed from TASF and JFPR are registered for
fund commitment with the Central Operations Services Office (COSO) and the Office of Cofinancing Operations
(OCO), respectively, before submission for approval. An updated status of commitment of TA funds (TASF, JFPR)
is presented as an attachment to the forwarding memorandum for TA report approval.
12
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2.
Policy and Advisory Technical Assistance, Capacity Development

Technical Assistance, and Research and Development Technical
Assistance
a.
Concept Clearance
13.
The responsible department or office nominates a project team leader who establishes a
team to prepare the TA. If a country programming mission confirms the governments interest in
delegation of TA administration to an executing agency, one Central Operations Services Office
(COSO) staff will be nominated as project team member. The team prepares a TA concept
paper that includes an analysis of the development constraints and issues relevant to the
proposed TA. A preliminary TA design and monitoring framework (DMF) is a mandatory
requirement for requesting concept clearance to demonstrate strategic relevance of the TA
within the sector road map or CPS. The TA concept paper and the preliminary DMF are
reviewed within the department or office to ensure the strategic relevance of the proposed TA
activity.
14.
Categorization. Categorization ensures that processing of TA is tailored according to
the complexity of the development issue that the TA is intended to address. The director
concerned will decide on the preliminary categorization of the TA. The head of department or
office will confirm or re-categorize the TA and, if necessary, seek input of an expert panel
member.
(i)
Category A. More complex TA proposals (category A) receive more resources

and technical inputs during design and implementation, and are subject to a
more intense quality enhancement process. Criteria such as the experience of
ADB in the country and sector, and institutional capacity and ownership are
considered in deciding the appropriate categorization. TA cluster and medium- or
long-term capacity development TA is automatically categorized as category A.
(ii)
Category B. TA proposals closely related to an existing ADB operation, or

whose implementation is expected to be relatively simple (category B), are
subject to a streamlined review process. TA for assisting in a narrow policy area
or in the implementation of a loan, small-scale TA, or TA for conferences is
usually category B.
15.
Review process (category A). For TA under category A, the TA team ensures an
adequate level of review and consultation with key support departments, including (i) OCO, if
cofinancing of the TA activities is envisaged or targeted; (ii) CTL; (iii) OREI, in the case of
regional TA (R-CDTA, R-PATA, RDTA); (iv) COSO; (v) OGC; and (vi) the Regional and
Sustainable Development Department (RSDD). The head of department or office allocates
additional resources to the team leader as needed, which can include (i) business travel for one
additional member of staff to take part in the fact-finding mission or due diligence mission, as
applicable; and (ii) staff consultant resources for up to 1 month for TA preparation, depending
upon justification of the needs. The team submits the TA concept paper for review to a technical
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OPERATIONS MANUAL
expert.16 The technical expert reviews the concept paper and provides feedback through either
(i) a meeting with the TA team; or (ii) comments in writing. The technical expert may call on
other expertise in a respective community of practice (CoP), if necessary, although he or she
remains responsible for the technical review. After the technical feedback, documented through
minutes of the meeting or written comments, the TA team seeks clearance from the director
concerned for the fact-finding mission or other forms of due diligence, as applicable. If needed
and compatible with his or her other ADB commitments, the technical expert may join the factfinding mission or other forms of due diligence, as applicable, as an additional team member
funded under the additional budget.
16.
Review process (category B). For TA under category B, the TA team ensures an
adequate level of review and consultation with key support departments, including (i) OCO, if
cofinancing of the TA activities is envisaged or targeted; (ii) CTL; (iii) OREI, in the case of
regional TA (R-CDTA or R-PATA); (iv) COSO; (v) OGC; and (vi) RSDD. Following this
consultation and approval by the director concerned, the fact-finding mission is fielded or other
forms of due diligence is initiated, as applicable.
17.
The TA concept paper for CDTA, PATA, or RDTA is approved by the head of the
department that bears primary responsibility for assuring the quality of the TA concept paper. A
copy of the approved memorandum is sent to the relevant vice-president or to the managing
director general, as applicable, and to the relevant CoP. CDTA or PATA that are not included in
COBPs or RCOBPs require concept approval by the respective vice-president or by the
managing director general. RDTA (category A) that are not within the strategic priorities
identified by the strategic forum require concept approval by the respective vice-president.
b.
Fact-Finding Mission for Due Diligence
18.
Fact-finding missions for sovereign CDTA, PATA, and RDTA will proceed primarily as
outlined for PPTA (paras. 89), except that TA-specific DMF needs to be discussed. When TA
administration is delegated, the team leader undertakes (in close collaboration with COSO) a
capacity assessment of the executing agency.
16
The technical expert will be either an ADB member of staff who is on the roster of internal expert panels or an
external consultant on a retainer if no internal expertise is available in that specific area. The director concerned
and the project team leader can decide which technical expert is best suited to review the TA concept paper. The
project team leader and the technical expert agree on a time frame for the review. However, the technical expert
cannot be from the same division as the project team leader. If the TA covers many areas, the director concerned
and the project team leader may decide to involve several technical experts in the review. However, coverage of
many technical areas can be an indicator of the complexity of the TA and careful consideration should be given to
whether the TA can be processed in phases. If ADB does not have adequate technical expertise to review the TA,
the head of department or office is requested to reconsider the TA proposal and assess whether the TA should be
processed by ADB or referred to another development partner with the consent of the DMC. If it is decided that the
TA is of strategic importance to ADB, the Regional and Sustainable Development Department will support the head
of department or office to find external expertise to review the TA.
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c.
Preparation, Review, and Approval
19.
Category A. The team prepares the TA report, which is submitted for a second
mandatory review to the technical expert, and to other ADB departments (in most cases
regional departments) if needed. The technical expert might decide to meet again with the team
to discuss the TA report or provide written comments. At the same time, the draft TA report is
also shared with key support departments, including (i) OCO, if cofinancing of the TA activities
is envisaged or targeted; (ii) OGC; (iii) CTL; (iv) COSO, (v) OREI, in the case of regional TA
(R-CDTA, R-PATA, RDTA); and (vi) RSDD. After consideration of the comments, the team
revises the TA report and submits the document for endorsement to the head of department.
The head of department or office performs the final quality check.17
20.
Category B. The team shares the TA report with key support departments, including
(i) OCO, if cofinancing of the TA activities is envisaged or targeted; (ii) OGC; (iii) CTL;
(iv) COSO; (v) OREI, in the case of regional TA (R-CDTA, R-PATA, RDTA); and (vi) RSDD. The
team seeks any additional review and comment from specific departments, including technical
experts or the CoPs, as it deems necessary. The director concerned performs the final quality
check.
21.
For JFPR-financed TA (category A or B), the documentation is discussed with the
Embassy of Japan in advance, as applicable, and submitted to the Government of Japan
following the prevailing procedures for approval.
22.
The TA (category A or B) is registered for fund commitment, edited by OSEC, cleared by
OGC from a legal point of view, cleared by OSEC to ensure that the document is meeting the
ADB quality standards, and forwarded by the head of the originating department or office for
approval by a vice-president, the President, or the Board of Directors, depending on the
proposed TA amount.
3.
Small-Scale Technical Assistance
23.
Small-scale TA is an instrument that allows ADB to respond quickly to a demand for
assistance from a DMC or development partner to address a specific development issue or
implementation challenge. For this reason, the CPS, RCS, and other ADB-wide planning
processes often do not cover stand-alone S-PPTA, S-CDTA, S-PATA, or S-RDTA. To minimize
delays in the preparation of small-scale TA, a separate concept paper is not required.18
24.
The TA team prepares a memorandum and seeks any additional review and comment
from specific departments, including technical expertise or the CoPs, as it deems necessary.
17
18
DER, OREI, and OSPF forward their TA to the President for approval through the managing director general.
For the time being, small-scale TA remains subject to the overall TA ceiling. Therefore, head of departments need
to coordinate with the respective vice-president to ensure that the overall number of small-scale TA remains within
limits at the ADB-wide level. Small-scale TA is subject to the same project classification guidelines as other TA.
Small-scale TA is usually category B.
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The memorandum includes the DMF, a cost estimate, terms of reference of the consultants, a
preliminary risk assessment, and the initial poverty and social analysis (for stand-alone SPPTA). The memorandum is forwarded to OGC to be reviewed from a legal point of view before
the director concerned performs the final quality check and forwards the small-scale TA
memorandum to the head of department or office for approval. A copy of the approved
memorandum is sent to the relevant vice-president or the managing director general, as
applicable, and to the relevant CoP.19 The head of department or office approves small-scale
TA.20
4.
Technical Assistance Cluster
25.
The preparation of TA cluster requires substantial in-depth sector and institutional
analysis, and a well-developed sector strategy at the country level. The outcome and outputs of
each subproject should be clearly defined in the TA report for the TA cluster and maintained
afterwards. The TA report needs to specify the expected future resource requirements of each
subproject for planning purposes. The detailed outputs and key activities, budget,
implementation arrangements, and implementation schedule of each subproject are normally
finalized before its start, based on the outlined outputs and indicative budget provided in the TA
report and within the overall time frame and amount of the TA cluster.
26.
TA cluster will be automatically categorized as category A, requiring technical review at
the concept clearance and TA report stages. Among other issues, the technical review will focus
on the appropriateness of the TA cluster approach, which is not applicable to PPTA.21 Only the
amount of the subprojects to be approved in a given year will be counted against the country,
regional or department allocation of TA funds.
27.
The timing and implementation arrangements of subprojects will be determined by the
head of the department. A memorandum to the head of the department or office proposing the
start of a subproject will specify the (i) overall progress of the TA cluster to date; (ii) outcome,
and intended outputs of the subproject; (iii) cost estimates and budget; (iv) implementation
arrangements; (v) implementation schedule, (vi) terms of reference of consultants; and
(vii) other aspects, as appropriate. Each subproject proposal requires a draft DMF and will be
subject to consultations with departments and/or offices concerned before submission to the
head of the department or office for approval. For subprojects under the TA cluster, an
additional technical review by a technical expert is recommended, but not required.
19
No TA report is required for a small-scale TA, which are normally described in a memorandum format. COSO, in
consultation with departments and offices concerned, prepares a quarterly report listing and describing all smallscale TA approved within the quarter and circulates it to the Board.
20
The vice-presidents may decide to limit the number of small-scale TA approved within his or her operations group
in a planning period to ensure efficient and effective use of scarce TA resources.
21
See ADB. 1997. Review of the Banks Technical Assistance Operations. Manila (R119-97). The paper states in
Appendix 2, para. 4: Project preparatory TA (PPTA) is perceived as part of the processing of investment projects.
Therefore, it would be subject to close scrutiny by Management and not suitable for a subproject of a TA cluster.
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OPERATIONS MANUAL
28.
The Board will be informed of the progress of the TA cluster through a quarterly report
listing approved subprojects.22
5.
Due Diligence for Nonsovereign Technical Assistance
29.
For nonsovereign TA, due diligence starts from the TA concept paper preparation stage
and covers technical, institutional, legal, regulatory, financial, commercial, capacity, and other
issues, and normally continues until TA approval. Missions may be fielded if required. Concept
papers for nonsovereign TA are approved by the head of department.
C.
Technical Assistance Agreements
30.
For TA that includes activities to be undertaken in the territory of one or more DMCs,
confirmation of a no-objection must be obtained in writing from the government of those DMCs23
preferably, but not necessarily, before the approval of the TA. In all cases, such a no-objection
in writing must be obtained before the commencing or financing of the proposed activities in the
territory of a DMC in accordance with Article 14 (iii) of the Charter.
1.
Sovereign Technical Assistance
31.
To simplify the processing of TA agreements for sovereign TA, ADB has executed or is
in the process of executing TA framework agreements with DMC governments active in TA
operations.24 After the execution of the TA framework agreement, as each TA for the relevant
government is subsequently approved, ADB sends a TA letter which cross-references the TA
framework agreement to the DMC official channel of communication. The TA letter carries as an
attachment (i) the appendix on PPTA to the project concept paper25 and relevant attachments,
and for information purposes the signed MOU or the confirmed aide-mmoire (in the case of
PPTA approved by a vice-president); or (ii) the TA report and for information purposes, the
signed MOU or the confirmed aide-mmoire (in the case of stand-alone TA other than those
mentioned in (i) above); or (iii) the report and recommendation of the President and for
information purposes, the signed MOU or the confirmed aide-mmoire (in the case of TA
attached to loans and/or grants). The TA letter indicates that government concurrence to the TA
will be deemed given, if the government26 does not object within 21 days of the date of the TA
22
COSO, in consultation with departments and offices concerned, prepares a quarterly report listing and describing
all subprojects approved within a quarter and circulates it to the Board.
23
For the purpose of this paragraph, (i) in writing refers to either a formal no-objection letter, or any of a
memorandum of understanding, minutes or an agreement signed between the relevant government(s) and ADB
and/or an ADB partner organization, in relation to activities to be undertaken by ADB, or jointly by a partner
organization and ADB, and included in the regional TA; and (ii) the requirement to obtain a governments
confirmation of no-objection does not apply to a simple collection of information (or materials) if such information is
either in the public domain or is from an official source (i.e. originating from the government or a public sector
agency).
24
A list of countries with or without TA framework agreements is provided in Appendix 1.
25
OM Section D11/OP (Processing Sovereign and Sovereign-Guaranteed Loan Proposals).
26
In a case where the executing agency for the TA is a legal entity different from the government, the TA letter is also
sent to the executing agency for its agreement on a no-objection basis.
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OPERATIONS MANUAL
letter or a different deadline if so agreed between ADB and the DMC government. Within 7 days
before the stated deadline, ADB will actively follow-up on the status of the TA letter either
through the processing unit at headquarters or the resident mission. 27 If the government
requires more time, a new deadline for no-objection for that particular TA must be
communicated to ADB in writing before the expiration of the 21-day period. Upon expiration of
the 21-day objection period or upon receipt of the signed TA letter, the regional department will
immediately notify CTL (and OCO, if the TA is cofinanced) of the effectivity or non-effectivity of
the TA.
32.
For visibility and public relations purposes, particularly in the case of donor-funded or
cofunded TA projects or those funded by JFPR and other trust funds provided by the
Government of Japan, it is highly recommended that the team leader in close collaboration with
the resident mission should, as appropriate: (i) propose public delivery of the TA letter (including
signing ceremonies for TA projects funded by JFPR and other trust funds provided by the
Government of Japan); (ii) organize other public events (e.g., an inception workshop,
conferences, or other activities supported under the TA); (iii) prepare press releases at TA
approval and during implementation; or (iv) organize final events aimed at disseminating the TA
outcome and outputs.
33.
This approach is also applicable for RDTA in rare cases when the RDTA is confined to
one DMC. When activities are envisaged within one specific DMC, the processing unit within
headquarters or the resident mission sends a TA letter to the relevant government focal point,
which will be deemed confirmed on a no-objection basis and actively seeks no-objection from
the DMC concerned within the 21-day period.
34.
For TA cluster, a TA letter is required for each subproject. 28
35.
TA effectiveness is conditional upon the concurrence29 of the government with the TA
letter. If concurrence of the government with the TA letter is not obtained, the validity of ADB
approval of the TA may lapse.
2.
Nonsovereign Technical Assistance
36.
For nonsovereign TA, the recipient(s) and ADB agree to the terms of a TA
implementation agreement before ADBs approval of the TA. Such an agreement normally sets
27
Small-scale TA does not require signing of TA agreements or TA letters, although ADB sends a standard notice to
the government concerned.
28
If a government does not object within the 21-day period, ADB considers the subproject effective and proceeds to
implementation.
29
If ADB has sent a TA letter to the government for agreement on a no-objection basis, the concurrence is deemed
given after the 21-day objection period has lapsed without objection from the government and the executing
agency (in case the executing agency is a different legal entity from the government). If the DMC has opted for
formal signature of the TA letter, concurrence of the government and the executing agency (in case the executing
agency is a different legal entity from the government) will be deemed to be given on the date of receipt of the
signed TA letter by ADB.
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OPERATIONS MANUAL
out the names and details of all recipients, the outcome and outputs with respective indicators
and performance targets of the TA, the amount of financing to be provided by ADB under the
TA, potential cofinancing partner(s) and the recipient(s), the terms of reference of consultants (if
any) to be appointed under the TA, preferably the selection method (and, as applicable,
contemplated type of technical proposal) for consultant recruitment, the proposed budget, a
realistic timetable for the TA and associated staffing level and, where applicable, the terms (if
any) relating to the recovery of funds via subsequent pricing arrangements or otherwise. The
applicable DMC governments no-objection to the implementation of the TA in the relevant
country must be ensured before the date of first implementation or financing of the TA.
D.
Implementation of the Technical Assistance

1.
37.
TA reports or final project concept papers submitted for PPTA approval describe the
implementation arrangements for a TA project, including the executing agency (and, if
applicable, implementation agencies), disbursement arrangements, and any special
arrangements. For sovereign TA, the executing agency is typically the DMC. For sovereign
regional TA, the executing agency is typically ADB. When the United Nations or other similar
specialized agencies or nongovernment organizations are to be involved in TA implementation,
the proposal describes such special arrangements.30
2.
Consultant selection
38.
Administration of the TA consists mainly of the selection, appointment, and contracting
of consultants and fund management. 31 Normally, ADB selects and employs consultants in
accordance with ADBs Guidelines on the Use of Consultants (2007, as amended from time to
time) for TA grant projects financed or administered by ADB 32 and the recipient's executing
agency does so for TA loan projects. Over time, it is expected that an increasing share of TA
financed on a grant basis, will be also administered by the recipient's executing agencies.
Through its country programming missions ADB will identify potential executing agencies for
delegated TA administration, together with the relevant government agency. Standard
information on consulting services, including details on consultants terms of reference,
selection method, type of technical proposal (if applicable) and cost estimates, is required in TA
reports or final project concept papers submitted for PPTA approval. Appendix 2 sets out these
requirements.
30
See OM Section E3 (Cooperation Arrangements for Development Partnership) and OM Section E4 (Promotion of
Cooperation with Nongovernment Organizations).
31
ADB. Recruiting Consultants. Project Administration Instructions, PAI 2. Manila.
32
To increase ownership of TA projects and improve sustainability of project benefits, ADB may, in particular
circumstances, delegate responsibility to a recipient (delegated TA) to recruit and supervise TA consultants.
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OPERATIONS MANUAL
3.
Supervision and Feedback
39.
The responsibility for facilitating implementation and supervision of the TA remains with
ADB staff, who regularly monitors the quality of the services provided by consultants. ADB staff
will organize regular meetings with the executing agency and the consultants to discuss
progress in implementing the TA. The BTOR of supervision missions should provide a summary
of the meeting with the executing agency and, except in the case of PPTA, an updated DMF
should be attached. The BTOR and the DMF will serve as the progress and performance report
together with an update of the TA performance report. After completion of the TA activities, ADB
staff will assess consultants reports and request feedback from the executing agency and
consultants on TA implementation. The project team leader will prepare the TA completion
report with the executing agency.33 The final completion report will be shared with the relevant
expert panel and the respective CoP.34
E.
Technical Assistance Retrospective Reviews
40.
ADB may assess the quality-at-entry of TA projects as part of a retrospective review of
CPSs and projects.
F.
Disclosure of Information
41.
Disclosure is guided by ADB's Public Communications Policy.35
Basis:

therein.

14 July 2011
Issued on 25 January 2011.
33

Executing agencies should be encouraged to prepare the TA completion report with the assistance of the project
team leader.
34
TA completion reports need to be prepared for all ADB-supported TA operations (including small-scale TA) with the
exception of PPTA, which result in loan projects. PPTA that does not result in a loan requires a TA completion
report.
35
OM Section D12/OP
Appendix 1
Page 1 of 2
OPERATIONS MANUAL
LIST OF COUNTRIES
WITH OR WITHOUT TECHNICAL ASSISTANCE FRAMEWORK AGREEMENTS
ADB Member
Afghanistan
Armenia
Azerbaijan
Bangladesh
Bhutan
Cambodia
People's Republic of China
Cook Islands
Fiji
Georgia
Kiribati
Kyrgyz Republic
India
Indonesia
Lao People's Democratic Republic
Kazakhstan
Malaysia
Maldives
Marshall Islands
Micronesia, Federated States of
Mongolia
Myanmar
Nauru
Nepal
Pakistan
Palau
Papua New Guinea
Philippines
Samoa
Sri Lanka
Solomon Islands
Tajikistan
Thailand
Timor-Leste
Tonga
Turkmenistan
Tuvalu
Uzbekistan
Technical Assistance Framework Agreement

With
Without
10 July 2002
25 February 2005
6 March 2001
5 February 1996
17 November 1995
2 August 1995
23 December 1996
29 November 1995
26 April 1996
1 September 2008
12 November 1996
11 October 1995
10 July 1996
26 September 1996
6 November 1995
5 October 1995
agreement remains unsigned
30 October 1995
22 February 1996
1 December 1995
29 August 1995
X
29 January 1999
16 November 1995
7 March 1996
13 July 2007
6 May 1996
8 February 1996
29 November 1995
9 November 1995
19 March 1998
14 September 1998
1 February 1996
10 April 2003
5 December 1995
15 June 2001
29 May 1996
25 October 1996
OM Section D12/OP
Appendix 1
Page 2 of 2
OPERATIONS MANUAL
ADB Member
Vanuatu
Viet Nam
Technical Assistance Framework Agreement

With
Without
1 December 1995
1 May 1996
OM Section D12/OP
Appendix 2
Page 1 of 2
OPERATIONS MANUAL
STANDARD INFORMATION ON CONSULTING SERVICES TO BE

INCLUDED IN TECHNICAL ASSISTANCE REPORTS1
A.
Description of Consulting Services
1.
State the type of services required.
2.
Indicate whether services will be rendered

(i)
by a team of experts to be provided by a consulting firm,
(ii)
by individual consultants,
(iii)
through single-source selection, or
(iv)
by a combination of the above.
3.
Indicate the selection method to be applied, i.e., quality- and cost-based selection
(QCBS), quality-based selection (QBS), fixed budget selection, least-cost selection, consultants
qualifications selection, or single-source selection, as envisaged in ADBs Guidelines on the
Use of Consultants (2007, as amended from time to time). If QCBS is used, the applicable
qualitycost weighting should be specified.2 Provide adequate justification for use of methods
alternative to ADBs preferred QCBS if necessary (e.g., use of QBS or single-source selection).
4.
If engagement of a firm is contemplated, indicate the type of technical proposal format to
be required, i.e., full, simplified, or biodata.
5.
Estimate the minimum number of person-months. ADB normally requires a consulting
firm to provide a team of experts. Consulting firms are selected based on their comprehensive
technical proposals (containing the firms experience, technical approach, work plan, and
biodata of personnel proposed). In such cases, the technical assistance (TA) report and revised
concept paper in the case of project preparatory TA should indicate the estimated total number
of person-months needed for professional staff (separately for international and national
consultants and for each phase, if applicable). Prepare the cost estimate for such studies using
a hypothetical staffing schedule. Such a schedule or any detailed staffing estimates should not
be included in the TA report but should be available for review by the Central Operations
Services Office on request.
6.
Provide a time schedule for commencing and completing consulting services.
7.
Set out indicative terms of reference for the assignment.
This information is provided for consultant engagement under sovereign and, as applicable, nonsovereign technical
assistance.
See ADB. Recruiting Consultants. Project Administration Instructions, PAI 2. Manila.
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Appendix 2
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OPERATIONS MANUAL
B.
Cost and Financing3
8.
Indicate the total amount of estimated costs.
9.
State the sources and terms of financing (ADB grant, ADB loan, government, or other
external sources).
10.
Include any explanations for specific consideration when preparing the cost estimate
(level of contingency, etc.).
11.
The budget estimates should be as accurate as possible, particularly if the selection
method for firms is QCBS, fixed budget selection, or least-cost selection, so that each firm can
submit a considered financial proposal for completion of the contemplated assignment.
12.
Government contributions such as counterpart staff, office and housing accommodation,
office supplies, secretarial assistance, and domestic transportation should be itemized and
agreed in advance. However, monetary values are not reflected unless these take the form of
TA grant financing.
C.
Government Assurances4
13.
The TA report will state the extent of the counterpart support being provided by the
government. Details of the list of services, facilities, and equipment to be provided by the
government are included in the request for proposal (RFP). Such list of counterpart support
must be confirmed by the government before contract negotiations with the first-ranked firm.
Some cost estimate categories may not apply to nonsovereign technical assistance, e.g., government financing,
representative for contract negotiations, training, seminars, and conferences.
This section does not apply to nonsovereign technical assistance.
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OPERATIONS MANUAL
BANK POLICIES (BP)
EXPOSURE AND INVESTMENT LIMITATIONS ON NONSOVEREIGN OPERATIONS
A.
Introduction
1.
This section describes the exposure and investment limitations applicable to ADBs
nonsovereign operations. The exposure limit framework aims to safeguard ADB's financial
strength and is based on three objectives: (i) maintenance of ADBs AAA rating; (ii) a capital
adequacy commensurate with that rating, designed to reduce the risk of a call on callable
capital; and (iii) an adequate diversification of the portfolio, leading to efficient use of economic
capital.
2.
The limits applicable to nonsovereign operations are classified into three main groups:
(i) limits that are stipulated in ADBs Charter, which ensure that the aggregate outstanding
exposure does not exceed the amount of risk-bearing capital; (ii) strategic and medium-term
limits adopted by ADB, which determine the maximum exposure for certain operations; and
(iii) prudential exposure limits, which ensure a certain level of diversification and cap the
maximum amount of correlated loss.
B.
Definitions
3.
Terms used in this OM section are defined as follows:

(i)
B-Loan means a loan made by ADB funded by a third party or parties without the
borrower or third parties having any recourse to ADB.
(ii)
Credit Guarantee means a guarantee given in favor of a party providing debt

financing in respect of a project or transaction, covering all or a pro rata share of
the credit (including political) risks associated with the underlying loan, thus
representing a direct credit substitute.
(iii)
Credit Conversion Factor means a multiple used for the purpose of recognizing
the exposure effect of off-balance sheet commitments when monitoring limits.
(iv)
Dollar ($) means US dollar.
(v)
Eligible Counterparty means an entity with a credit rating of not less than A- as
assigned by at least one international rating agency on a globally comparable
scale or the equivalent of such an A- rating as assigned by a reputable local
rating agency domiciled in the same country as the borrower or guarantee
beneficiary, including any of the following:
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BANK POLICIES (BP)
(a)
(b)
(c)
(d)
(vi)
official export credit agencies, exportimport banks or similar entities that

are guaranteed by or carry the full faith and credit of their respective
governments,
multilateral development banks or bilateral development institutions,
public and private risk insurers or reinsurers, as agreed by the ADB Office
of Risk Management (ORM) on a case-by-case basis, and
public or private commercial corporate entities, as agreed by ORM on a
case-by-case basis.
Exposure means with regard to any time period:

(a)
(b)
(c)
for a loan or other debt instrument, the disbursed and outstanding loan
balance;
for a guarantee, the present value1 of the guaranteed obligations; and
for an equity investment, the market value or fair value2 of such
investment.
With regard to subparagraphs (a) and (b), where relevant to an obligor, industry
or country, the Exposure will be reduced by the amount that has been
guaranteed by, insured by or otherwise transferred to an Eligible Counterparty
under risk participation or a similar arrangement.
Exposure does not include any amounts under B-loans, Guarantees of Record or
any other financing instrument under which neither the financing recipient, the
beneficiary under the Guarantee of Record, nor a third party has recourse to
ADB.
(vii)
Fair Value means the amount for which an asset could be exchanged or a liability
settled, between knowledgeable and willing parties in a transaction at arm's
length distance.
To derive the present value for credit and partial risk guarantees, the discount rate must be currency-specific,
incorporate the credit spread appropriate for the credit rating of the guaranteed party, and take into account the
tenor of the guarantee. This should be equivalent to the interest on the guaranteed loan or bond. The principle
behind incorporating the credit spread in the discount rate is to return an exposure value of the guarantee that is
identical to the principal value of the guaranteed loan into which ADB will subrogate.
The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable,
willing parties in an arm's length transaction. Quoted market prices in an active market are the best evidence of fair
value and should be used, where they exist (marked-to-market). If a market is not active, fair value should be
established making maximum use of market inputs, including recent arm's length market transactions, reference to
the current fair value of another instrument that is substantially the same, discounted cash flow analysis, and option
pricing models. An acceptable valuation technique incorporates all factors that market participants would consider
in setting a price and is consistent with accepted economic methodologies for pricing financial instruments (i.e.,
marked-to-model). If there is no market available and the range of reasonable fair values is significant and the
estimate cannot be made reliably, then the equity instrument should be measured as at cost less impairment
(International Accounting Standards, 39).
OM Section D13/BP
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OPERATIONS MANUAL
BANK POLICIES (BP)
(viii)
Financing Recipient means any borrower, investee, or guaranteed obligor under

an ADB loan, an ADB equity investment, or an ADB guarantee, respectively.
(ix)
Group means two or more persons, whether natural or legal, to which ADB has
exposure, and which are mutually associated in that (a) one of them directly or
indirectly holds power or control over the other; or (b) their cumulated exposures
represent a single risk to ADB because they are so interconnected3 that if one of
them experiences financial problems, the other or all of them are likely to
encounter similar problems.
(x)
Guarantee of Record means a guarantee in ADB's name, under which the

guarantee-holder has no recourse to ADB and where the guarantee-holder
assumes the credit risk of a participating third-party guarantor or insurer.
(xi)
Guaranteed Obligations means the guaranteed percentage of the outstanding

amount of a guaranteed loan or other debt instrument plus the interest thereon.
(xii)
Independent Counterparty means an Eligible Counterparty other than a Related

Counterparty, which has issued a guarantee in favor of ADB or otherwise entered
into a risk participation or similar risk-sharing agreement.
(xiii)
Nonsovereign Exposure means exposure to Nonsovereign Operations.
(xiv)
Nonsovereign Operations means any loan, guarantee, equity investment, or

similar financing arrangement that ADB provides from its ordinary capital
resources that is: (a) without a sovereign guarantee or counter-indemnity
provided by an ADB member; or (b) with a member's sovereign guarantee or
counter-indemnity, under terms that do not allow ADB to accelerate, suspend, or
cancel upon default by the sovereign of such guarantee or counter-indemnity,
any other loan, or guarantee between ADB and the related sovereign.4
(xv)
Partial Risk Guarantee means a guarantee that does not cover all the risks
associated with the extension of a loan. It typically covers one or more of the
risks of currency inconvertibility or nontransferability, political violence,
expropriation and breach of contract, but could also cover other clearly defined
risk events which in aggregation are judged not to constitute the full spectrum of
credit risks.
Through common ownership, common directors, cross-guarantees or a direct commercial interdependency which
cannot easily be substituted in the short term.
A cross default clause provides that should a borrowing member country default on any of its obligations to ADB
under any loan agreement or guarantee agreement with ADB, ADB is entitled to suspend or cancel all other loan
and guarantee agreements with that borrower.
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(xvi)
Related Counterparty means an Eligible Counterparty that has issued a

guarantee in favor of ADB or otherwise entered into a risk participation or similar
risk sharing agreement, and is a member of the Group to which the Financing
Recipient belongs.
(xvii)
Sovereign Exposure means exposure to Sovereign Operations.
(xviii) Sovereign Operations means any loan, guarantee or similar financing

arrangement that ADB provides from its ordinary capital resources, excluding
Treasury and Nonsovereign Operations.
(xix)
C.
Strategic Limit is the maximum exposure to Nonsovereign Operations that is

consistent with ADB's Strategy 2020 and its Capital Adequacy Framework.
Applicable Exposure Limits
4.
The limits set out below apply to each transaction proposal and, as applicable, to the
entire nonsovereign portfolio at each point in time. Certain limits set out in this OM Section are
restatements of either the Charter or the exposure limit policy.5 Certain other limits set out
below, particularly in relation to single obligor exposure, are additional to the Charter and policy
requirements. On a case-by-case basis, considering the objectives, structure, and riskmitigating factors of a proposed transaction, the operations department may seek a waiver from
the President in respect of such additional limits.
1.
Charter Limits
5.
Article 12.1 of the Charter imposes a ceiling on the aggregate6 amount of outstanding
loans, guarantees, and equity investments, which may not exceed ADBs unimpaired
subscribed capital, reserves, and the surplus included in its ordinary capital resources
(exclusive of certain reserves, as further elaborated in the Charter).
6.
Article 12.3 imposes a limit on the total amount
the ordinary capital resources of ADB, which may not
aggregate amount of ADBs unimpaired paid-in capital
together with the reserves and surplus included in its
special reserves).
2.
of funds invested in equity capital out of

exceed an amount equal to 10% of the
stock actually paid up at any given time
ordinary capital resources (exclusive of
Strategic and Medium-term Limits
7.
The strategic and medium-term exposure limits aim to ensure that the level of credit risk
accepted by ADB is consistent with its risk appetite, its target business volume, and its AAA
5
6
ADB. 2009. Review of the Asian Development Banks Exposure Limits on Nonsovereign Operations. Manila.
Both sovereign and nonsovereign.
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rating objective. They also ensure that the aggregate risk undertaken in nonsovereign
operations does not exceed the capital available to support this risk.
8.
The strategic and medium-term limits are linked to Strategy 2020, which envisages a
rapid growth in nonsovereign operations, and to ADB's long-term capital adequacy framework,
under which ADB adheres to a minimum equity-to-loan ratio (ELR) of 26%.7 The ELR of 26% is
consistent with a strategic limit for the nonsovereign operations expressed as a 25% share of
the aggregate operations exposure.
9.
In order to provide ADB with a cushion against the uncertainty of the quality of the
nonsovereign portfolio, nonsovereign operations should grow gradually, in a phased manner. To
achieve this objective, the Board has imposed a medium-term limit for nonsovereign exposure
(footnote 5). In the period to 2014, disbursed and outstanding balances in the nonsovereign
operations may not exceed the amounts in Table 1.
Table 1: Medium-term Limit for Nonsovereign Exposure
($ million)
2010
2011
2012
2013
2014
7, 700
8,700
9,600
10,100
10,600
10.
The medium-term limit is subject to ADB maintaining an adequate risk-bearing capacity,
as defined by the capital adequacy framework.8 When deriving the minimum ELR under the
long-term capital adequacy framework, it was assumed that the nonsovereign portfolio would
maintain an average credit quality of 7 (Ba2/BB9). It was also assumed that the nonsovereign
portfolio would be adequately diversified, thus using economic capital efficiently.
11.
ADB will be guided by the average credit quality of the nonsovereign portfolio when
undertaking new nonsovereign transactions, as well as when managing the nonsovereign debt
portfolio. This will not preclude ADB from accepting transactions with a higher risk, but such
transactions will need to be balanced either by lower-risk transactions or by keeping a larger
amount of equity as a buffer.
3.
Prudential Limits
a.
12.
Country Limits
Nonsovereign Exposure to a single country is limited to the lower of:

(i) a risk-based allocation as per Table 2; or
7
8
ADB. 2009. The Asian Development Banks Long-Term Capital Adequacy Framework. Manila.
ADB. 2008. Review of the Asian Development Banks Capital Adequacy Framework. Manila; ADB 2009. The Asian
Development Banks Long-Term Capital Adequacy Framework. Manila.
As expressed by the international rating agencies.
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Table 2: Country Allocations for Nonsovereign Operations

Ratinga
Normal Risk
1-8
Significant Risk
9-11
High Risk
12-13
a
Limit
US$ 2,100 million
US$ 1,400 million
US$ 600 million
See Appendix for rating definitions.
(ii) 10% of GDP,10 less the amount of Sovereign Exposure. Should 10% of GDP be lower
than $25 million, the limit for Nonsovereign Operations shall be calculated as $25
million less the Sovereign Exposure.
13.
Country exposure excludes exposure to Eligible Counterparties domiciled in any country
that is a member of the Organisation for Economic Co-operation and Development (OECD).11
b.
Industry Exposure Limits
14.
Nonsovereign Exposure to any one listed industry is limited to 30% of the total
Nonsovereign Exposure. The list of industries applicable for limits management purposes is
maintained by ORM and is subject to periodic updates.
15.
Nonsovereign Exposure to the financial sector12 is further limited as follows:

(a)
(b)
16.
in aggregate, to $3,200 million; and

per country, to 30% of the applicable country limit.13
Industry Exposure includes Exposure to Eligible Counterparties, regardless of domicile.

c.
Private Equity Funds - Portfolio Limit
17.
Exposure to equity investments in private equity funds is limited, in aggregate, to 5% of
ADBs unimpaired paid-in capital plus reserves and surplus, calculated at the time of
investment.
d.
Obligor Limits
18.
Nonsovereign Exposure to any one obligor or project shall not exceed at any point in
time:14
10
Gross domestic product, here defined as the International Monetary Funds most recently published GDP in
current prices in US dollars.
11
Or other non-developing member countries, as deemed appropriate by ORM.
12
The financial sector includes all exposures to banks and financial institutions, but excludes investments in equity
funds.
13
This limit is not applicable to trade finance instruments with a maturity of less than 1 year.
14
ADB shall thus not commit to provide an amount of financing that may lead to a breach of this limit.
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(i)
for loans or Credit Guarantees15 that are not guaranteed16 by an Eligible

Counterparty: the lesser of $250 million or an amount equal to:
(a)
(b)
(c)
15
25% of the total project cost, in the case of a limited recourse project
financing;17
25% of the total assets, including the amount to be financed,18 in the case
of a corporate loan;19 or
50% of tangible net worth, in the case of a loan to a bank.20
(ii)
for loans or Credit Guarantees that are comprehensively guaranteed by an

Eligible Counterparty: the lesser of $400 million or an amount equal to 70% of (a)
the total project cost, in the case of a limited recourse project financing; or (b) the
total assets of the borrower, in the case of a corporate loan;
(iii)
for Partial Risk Guarantees: the lesser of $400 million or an amount equal to 40%
of (a) the total project cost, in the case of a limited recourse project financing; or
(b) the total assets of the borrower, in the case of another type of financing; and
(iv)
for equity investments:21 the lesser of $75 million or an amount equal to:
(a)
25% of the net worth of the investee (inclusive of ADB's investment),
when investing in a project, financial institution or corporate entity; or
(b)
25% of committed amounts, when investing in a private equity fund.
As regards guarantees, the limit applies to the guaranteed amount, i.e., by applying the guarantee percentage to
the guaranteed credit instrument.
16
In this context, the term "guaranteed" refers also to risk participations and other types of risk-sharing agreements
with eligible counterparties.
17
If total project costs are less than $50 million the amount to be financed may equal 50% of project costs. For
project costs between $50 million and $250 million, the percentage allowed is given by the linear function
y = -0.125x + 56.25. In the case of a project expansion, the limit is checked through the ratio [(Existing ADB loan +
expansion loan) / (existing assets of special purpose vehicle + project cost for expansion)]
18
When checking compliance with the limit, only funds that are irrevocably committed from sources external to the
borrower may be included. This means that expected future cash flows from the borrower will generally not be part
of the denominator. Approval for amounts in excess of 25% of [existing assets + committed funding] may, however,
be sought contingent on the inclusion in the loan agreement of a loan disbursement test. In such cases, ADB shall
check prior to each disbursement that [(ADB outstanding balance + planned disbursement)/(borrower total assets +
planned disbursement)] < 25%.
19
If the sum of total assets and the proposed loan is less than $50 million, up to 50% of the sum may be financed.
For sums between $50 million and $250 million, the percentage allowed is given by the linear function y = -0.125x
+ 56.25.
20
A bank is defined as an institution whose business it is to receive deposits and/or close substitutes for deposits
including external funding and grant credits or invest in securities on its own account. This limit may be exceeded
for very small institutions in poorer countries, subject to credit quality and the presence of adequate safeguards.
The acceptable limit for structured finance transactions will be assessed on a case-by-case basis, subject to the
limit of $250 million.
21
Article 12.4 of ADB's Charter states that ADB shall not seek to obtain by such an investment a controlling interest in
the entity or enterprise concerned (except where necessary to safeguard the investment of ADB).
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19.
When ADB provides more than one form of financing to an obligor or project,
Nonsovereign Exposure to the obligor or project shall not exceed $400 million, provided
however that:
(i)
(ii)
the aggregate amount of loans, Credit Guarantees and equity investments does
not exceed $250 million and further, that the amount invested as equity does not
exceed $75 million, or
the aggregate amount of loans, Credit Guarantees and equity investments further
does not exceed:
(a)
25% of total project costs, when investing in a project,
(b)
25% of total assets, when investing in a corporation, or
(c)
35% of tangible net worth, when investing in a bank.
20.
To ensure that the amount of economic capital used to support any Exposure is capped
at a consistent level:
(i)
The limit of $250 million referred to in paras. 18 (i) and 19 (i) is applicable only to
projects and obligors rated 17.22 Obligors rated 811 are subject to more
restrictive limits (Table 3). Obligors rated 12 and 13 are generally not eligible for
new financing from ADB,23 and
(ii)
The limit of $400 million referred to in paras. 18 (iii) and 19 is applicable only to
projects and obligors rated 111. Obligors rated 12 and 13 are generally not
eligible for partial risk guarantees from ADB (footnote 23).
Table 3: Single Obligor Limits by Rating
($ million)
22
Risk Ratinga
Loans and Credit Guarantees
Partial Risk Guarantees
1
2
3
4
5
6
7
8
9
10
11
250
250
250
250
250
250
250
200
150
125
100
400
400
400
400
400
400
400
400
400
400
400
In order to ensure fair and equitable access for borrowing member countries to financing from ADB, the
creditworthiness of the obligor is measured before application of the country ceiling. For purposes of limit
compliance, the creditworthiness of projects selling to a government-owned off-taker may be measured before the
application of (i) the rating of the government-owned off-taker and (ii) the country ceiling.
23
Except when deemed necessary in connection with work-out and restructuring of distressed project.
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12
13
a
e.
0
0
0
0
See Appendix for rating definitions
Counterparty Limits
21.
When provided with a Credit Guarantee or similar risk-sharing agreement from an
Eligible Counterparty, ADB will recognize the guaranteed exposure as belonging to the Eligible
Counterparty ("a transfer of risk"). Subject to compliance with (i) country exposure limits, (ii)
industry exposure limits, (iii) group exposure limits, and (iv) the limits set out in paragraphs 22
and 23 below, such arrangements will increase the amount that can be proposed to the Board
for approval in relation to a single obligor or project. Given a comprehensive Credit Guarantee
or similar risk-sharing arrangement with an eligible counterparty, the maximum exposure that
may be proposed in relation to a single obligor or project will be the lesser of $400 million or an
amount equal to 70% of (i) the total project cost in the case of a limited recourse project
financing, and (ii) the total assets of the borrower in the case of another type of financing.
22.
Unless otherwise limited by country, industry or Group exposure limits, the aggregate
exposure to any one related counterparty is limited, at any point in time, to $600 million.
23.
The aggregate exposure limit to any one Independent Counterparty will be determined
on a case-by-case basis by the Investment Committee,24 subject to prevailing medium-term,
country, industry, and Group limits.
f.
24.
24
Group Limit
Nonsovereign Exposure to a Group is limited:

(i)
for loans, credit guarantees and equity:

(a)
in general, to $400 million;
(b)
with adequate assurances from a Related Counterparty, to $600 million
provided further that the amount of aggregate equity investments (valued
by reference to initial investment cost) do not exceed $125 million.
(ii)
for Partial Risk Guarantees: if the Group is active in more than one country, the
Investment Committee may determine the acceptable aggregate exposure on a
case-by-case basis, provided a limit of $600 million per country is adhered to at
each point in time.
OM Section D10 (Nonsovereign Operations).
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D.
Exposure monitoring and management
25.
Exposure limits are set on the basis of disbursed and outstanding amounts to ensure
that losses will not exceed what ADB's capital can sustain. Although losses can only occur on
amounts that have actually been disbursed, it is necessary to recognize that all of ADB's
commitments may have an effect on future exposure. To ensure that nonsovereign exposure
will comply with the limits imposed by policy at all times, ORM monitors and projects the
development of nonsovereign exposure as described below.
1.
Commitments to lend
26.
Loans are monitored using the actual and projected disbursement and repayment
patterns.
2.
Other Commitments: Credit Conversion Factors
27.
Off-balance sheet commitments other than commitments to lend will be converted to
credit exposure equivalents as follows:
(i)
the amount of a credit or partial risk guarantee corresponding to the undisbursed

portion of the underlying loan will be monitored using a Credit Conversion Factor
(CCF) of 100%;
(ii)
commitments to direct equity investments that have not yet been paid in will be
monitored using a CCF of 100%;
(iii)
commitments to invest in equity funds that have not yet been paid in by ADB will
be monitored using a CCF of 90%;
(iv)
other commitments (such as unfunded risk participation agreements or stand-by

credit facilities), with an original maturity of more than 1 year will receive a CCF
of 50%;
(v)
other commitments (such as unfunded risk participation agreements or stand-by

credit facilities), with an original maturity of less than 1 year will receive a CCF of
20%; and
(vi)
commitments that are unconditionally cancellable by ADB at any point in time

without prior notice will receive a 0% CCF.
28.
The CCF for commitments limited by forms of conditionality not covered by subparas
(iv)(vi) above will be set by the Investment Committee between 0% and 50% on a case-bycase basis.
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29.
Although B-loans, Guarantees of Record, and other similar arrangements do not
constitute credit exposure, ORM will monitor disbursed and outstanding amounts under such
arrangements in order to measure ADB's risk of Loss Given Default. These amounts will be
broken down by country.
3.
Counterparty Exposure
30.
To reduce net exposure to countries, industries and single obligors, the risks that ADB
assumes by issuing guarantees or providing loans can be reduced through guarantees,
reinsurance, or other unfunded risk participations. The amount of risk transferred by ADB to
eligible third parties is monitored and subject to the limitations set out in paras. 21-23.
4.
Passive Breaches and Remedies
31.
Subsequent to the decision to invest, "passive breaches" may occur, i.e., limit breaches
caused by factors outside the control of ADB and the obligor. For example, such breaches may
occur because of a rise in the value of equity investments or because of currency fluctuations.
With regard to the country limit, breaches may occur also because of increased sovereign
lending or because of a country's deteriorating creditworthiness.
32.
In the case of a limit breach due to deterioration of the creditworthiness of a country,
ADB shall take reasonable efforts to reduce its exposure so it conforms with the limit framework
provided herein. Within 18 months from the date of the limit breach and subject to legal or
contractual restrictions, ADB may take steps that include stopping the processing of new
nonsovereign transactions, selling or initiating risk-sharing of existing transactions, or
purchasing insurance for the amount in breach.
5.
Management of Equity Investments
33.
Exposure to equity investments held by ADB will be recalculated from time to time by
reference to market value (if a market quotation is available) or the fair value of such an
investment. If, as a result of such an adjustment, ADBs exposure to a single equity investment
exceeds $250 million, or $400 million in respect of aggregate equity investments in a group,
ADB will use reasonable efforts (subject to legal or contractual restrictions) to reduce such
equity exposures to conform with these limits within 12 months from the date the limit was
breached.
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Basis:

ADB. 2009. Doc. R168-09 and Corrigendum 1, Review of the Asian
Development Bank's Exposure Limits on Nonsovereign Operations. Manila.
Compliance:
For inquiries:
Questions may be directed to the Head, Office of Risk Management.
17 February 2010
Prepared by the Office of Risk Management and

OM Section D13/BP
Appendix
OPERATIONS MANUAL
BANK POLICIES (BP)
Rating
Rating Definitions: Nonsovereign Operations
This is the lowest expectation of credit risk in ADB's nonsovereign operations. The repayment of a
facility rated 1 is highly unlikely to be adversely affected by foreseeable events.
Very low credit risk. The borrower's capacity to meet its financial commitments in a timely manner is
considered very strong. The repayment of a facility rated 2 is unlikely to be adversely affected by
foreseeable events.
Low credit risk. The borrower's capacity for payment of financial commitments in a timely manner is
considered strong. This capacity may however be vulnerable to changes in circumstances or in
economic conditions.
Low credit risk. The borrower's capacity for payment of financial commitments is considered strong;
however adverse changes in business and economic conditions may weaken this capacity over time.
Low to medium credit risk. The borrower has a good debt service capacity; however, adverse
changes in business and economic conditions may weaken this capacity over time.
Medium credit risk. The borrower has a good debt service capacity. There is a possibility of credit risk
developing, particularly as the result of adverse economic change over time; however, business or
financial alternatives may be available to allow financial commitments to be met.
Medium credit risk. The borrower has adequate debt service capacity. There is a possibility of credit
risk developing, particularly as a result of adverse economic change over time; however, business or
financial alternatives may be available to allow financial commitments to be met.
Medium credit risk. The borrower has adequate debt service capacity. There is a possibility of credit
risk developing, particularly as a result of adverse business or economic change.
Significant credit risk. The borrower has adequate debt service capacity; however, adverse changes
in business or economic circumstances would probably impair the borrower's capacity to meets its
financial commitments in a timely manner. Alternatively, there is a distinct possibility of a country or
external event that could hinder repayment of the facility.
10
Significant credit risk. The borrower has weak debt service capacity. Adverse changes in business or
economic circumstances would probably impair the borrower's capacity to meets his financial
commitments in a timely manner. Alternatively, there is a distinct possibility of a country or external
event that could hinder repayment of the facility.
11
Significant credit risk. The borrower has a very weak debt service capacity. The borrower appears
able to meet its financial obligations during the next 12 months, but adverse changes in business or
economic circumstances would impair its capacity to meet its financial commitments in a timely
manner. Alternatively, there is a distinct possibility of a country or external event that could hinder
repayment of the facility.
12
High credit risk. The borrower is dependent upon favorable business or economic conditions to meet
its financial commitments. There is a high likelihood, within the next 12 months, of the borrower
becoming unable to meet its debt service obligations, or of a country or external event that would
hinder the timely repayment of the facility.
13
Very high credit risk. It appears unlikely that the borrower will be able to repay the facility in
accordance with the contract. The borrower's capacity for meeting its financial commitments is solely
reliant on sustained favorable business or economic conditions. The borrower may be in technical
default or may have defaulted to some commercial lenders.
The borrower has defaulted and the facility is placed in non-accrual status
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This OM Section does not contain operational procedures.
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These policies were prepared for use by ADB staff and are not necessarily a
MULTITRANCHE FINANCING FACILITY
A.
Introduction
1.
The multitranche financing facility (MFF) is a flexible financing instrument offered
by the Asian Development Bank (ADB). It enables ADB to provide assistance
programmatically by aligning the provision of financing with project readiness and the
long-term needs of a client. The MFF facilitates long-term partnerships between ADB
and its clients, and provides opportunities for constructive dialogue on physical
investments as well as nonphysical (thematic and sector) interventions. The MFF
provides critical mass, predictability, and continuity to clients.
2.
The MFF contributes to ADBs development agenda of inclusive economic
growth as set out in ADBs long-term strategic framework 20082020 (Strategy 2020). 1 It
enables ADB to respond better to the needs of its clients by tailoring its assistance. The
MFF also supports the creation and expansion of social and economic opportunities for
the impoverished in Asia and the Pacific, and enables broader access to these
opportunities.
B.
Definitions
3.
The term facility refers to the MFF.
4.
The term instrument refers to the generic means of providing or facilitating
financingloans, guarantees, or grants.
5.
The term modality involves the specific application of these instruments within a
defined legal, policy, and operational structureMFF, program loans, sector
development programs, etc.
6.
The term tranche may comprise a loan, grant, guarantee, or ADB-administered
cofinancing to finance a project or a component under the facility.
C.
Policy 2
7.
An MFF is a financing modality made available by ADB to a client to support its
medium- to long-term investment program or investment plan. As for other sovereign
and sovereign-guaranteed loans, the MFF is subject to scrutiny, safeguards, disclosure
1
ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank 2008
2020. Manila.
ADB. 2008. Mainstreaming the Multitranche Financing Facility. Manila.
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and cost-sharing requirements. 3 The ADB Board of Directors approves a maximum
amount for each MFF, as well as the specific terms and conditions under which financing
will be provided. On the basis of the Boards approval, Management converts this facility
amount into a series of tranches to finance eligible investments when the client requests
financing.
D.
Scope
8.
An MFF can be used to provide financing in any of the sectors, services,
industries, and thematic areas that are covered by ADB in a developing member country
(DMC) and are considered priorities under the relevant country partnership strategy
(CPS). 4 It can be provided directly to a client that is a DMC or an entity guaranteed by a
sovereign. The MFF can finance multiple projects under an investment program in a
sector or in several sectors, or large stand-alone projects with substantial and related
individual components with long-term implementation plans. The MFF can also finance
slices of long-term contract packages in such investment programs or large stand-alone
projects.
9.
The amount approved for an MFF can be converted into loans, grants,
guarantees from ADB's own resources, or cofinancing administered by ADB, which can
also be in the form of loans, grants or guarantees. The loans can be funded from
ordinary capital resources (OCR) or Special Funds resources. 5 Grants can be funded
from Special Funds resources or any fund administered by ADB. MFF loans may include
a financial intermediation loan or a sector loan, but not a program loan or a sector
development program. Loans to financial intermediaries can be utilized for a range of
projects consistent with ADBs policy on financial intermediation loans. 6 Similarly, sector
loans will be processed in compliance with the requirements of ADBs sector lending
policies. 7 Guarantees can be partial credit guarantees or political risk guarantees. Equity
financing is not considered appropriate for MFFs at this stage. Each tranche will offer
standard ADB financial terms and conditions applicable at the time of the legal
agreement, including variations on tenors, currency options, swaps, and fixed and
variable repayment schedules.
10.
Any loans or grants from the Asian Development Fund (ADF) will require
financing packages to be synchronized with the ADF availability cycle, and to take into
account possible changes resulting from the performance-based allocation exercise.
3
4
5
See ADB. 2010. Processing Sovereign and Sovereign-Guaranteed Loan Proposals. Operations Manual.
OM D11. Manila.
See ADB. Country Partnership Strategy. Operations Manual. OM A2. Manila.
Loan, grants, and guarantees are subject to ADBs policies (OCR terms, Asian Development Fund
framework, etc.).
ADB. 1987. Review of ADB Policies on Credit Lines to Development Finance Institutions. Manila; ADB.
2003. Financial Intermediation Loans. Operations Manual. OM D6. Manila.
ADB. 1984. A Review of Sector Lending Operations. Manila; ADB. 1980. Sector Lending. Manila; ADB.
2003. Sector Lending. Operations Manual. OM D3. Manila.
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11.
Financing terms and conditions can differ between tranches. 8 Tranches can be
provided in sequence or simultaneously, and some may overlap. The specific financing
terms and repayment arrangements will depend on, among other things, (i) the financing
needs of the client and the investment to be financed, (ii) the capital market conditions at
the time, and (iii) ADBs financing policies at the date of signing of the related legal
agreements. In determining the size of an MFF, and the number and size of individual
tranches, factors to be considered will include the financing needs and readiness of the
investments to be financed, the technical reasons for sequencing the activities,
economic and administrative efficiency, and the absorptive and implementation capacity
of the clients and other parties that may be involved.
12.
Commitment charges or guarantee fees are not payable on the MFF amount.
These are payable only on the financing amount committed to in the legal agreement for
the loan or guarantee that is signed between the client and ADB. The rules regarding
commitment charges and guarantee fees that are in effect when the legal agreements
are signed for any tranche will apply with respect to such a tranche.
13.
If financing under an MFF is made available to an entity other than a sovereign,
that tranche must be guaranteed by the sovereign.
E.
MFF Constituents
1.
Road Map
14.
An MFF requires a road map (i.e., a sector strategy). Only investments
consistent with the road map will be financed under the related MFF. The road map
should define (i) the strategic directions for a sector, service, or industry; (ii) its
importance to growth, poverty reduction, gender and development, and inclusiveness (or
the extent to which it is a binding constraint); and (iii) the list of success factors for better
performance. The road map needs detailed assessments of physical and nonphysical
investments. These assessments highlight the main investment and non-investment
bottlenecks, risks, and mitigation measures. Such information then informs the strategic
context, policy framework, and investment programs (the so-called enablers), as well as
the interventions needed and their sequencing.
15.
If an investment program encompasses several sectors, the road map should
justify the multisector approach and include relevant information about each of the
sectors that are proposed to be supported. The road map will take into account the
8
For example, the first tranche may be provided as a US dollar loan, repayable over 15 years, at a fixed
rate of interest. The second tranche may be provided as a Japanese yen loan, repayable over 10 years, at
a floating rate of interest, coupled with a third tranche in the form of a 10-year partial credit guarantee.
Project cost-sharing ceilings will be based on specific sector, client, and project considerations and sound
banking principles.
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BANK POLICIES (BP)
strengths and risks identified in the sector assessments. 9 For example, as with
traditional sector loans, the assessments supporting the road map should consider the
factors that affect sector performance and service delivery, including (i) policy,
institutional, legal, and regulatory frameworks; (ii) institutional capacity; (iii) recent trends
in current and capital expenditures; (iv) type and composition of expenditures; (v) roles
of public and private sectors; (vi) pricing policy; (vii) sustainability of investments; and
(viii) the possibility of resource allocation with the sector. The road map should also
address social dimensions, 10 environmental considerations, safeguards, and
governance issues in sector management.
2.
Strategic Context
16.
An MFF needs a clear strategic context, which could be sourced from the CPS or
an associated knowledge products repository managed by the concerned regional
department 11 or elsewhere. The MFF sets out a long-term partnership for the chosen
sector(s) and thematic areas. 12 The strategic context should include key quantitative and
qualitative principles, as well as targets.
3.
Policy Framework
17.
An MFF requires a policy framework that goes beyond the relevant technical or
operational aspects. It needs to summarize the strategic vision for the sector, and then
the principles and targets for change. The policy framework should focus on the main
challenges and operating conditions in the relevant sectors to ensure efficiency, cost
recovery, sustainability, and competition, as appropriate. This information leads to
reforms over the short, medium, and long term that help create the right environment for
public and private investment. The changes or reforms should address financial,
economic, commercial, legal, regulatory, and institutional matters. Where a policy
framework is not available, or its content is considered unsatisfactory, other modalities
that allow for policy dialogue, development, and implementation program lending,
sector development programs, advisory mandates financed through technical assistance
loans and/or grants, sector loans, or stand-alone projectsshould be considered. The
MFF finances physical and nonphysical investments. Although nonphysical investments
can include policy changes, these should occur only within an existing policy platform.
4.
9
Investment Program
Consideration may be given to ADB's three thematic governance priorities (ADB. 2008. Governance.
Operational Manual. OM C4/OP. Manila).
10
The key social dimensions supported by specific ADB policies or strategies include (i) participation;
(ii) gender and development; (iii) social safeguards; and (iv) management of social risks, especially among
vulnerable groups. ADB. 2007. Incorporation of Social Dimensions into ADB Operations. Operations
Manual. OM C3/BP. Manila.
11
Information in this system generally includes macroeconomic reviews, detailed sector diagnostics, and
crosscutting thematic assessments, usually at national level.
12
Depending on the scope of the MFF, the analysis may be conducted at national or subnational levels.
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18.
The MFF client should have a detailed investment program, specifying the
physical and nonphysical investments, as well as the corresponding resources needed.
Where there is no investment program, a large stand-alone project will still be eligible for
financing under an MFF, provided it has substantial and related individual components
with a long-term implementation plan. In such cases, the MFF will require a detailed
investment plan instead of an investment program.
19.
An investment program is a set of projects and activities that are eligible for
financing under an MFF over time. Individual investments within the investment program
may be physical investments, such as civil works, equipment, or rolling stock, or
nonphysical investments or activities, such as capacity development and advisory work.
20.
The physical part of an investment program can be split into medium-term and
long-term investments. A medium-term investment plan often breaks down the longerterm vision into more immediate priorities, in most cases covering periods of 712 years.
An MFF generally finances a portion of medium-term plans. Nonphysical investments
address thematic and institutional issues, such as capacity development, governance,
gender, private sector development, environment, safeguards, and regional cooperation.
5.
Financing Plan
21.
An MFF needs separate financing plans for the overall facility and for individual
tranches. Where feasible, financing plans should specify the sources of finance,
availability, period of financing, and amounts. They should distinguish between internally
generated resources (e.g. by the executing agencies), national and local government
budgets, domestic sponsors and financial institutions (banks and nonbanks, including
capital markets), and international financiers (sponsors, banks, private equity, venture
capital, capital market operators, export credit agencies, exportimport banks, and
international financing institutions). Cofinancing can be provided on a joint or parallel
basis and may or may not be administered by ADB.
6.
Undertakings
22.
To blend investment (physical) with thematic matters (nonphysical), MFFs
require facility-level undertakings, including any representations and warranties where
necessary, relating to principles and actions on sector, operational, thematic, financial,
legal, institutional, policy, and other areas. Facility-level undertakings are reflected in the
framework financing agreement, and capture basic principles and criteria under which
financing will be made available by ADB. They will also cover ADB operating policies
and procedures, as applicable. Facility-level undertakings are different from tranchelevel covenants, which are project-specific and are described in the individual legal
agreements.
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23.
Undertakings are commitments by clients to take or maintain certain actions over
the term of the MFF. For example, the client should (i) remain committed to the road
map and the policy framework; (ii) maintain its investment program and implement the
financing plan; (iii) notify ADB of any changes to the road map, policy framework,
investment program, and financing plan; (iv) consult with ADB in a policy dialogue
affecting any of these elements; (v) select investments for financing in accordance with
the agreed-upon selection criteria; and (vi) comply with ADBs relevant policies and
procedures, including those on procurement, disbursement, safeguards, social
dimensions, gender, governance, and anticorruption measures, in the preparation and
implementation of investments. Breach of undertakings will trigger ADBs right to hold
back financing, and to suspend or terminate the MFF.
F.
Decision-Making Filters
24.
An MFF has two stages at which financing approvals are made. The first is when
the Board approves an MFF. The second is when Management approves financing for
an individual tranche. At each stage the decision is subject to certain filters relating to
the relevant road map, strategic context, policy framework, investment program,
financing plan, and undertakings. Details of the process that will be followed are set out
in OM Section D14/OP.
Basis:

ADB. 2008. Mainstreaming the Multitranche Financing Facility. Manila.
Compliance:
For inquiries:
Questions on how to apply the MFF criteria can be directed to the

18 May 2010

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MULTITRANCHE FINANCING FACILITY
A.
Introduction
1.
The multitranche financing facility (MFF) allows the Asian Development Bank (ADB) to
offer financial resources to a client under a specific set of conditions, in a series of separate
financing tranches (loans, grants, guarantees, or administered cofinancing) over a fixed period
of time.
2.
Unless modified in this Operations Manual (OM) section and/or the related Board policy
paper, 1 the preparation, processing, 2 and implementation of projects under the individual
tranches will be governed by the applicable ADB policies and operational procedures, including
compliance requirements, prevailing at that time. Specifically, all policies and operational
procedures 3 with respect to loans (including sector loans and financial intermediation loans),
grants, guarantees, cofinancing, eligibility of expenditures, disbursement, social dimensions,
safeguards, procurement, use of consultants, and disclosure will apply.
3.
In the case of the first tranche, all projects should have generally been identified and
appraised, and be ready for implementation when the MFF is submitted to the Board of
Directors for approval; and in the case of second and subsequent tranches, by the time the
President approves that tranche. Stand-alone projects with substantial and related individual
components should have been fully appraised in their entirety before the concerned MFF is
submitted to the Board. In the case of loans to financial intermediaries, the actual portfolio of
projects under a tranche need not be fully identified or fully prepared at the time the tranche is
approved by the President. The processing and implementation of tranches of this nature will be
governed by ADBs policy on financial intermediation loans. 4
B.
Concept Clearance
4.
At the concept clearance stage, a decision is taken on whether the MFF is the most
appropriate modality. All MFF concept papers will be cleared in accordance with the prevailing
ADB business processes for stand-alone loan projects 5 (requiring the approval of the relevant
vice-president) after conducting project classification and assigning the appropriate risk
1
2
ADB. 2008, Mainstreaming the Multitranche Financing Facility. Manila.

ADB. 2010. Processing Sovereign and Sovereign-Guaranteed Loan Proposals. Operations Manual. OM D11.
Manila.
These include relevant policies, loan and grant regulations, operations manuals, staff instructions, project
administration instructions, handbooks, and guidelines.
ADB. 1987. Review of ADB Policies on Credit Lines to Development Finance Institutions. Manila; ADB. 2003.
Financial Intermediation Loans. Operations Manual. OM D6. Manila.
ADB. 2009. Better and Faster Loan Delivery: Report of the Loan Delivery Working Group. Manila.
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category. 6 The format of the concept paper will be similar to that used for stand-alone loan
projects, with variations to accommodate the additional information needs for MFFsindicative
road map, strategic context, policy framework, matrix explaining why the MFF is more suitable
than other instruments and modalities, investment program or investment plan (separated into
physical and nonphysical investments), financing plan, list of key issues and constraints, likely
undertakings, and the proposed due diligence plan. In addition to the indicative size of the MFF,
the estimated investment requirements for the first periodic financing request (PFR) should be
indicated. As for project processing, the concept paper will be backed by a problem tree
analysis to highlight key issues or root causes of problems and their consequences. Appendix 1
illustrates the methodology involved in a problem tree analysis. 7
C.
Due Diligence on the MFF and Individual Tranches
5.
Due diligence will be conducted on each MFF and on its individual tranches. 8 The
overall facility requires defining of a road map, strategic context, policy framework, investment
program or investment plan, and financing plan. Due diligence will also cover (i) frameworks
addressing environmental, involuntary resettlement, indigenous peoples safeguard issues, and
social dimensions; (ii) the corresponding undertakings; (iii) any required policy refinements;
(iv) action plans on given themes; (v) the planning and phasing of interventions; (vi) reporting
requirements; and (vii) mechanisms for monitoring, evaluating, and measuring results.
6.
Due diligence on the individual tranches will cover, as applicable, technical, commercial,
legal, regulatory, financial, economic, and social dimensions; and managing social risks,
governance, fiduciary oversight, capacity, procurement, anticorruption aspects, implementation,
safeguards, sustainability and other matters. The due diligence will help ADB determine whether
the investments are ready for financing, i.e., whether they have been suitably prepared and can
be implemented in compliance with the relevant ADB policies and agreed criteria.
D.
Design and Monitoring Framework
7.
A design and monitoring framework (DMF) must be prepared for the overall MFF, and
for each tranche. 9 An initial draft framework for the MFF should be attached to the concept
paper. The DMF for the overall facility will capture the MFF impact and direction of the road
map, policy framework, and reflect information relating to the specific results (outcomes,
outputs), investment program or investment plan, financing plan, safeguards framework
requirements, and any other inputs; and the nonphysical components, including crosscutting
6
7
8
Based on their nature, scope and their average size, MFFs are likely to be categorized as "complex". Project teams
should plan for the associated quality assurance requirements and associated resources.
See also ADB. 2007. Guidelines for Preparing a Design and Monitoring Framework. Manila (Section II.B.2).
MFF and tranche due diligence requirements and completed assessments will be reflected in the report and
recommendation of the President, the framework financing agreement and period financing requests (and their
reports to management).
ADB. 2007. Guidelines for Preparing a Design and Monitoring Framework. Manila (Section III.G.6). The DMF for
the MFF will be an appendix to the report and recommendation of the President, whereas the DMF for each
tranche will be an annex of the PFR.
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themes and regional cooperation. Indicators to be measured under MFFs may include those
measuring cost recovery, efficiency, competition, resource management, transparency, and
sector development. Review mission reports will update this information.
8.
The projects under individual tranches will be monitored in the same way as stand-alone
projects, with DMFs tracking inputs, activities, outputs, results, and outcomes. The DMFs will
also show the details of the investment and the link between the tranche and the overall MFF. 10
Review mission reports will cover the design, commercial and operational matters, status of
policy actions, undertakings, covenants, compliance with ADB policies and procedures
(including safeguard requirements), capacity development actions, procurement, fiduciary
oversight, anticorruption measures, and governance. Noncompliance with these may lead
Management to terminate or suspend the MFF, reject PFRs, or suspend or cancel the tranche.
E.
Capacity Development
9.
Given the substantial capacity constraints in most sectors of developing member
countries (DMCs), and in the institutions overseeing them, regional departments should
incorporate financing for capacity development into individual MFF tranches. Exceptions to this
should be clearly justified in the report and recommendation of the President (RRP) for that
MFF. Assessment of capacity constraints, at the level of both the MFF and individual tranches,
should follow ADBs capacity development medium-term framework and action plan. 11
Depending on the capacity constraints identified, capacity development should be included in
the overall design and may include: (i) assistance with the implementation of a project approved
under the first tranche; (ii) due diligence advisory services to help clients prepare investments or
projects for the second and subsequent tranches; and (iii) special advisory services to work on
policy framework refinements, planning assistance, institutional change management,
monitoring and evaluation of the overall investment program, results measurement, and
reporting to the authorities and ADB. The first of these capacity development components may
be structured to include technical and nontechnical expertise, such as project design and
supervision, safeguards, governance, procurement, and financial management. The second
component may cover standard ADB project finance requirements, including technical, financial,
commercial, legal, regulatory, social, safeguard, operational, governance, implementation, and
disbursement requirements. The third component may focus on planning; policy reformulations;
results measurement; and overall MFF monitoring, evaluating, and reporting.
10.
Such capacity development arrangements require proper due diligence followed by
sound structuring. Overall mandates should be formulated and divided among advisory teams
each managed by a team leader and comprising long-term advisors and short-term experts. The
budgets should not be viewed as fixed, i.e. they should contain a contingency to enable clients
10
11
It is expected that the outputs in the overall DMF will be the tranches' outcomes.
ADB. 2007. Integrating Capacity Development into Country Programs and Operations: Medium-Term Framework
and Action Plan. Manila.
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to engage additional experts as required at short notice. If necessary, shortages of experts and
budget deficiencies can be corrected in subsequent tranches.
F.
Framework Financing Agreement
11.
A framework financing agreement (FFA) records the basic understandings between the
client and ADB with respect to an MFF. It describes the principal features of the investment
program or the project (if the MFF is for a stand-alone operation), and the principles by which
ADB may provide financing and the client may avail of such financing. However, the FFA does
not constitute a legal obligation on the part of ADB to provide financing, nor is the client obliged
to request or accept any financing. The legal rights and obligations of the parties with respect to
each tranche arise only out of the legal agreements in respect of such tranche. Consequently, at
its sole discretion, exercised reasonably, ADB has the right to deny any financing request made
by a client, cancel the uncommitted portion of the MFF, and withdraw the clients right to request
any uncommitted tranche under the MFF. Similarly, the client has the right not to request any
financing or to cancel any uncommitted portion of the MFF.
12.
The FFA will provide information on the road map, including the specific sector
investment plans, strategic context, policy framework, investment program or investment plan,
the financing plan, and the undertakings. The FFA should also provide information on
cofinancing, whether as part of the MFF or otherwise, whether joint or parallel, and indicate the
extent to which it may be administered by ADB.
13.
The FFA will record

(i)
whether the tranches will be provided as loans, grants, guarantees, or

cofinancing, or as a combination of these instruments;
(ii)
whether tranches will be funded out of ordinary capital resources, Special Funds
resources, or both (in the event of any financing from the Asian Development
Fund, the FFA will emphasize the indicative nature of the funding commitment
against the availability of funds;
(iii)
the projected tranche schedule, if possible, indicating the most probable

frequency and size of the tranches;
(iv)
the understandings with respect to whether and how the repayment of amounts
due and payable to ADB under any tranche will be guaranteed (where
applicable);
(v)
facility-level undertakings by the client, including any representations and

warranties, if necessary, by the clients relating to sector issues, fiduciary
oversight, financial management plans, capacity and institutional development,
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implementation arrangements, disbursements, safeguards, governance,

anticorruption measures, policy reforms and dialogue, among others;
(vi)
criteria for selecting specific components or projects for financing and the
implementation framework; the criteria may include design and operational
characteristics, financial and economic viability (including least-cost choices),
and compliance with ADBs policy on social dimensions, safeguard policies, and
the social and environmental legislation and regulations of the client; and
(vii)
the social and safeguard frameworks agreed between the client and ADB and
incorporated by reference.
14.
An FFA will have the following mandatory schedules: Schedule 1: MFF constituents
road map, strategic context, policy framework, investment program or investment plan, and
financing plan; Schedule 2: design and monitoring framework for the facility; Schedule 3:
implementation framework; Schedule 4: selection criteria; Schedule 5: social dimensions and
safeguard requirements; and Schedule 6: undertakings.
15.
The FFA template is attached as Appendix 2.
16.
To minimize duplication with the FFA, the RRP for the MFF will provide a summary of
the key features of the road map, strategic context, policy framework, and the investment
program or investment plan.
G.
Periodic Financing Request
17.
A periodic financing request (PFR) is a formal request to ADB by the client to finance a
tranche under an MFF. The investments must have been technically prepared, financially
appraised, and processed in compliance with the applicable social and safeguard frameworks
for them to be included in the PFR.
18.
Each PFR will specify the tranche amount, the conversion instruments, the financing
terms, cost estimates and financing plan, implementation arrangements, advance contracting,
and the amount and purpose of retroactive financing, if any, requested. The PFR should also
specify the actions necessary (and those already accomplished) to make the project ready for
financing.
19.
The client should submit to ADB, along with the PFR, the summaries of feasibility
studies and engineering designs (as necessary), terms of reference for the engagement of
advisors, results of any advance actions, and economic and financial assessments (where
necessary).
20.
The PFR will refer to and attach the procurement plan and the appropriate safeguard
documents, including safeguard plans required under the safeguard frameworks prepared for
the MFF.
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21.
The PFR will confirm that the general understandings under the FFA remain true. It will
describe the clients compliance with the undertakings, as well as any representations and
warranties included in the FFA.
22.
If a guarantee is envisaged pursuant to the FFA, the PFR will include confirmation that a
guarantee, in form and substance acceptable to ADB, will be issued to secure repayment of all
amounts that may become due to ADB under that tranche.
23.
Depending on the capacity constraints identified, the first PFR may include a request to
finance capacity development through (i) assistance with the implementation of the investment
program, and the activities under the first tranche (covering safeguards, governance, and
technical and other areas); (ii) assistance with the preparation of subsequent physical and
nonphysical investments for inclusion under the second PFR; and (iii) special advisory services
to work on policy framework refinements, planning assistance, institutional change
management, monitoring and evaluation of the investment program, results measurement, and
reporting to the authorities and ADB. If necessary, all or part of such assistance may be
replicated under subsequent PFRs and tranches. This approach will help blend physical and
nonphysical actions and ensure the provision of expert support for capacity development (at all
levels); due diligence; and help with evaluations, monitoring and reporting for results. If this
approach is not adopted, the project team concerned will have to provide suitable justifications
in the relevant proposals (i.e., in the RRP for the first tranche or in the PFR report for the second
and subsequent tranches).
24.
A DMF will be prepared for the investments included in a PFR to show how they relate to
the overall DMF for the MFF. The DMFs will be attached to the PFR report.
25.
For second and subsequent PFRs, the project team will prepare and submit to
Management a PFR report describing the specific part of the investment program supported
under the PFR, the broad and specific strategic objectives that will be met, and the nature and
characteristics of the projects identified in the PFR. The PFR report will also provide information
on cost estimates, financing plans, and implementation plans. It will describe the project
executing and implementation agencies (including their capacity, financial management
capabilities, evaluation, and monitoring and reporting systems and procedures) and the
disbursement plans. The PFR report will discuss benefits, impacts, assumptions, and risks. It
will also (i) cover implementation achievements and disbursement rates under the previous
tranches, (ii) assess compliance with the legal agreement and the undertakings in the FFA, and
(iii) update the status of the road map, investment program, and the policy framework.
26.
Each tranche will undergo a separate risk categorization, and will be processed
accordingly. Since the facility and the first tranche are generally processed together, risk
categorization of the first tranche will be simultaneously undertaken as part of the concept
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paper(see para. 4). For subsequent tranches, the PFR report submitted to Management will
clearly assign a suitable risk category to the specific tranche. 12
27.
The PFR template is attached as Appendix 3.
28.
A facility administration manual (FAM) will be agreed at the time of negotiations for the
FFA and the first tranche legal agreements. The FAM will fully articulate the implementation
arrangements for the entire MFF. Agreement will be recorded in the minutes of negotiations. In
preparing PFRs for subsequent tranches, the FAM may be updated and/or renamed and
agreement to the contents recorded in the minutes of negotiations for the respective PFR
documentation. Project administration manuals may also be prepared, as necessary, for
implementation issues of projects under individual tranches. The facility administration manual
and project administration manuals will be developed early during MFF and tranche preparation
(for second and subsequent tranches, where applicable) and reviewed at the management
review meeting (MRM) or staff review meeting (SRM) and/or by Management and subsequently
throughout key project processing and implementation stages.
H.
Availability Period
29.
Financing under an MFF can be extended and disbursements made only within the
availability period agreed between the client and ADB. The availability period refers to the
maximum utilization period and sets the last date on which any disbursement may be made.
The availability period should be no longer than 10 years from the date on which the MFF is
approved by the Board. Extensions of the availability period beyond 10 years will generally not
be considered, but if so considered will be subject to approval by the Board.
I.
Safeguard Compliance and Social Dimensions
30.
For purposes of complying with safeguard policies, the following shall apply:
(i)
12
Appropriate safeguard frameworks must be prepared for the MFF as a whole, 13

agreed between the client and ADB, and incorporated by reference in the FFA.
Safeguard frameworks provide guidance on social and environmental screening
and categorization, impact assessments, development of management plans,
public consultation and information disclosure, monitoring and reporting, and
institutional arrangements (including budget and capacity development) to be
followed for components and projects that are prepared after Board approval of
the MFF, including the criteria used in component or project selection. The
regional departments will assist the client to prepare the safeguard frameworks
Risk categorization criteria requirements for tranches are defined in ADB. 2010. Processing Sovereign and
Sovereign-Guaranteed Loan Proposals. Operations Manual. OM D11. Manila.
13
Safeguard frameworks will not be used for highly complex and sensitive subprojects of sector loan tranches of
MFFs (see ADB. 2009. Safeguard Policy Statement. Manila.)
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and will send them to the Environment and Safeguards Division (RSES) of the
Regional and Sustainable Development Department, for review.
(ii)
The MFF as a whole is not categorized as to its environment, involuntary

resettlement, or indigenous peoples impacts. Safeguard categorization will be
made at the level of individual tranches. The operations department will be
responsible for proposing the categorization of all tranches and submitting the
checklist and categorization results, through RSES, to the chief compliance
officer for concurrence or further discussion, as required.
(iii)
For any tranche classified as category A for any of its environment, involuntary
resettlement, or indigenous peoples impacts, the operations department reviews
the environmental impact assessment (EIA) and/or environmental assessment
and review framework (EARF), resettlement plan and/or resettlement framework,
and/or indigenous peoples plan (IPP) and/or indigenous peoples planning
framework (IPPF). The operations department seeks comments on these
documents from RSES, which issues a safeguard policy compliance
memorandum (SPCM) before the MRM for the first tranche and before
Management considers the PFR for the second and subsequent tranches.
(iv)
For any tranche classified as category B or FI, the operations department

reviews the initial environmental examination (IEE) and/or EARF, resettlement
plan and/or resettlement framework, and/or IPP and/or IPPF, or environmental
and social management system. 14
(v)
For all tranches, the operations department confirms that all applicable safeguard
requirements have been met before Management considers the PFR.
(vi)
In addition, where significant sector or regional environmental impacts from the

investments under an MFF are anticipated, ADB requires the client to undertake
a strategic environmental assessment to identify mitigation measures to be built
into the MFF design.
(vii)
The operations department ensures the following documents are posted on

ADB's website: (i) EARF, resettlement framework, and IPPF prepared for the
MFF before the appraisal of the MFF; (ii) the draft EIA report for the tranche,
where applicable, at least 120 days before the approval of the PFR; (iii) the draft
resettlement plan and draft IPP before appraisal, in case of the first tranche, and
before Managements consideration of the related PFR in the case of a
subsequent tranche; and (iv) the final or updated EIA, IEE, resettlement plan
and/or IPP upon receipt for all tranches
31.
For the purpose of complying with social dimension and gender and development
policies, the following shall apply:
14
A regional department may request an RSES review to supplement its own review for category B and FI project.
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J.
(i)
Social dimensions will be addressed in the DMFs of the MFF and of its tranches,
as applicable. This will form the basis for monitoring of and reporting on social
dimensions during implementation.
(ii)
The summary poverty reduction and social strategy (SPRSS) will be prepared
before approval of the MFF. It will set out the broad magnitude of the scope and
criteria for carrying out further poverty and social analysis and developing more
specific plans or measures in future. The SPRSS will be updated for the second
and subsequent tranches, as necessary, and revisions incorporated into the PFR
submitted to Management.
(iii)
Gender mainstreaming project categorization will be done for each PFR.
Approvals
32.
All MFF proposals will be submitted to the Board for approval, following standard ADB
rules and procedures for sovereign project processing. A detailed workflow is set out in
Appendix 4.
33.
When the FFA negotiations are held at ADB headquarters, the negotiated FFA will be
signed by an authorized representative of the client and the concerned director general (or an
authorized representative). When negotiations are held in the field, an authorized representative
of the client and the relevant country director (or an authorized representative) will sign it. The
FFA and first PFR will be attached to the RRP for an MFF. The FFA should be signed before
the Board considers a proposed MFF. If this is not achievable due to the operation of any local
law or government policy or to any other exceptional circumstance, the FFA may be signed after
Board approval, but any material change must be resubmitted to the Board for approval. In such
cases, the RRP should set out the circumstances which prevented the FFA from being signed.
The legal agreement for the first tranche must be executed within 12 months of Board approval
of the MFF; otherwise the validity of the MFF will lapse. MFF extensions will require Board
approval.
34.
Management will convert the facility amount approved by the Board into financing for
individual tranches. Tranches will be processed by the regional departments and approved by
the President. MRMs (for MFFs categorized as "complex") and/or SRMs (for MFFs categorized
as "low-risk") are required for all MFFs. MRMs (for tranches categorized as "complex") and
SRMs (for tranches categorized as "low-risk") for the second and subsequent tranches will be
held at the discretion of the concerned vice-president (for complex tranches) or director-general
(for low-risk tranches). In deciding whether to approve the second and subsequent tranches,
Management will consider, among other things, compliance with the MFF undertakings, the
status of the road map, investment program, and policy considerations.
35.
If advance contracting is requested by a client, it must be set out in the PFR.
Management can approve the advance contracting in accordance with the Project
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Administration Instructions section on preparatory work and procurement supervision. 15 If

retroactive financing is also requested by a client for any or all tranches, the RRP must discuss
the nature and extent of the retroactive financing requested. Management may allow this on a
case-by-case basis when the request is included in any PFR and described in the related PFR
report.
K.
Reporting and Evaluation
36.
A monthly report listing all PFRs received in the previous month will be prepared and
submitted to the Board by regional departments in the first half of each month. The report shall
identify the relevant MFF and the PFR number, specify the nature and amount of financing
requested, and provide references or links to the safeguard documents submitted with respect
to such PFRs.
37.
A consolidated annual report will be prepared for all approved MFFs in each country
and submitted to the Board by regional departments, in January each year. The annual reports
will provide (i) statistical information on the MFF, including progress made on each of the
physical and nonphysical components; (ii) risks and issues (including safeguard-related risks
and issues and social and gender aspects), and actions being taken to mitigate the risks and
resolve the issues; (iii) DMF updates; (iv) status of compliance with undertakings; (v) any
changes in circumstance or material facts relating to the investment program or investment
plan; and (vi) information on cofinancing administered. The regional departments can draw upon
the review mission reports while updating the annual reports.
38.
A project performance monitoring system will be established for the entire MFF, and for
its individual tranches. The performance reports in respect of individual tranches will be
compiled for the purpose of preparing the facility-level performance report that will form part of
the annual report to the Board. In addition to individual project completion reports for each
tranche, a facility completion report will be prepared for the overall MFF. Post-evaluation
reviews may be undertaken of the overall MFF or any of its tranches.
L.
Change in Scope and Implementation Arrangements
39.
Any change in scope of the facility or any of its tranches will be handled in compliance
with the Project Administration Instructions section on change in project scope or
implementation arrangements. 16 Changes requiring Board consideration will include a
substantial and material change in the strategic direction of the road map, a change in the policy
framework that negatively affects the viability or sustainability of the investment program or
investment plan, a change in the sectors covered by the investment program, or a substantial
and material change in the type of the investments contemplated under the investment program
or investment plan.
15
16
ADB. 2007. Preparatory Work and Procurement Supervision. Project Administration Instructions. PAI 3.01. Manila.
ADB. 2008. Change in Project Scope or Implementation Arrangements. Project Administration Instructions. PAI
5.04. Manila.
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40.
Any amount under an individual tranche that is canceled will replenish the overall facility
by an equivalent amount. The relevant regional department will immediately notify the
Controllers Department of any decision to cancel a portion of the MFF.
M.
Limited Supplementary Financing
41.
Limited supplementary financing of purely price or financing arrangement changes may
be made available in respect of prior ADB interventions in the same sector, provided (i) the
likely requirement for such supplementary financing was included in the assessments leading to
the preparation of the MFF road map with respect to the quality of existing and future assets,
and (ii) in addition to MFF processing requirements, the appraisal procedures for this type of
supplementary financing set forth in ADB's policy on supplementary financing 17 have been
satisfied.
N.
Country Cost-Sharing Ceiling
42.
Individual tranches provided under an MFF may finance any portion of the cost of the
financed transactions, provided such financed portion is less than 100% of such cost, and
provided, further, that when the availability period ends, the sum of ADBs financing under the
MFF is within the country cost-sharing ceiling applied at the time the MFF was approved.
O.
Disclosure
43.
In compliance with ADBs Public Communications Policy (2005), the following
documents will be made publicly available: (i) RRP and FFA upon approval of the MFF by the
Board; (ii) legal agreements upon signing; (iii) project information document for each tranche
upon processing of such tranche; (iv) the annual report on all approved MFFs upon circulation
to the Board; (v) facility completion and project completion reports upon circulation to the Board;
(vi) safeguard frameworks for the MFF before appraisal; 18 (vii) the draft environmental impact
assessment, where applicable, 120 days before the approval of the tranche 19 , or initial
environmental examination upon tranche approval, respectively; and (viii) the draft resettlement
plan and draft indigenous peoples development plan before appraisal, in case of the first
tranche, and before Management review of the PFR, in case of the second or subsequent
tranches. ADB shall also make the PFRs available to interested parties on request.
17
ADB. 2005. A Review of the Policy on Supplementary Financing: Addressing Challenges and Broader Needs.
Manila.
18
In line with OM F1, (ADB. 2010. Safeguards Policy Statement. Operations Manual . OM F1. Manila), The project
appraisal process refers to an overall assessment of the relevance, feasibility, and potential sustainability of a
project before its approval. Where appraisal is not undertaken, the related disclosure requirements have to be met
by fact finding
19
The memo to the President for approval of the tranche must mention compliance with the 120-day disclosure rule,
where applicable.
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P.
Effectiveness
44.
The mainstreamed MFF policy became effective from 11 July 2008. It applies to MFF
proposals and to subsequent tranches under MFFs approved prior to 11 July 2008.
Basis:

therein.
This OM section is to be read with OM Section D14/BP.
Compliance:
For inquiries: Questions on how to apply the MFF criteria can be directed to the Strategy and
Policy Department.
18 May 2010

PROBLEM TREE ANALYSIS
OPERATIONS MANUAL
DMF = design and monitoring framework, RRP = report and recommendation of the President
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(TEMPLATE)
FRAMEWORK FINANCING AGREEMENT
This model is intended to serve as basis for drafting a framework financing

agreement (FFA). Discussion and negotiations on the FFA will be conducted in
close consultation and with the assistance of the Office of the General Counsel
(OGC). The draft FFA as discussed with the client will be attached to the factfinding memorandum of understanding (MOU) or aide-memoire, and the usual
caveats regarding the requirement for approval by higher authorities of both
parties will apply.
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FRAMEWORK FINANCING AGREEMENT

(________________________________________)
Parties
This Framework Financing Agreement (FFA) dated [______] is

between [__state name of proposed borrower__] (X), [__state
name of proposed guarantor__] (Y), and Asian Development
Bank (ADB).
MFF Investment
Program 1
X is committed to and will implement the [___name of the sector

development plan, stand-alone project, etc.___], which is an
integral part of the Investment Program. Both the [___name of the
sector development plan, stand-alone project, etc.___] and the
Investment Program are described in Schedule 1 hereto.
The total cost of the [___name of the sector development plan,
stand-alone project, etc.___] over the period [20__] to [20__] is
expected to be [_________] equivalent. The total cost of the
Investment Program, over the period [20__] to [20__] is expected
to be [___________] equivalent.]
Multitranche
Financing Facility
The Multitranche Financing Facility (the Facility) is intended to

finance [components] [projects], under the Investment Program,
provided that such [components] [projects] comply with the criteria
set out in Schedule 4 hereto and that understandings set out in this
FFA are complied with.
These may include:
(List types of components, projects.)
This FFA does not constitute a legal obligation on the part of ADB
to commit any financing. At its sole discretion, exercised
reasonably, ADB has the right to deny any financing request made
by X, cancel the uncommitted portion of the Facility, and
withdraw Xs right to request any financing tranche under the
DRAFTING NOTES:
If there is no investment program in the case of large stand-alone projects, this may be replaced by an investment
plan.
DRAFTING NOTES:
Context. Indicate the objective, components. Briefly specify the linkage to poverty reduction, and briefly describe
any policy relevant dialogue.
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Facility. Financing tranches may be made available by ADB

provided matters continue to be in accordance with the general
understandings and expectations on which the Facility is based
and which are laid out in this FFA.
This FFA does not constitute a legal obligation on the part of X to
request any financing. X has the right not to request any
financing under the Facility. X also has the right at any time to
cancel any uncommitted portion of the Facility.
X [, Y,] and ADB may exercise their respective rights to cancel the
Facility or any uncommitted portion thereof, and ADB may
exercise its right to refuse a financing request, by giving written
notice to such effect to the other parties. The written notice will
provide an explanation for the cancellation or refusal and, in the
case of a cancellation, specify the date on which the cancellation
takes effect.
Financing Plan
The financing plan for the [___name of the sector development
plan, stand-alone project, etc.___] is summarized below.
Financing Source
X
Asian Development Bank
[Other sources of financing administered by
ADB]
[Other sources of financing from official
development agencies, commercial sources
and the private sector]
Sub Total (Name of the Sector
Development Plan, Stand-alone Project )
X
[Other sources of financing from official
development agencies, internal resources,
commercial sources and the private sector]
Total (Investment Program)
Total ($)
Share (%)
of Total
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Financing Terms
ADB will provide [loans] [guarantees] [grants] [administer

cofinancing] to finance [components] [projects] under the
Investment Program, as and when the latter are ready for
financing, provided, X is in compliance with the understandings
hereunder, and the [components] [projects] are in line with those
same
understandings.
Each
[loan]
[grant]
[guarantee]
[administered cofinancing] will constitute a tranche.
Each tranche may be financed under terms different from the
financing terms of previous or subsequent tranches. The choice of
financing terms will depend on the project, capital market
conditions, and ADBs financing policies, all prevailing on the date
of signing the legal agreement for such tranche.
Tranches may be provided in sequence or simultaneously, and
some may overlap in time with each other.
There is no maximum or minimum size for a tranche.
Commitment charges or guarantee fees are not payable on the
Facility. They are payable only on financing actually committed by
ADB as a loan or guarantee. ADB rules on commitment charges
and guarantee fees, which are in effect when the legal agreements
are signed for a tranche, will apply with respect to such tranche.
Amount
The maximum financing amount available under the Facility is
_____________ (_____________). It will be provided in individual
tranches from [ADBs Ordinary Capital Resources/Special Funds
Resources] [in the following manner:
Loans
DRAFTING NOTES:
Amount. Indicate the source of financing. In a footnote, indicate the applicable loan regulations to each loan as
follows:
For OCR: Provisions of the Ordinary Operations Loan Regulations applicable to LIBOR-Based Loans Made
from ADB's Ordinary Capital Resources, dated 1 July 2001, would apply to each Loan, subject, to
modifications, if any, that may be included under any Loan Agreement (said Ordinary Operations Loan
Regulations as so modified, if any, being hereinafter called the Loan Regulations).
For SFR: Provisions of the Special Operations Loan Regulations applicable to Loans Made by ADB from its
Special Funds Resources, dated 1 January 2006, would apply to each Loan, subject, to modifications, if any,
that may be included under any Loan Agreement (said Special Funds Loan Regulations as so modified, if
any, being hereinafter called the Loan Regulations).
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Grants:
Guarantees:
Cofinancing:]
Availability Period
The last date on which any disbursement under any tranche may
be made will be __________. The last financing tranche is
expected to be executed no later than ______________.
Terms and Conditions
X will cause the proceeds of each tranche to be applied to the
financing of expenditures of the Investment Program, in
accordance with conditions set forth in this FFA and the legal
agreements for each tranche.
Execution
The Executing Agency will be [___name the Executing Agency____]. The Executing Agency will implement the Investment
Program in accordance with the principles set forth in Schedule
1 to this Agreement, and as supplemented in the legal
agreements for each tranche.
Periodic Financing X may request, and ADB may agree, to provide [loans] [grants]
Requests
[guarantees] [or administer cofinancing] under the Facility to
finance the Investment Program [and its related [components]
[projects] upon the submission of a Periodic Financing Request
(PFR). Each PFR should be submitted by X [and confirmed by
the Y]. X will make available to [the Project Executing Agency],
[and through the Project Executing Agency] to _______ ], the
proceeds of the tranche in accordance with the related PFR, and
the legal agreements for the tranche.
Each individual tranche will be for an amount of no less than
______________($_________), or its equivalent. ADB will review
DRAFTING NOTES:
Terms and Conditions. Identify where the proceeds of the ADB financing will go to. For sector projects, each
tranche will be used to finance a range of subprojects. The project eligibility and approval criteria, or project
components in the case of a large stand alone project, are set out in Schedule 4 to this Agreement.
Periodic Financing Request. Consider having the PFR acknowledged by the intermediary and final recipient of the
proceeds. Describe the onlending arrangements, if any.
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the PFR[s] and, if found satisfactory, prepare the related legal

agreements.
The [components] [projects] for which financing is requested under
the PFR will be subject to the selection criteria set out in Schedule
4 hereto, satisfactory due diligence, and preparation of relevant
safeguard and fiduciary frameworks and other documents. The
Facility will be implemented in accordance with the general
framework set out in Schedule 3 to this FFA, and the Facility
Administration Manual agreed between "X" and ADB.
Until notice is otherwise given by X, [____________] will be Xs
authorized representative for purposes of executing PFRs.
[Likewise, until notice is otherwise given by Y, [____________]
will be Ys authorized representative for purposes of executing
PFRs.]
General
Implementation
Framework
The Facility will be implemented in accordance with the general

framework set out in Schedule 3 hereto.
Procedures
Tranches to be provided under the Facility will be subject to

following procedures and undertakings:
PFR information
(a)
X will have notified ADB of a forthcoming PFR in advance

of the submission of the PFR.
(b)
X will have submitted a PFR in the format agreed with

ADB.
(c)
ADB may, in its sole discretion, decline to authorize the

negotiation and execution of any legal agreement for a
tranche.
(d)
If ADB confirms acceptance of the PFR, the legal

agreements will be negotiated and executed by the parties.
The PFR will substantially be in the form attached hereto, and will
contain the following details:
(i)
Loan, grant, guarantee, or cofinancing amount;
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(ii)
(iii)
(iv)
(v)
(vi)
(vii)
Safeguards
Description of [components] [projects] to be financed;

Cost estimates and financing plan;
Implementation arrangements specific to the [components]
[projects] ;
Confirmation of the continuing validity of and adherence to
the understanding in this Agreement;
Confirmation of compliance with the provisions under
previous [Loan] [Guarantee] Agreement(s) [and Project
Agreement(s)], as appropriate; and
Other information as may be required under the Facility
Administration Manual, or reasonably requested by ADB.
Attached as Schedule 5 are references to the Safeguard

Frameworks that will be complied with during the implementation of
the Facility.
ADBs Safeguard Policies in effect as of the date of signing of legal
agreements for a tranche will be applied with respect to the
[components] [projects] financed under such financing tranche.
Procurement
All goods and services to be financed under the Facility will be

procured in accordance with ADBs Procurement Guidelines (2007,
as amended from time to time).
Consulting
Services
All consulting services to be financed under the Facility will be

procured in accordance with ADBs Guidelines on the Use of
Consultants (2007, as amended from time to time).
Advance contracting;
Retroactive financing
Under each tranche, ADB may, subject to its policies and
procedures, allow on request (a) advance contracting of
[__________]and (b) retroactive financing of eligible expenditures
for [_____________] up to [20%] of proposed individual loan,
incurred prior to loan effectiveness but not earlier than 12 months
before the date of signing of the related legal agreement. The
[client] acknowledges that any approval of advance contracting
and/or retroactive financing will not constitute a commitment by
ADB to finance the related project.
DRAFTING NOTES:
Safeguards. ADB. 2009. Safeguard Policy Statement. Manila.
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Disbursements
Disbursements will be made in accordance with ADBs Loan

Disbursement Handbook (2007, as amended from time to time).
Monitoring,
Evaluation, and
Reporting
Arrangements
[Describe the arrangements at and between all relevant levels

within X, between the X and Y, and between, on one hand,
the X and Y and, on the other, ADB.] Schedule 2 hereto sets
as the Design and Monitoring Framework for the Facility, against
which the implementation effectiveness will be evaluated.
Undertakings
Attached as Schedule 6 are the undertakings provided by X

[and Y if necessary]
Representations
And Warranties
Guarantee
[if any]
Y will provide a guarantee, in form and substance acceptable to

ADB, as a condition precedent to the effectiveness of any tranche
requested by X, and provided by ADB pursuant to the terms of
this Agreement.
Name of X
ASIAN DEVELOPMENT BANK
By _________________________
Name of Authorized Representative
By _________________________
Name of Y
By _________________________
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SCHEDULE 1
MFF CONSTITUENTS
A.
Road Map
State the vision for the sector, and the objective of the facility.
Outline the strategic directions being pursued and the rationale for sector investments (physical
and nonphysical), or, in the case of a stand-alone operation, describe the project and its
components, [or describe the corporate, business, and capital investment plans of the financial
intermediary]. Describe the importance the investment has to the growth, poverty reduction and
inclusiveness agenda.
Describe ADBs evaluation of the issues, constraints, challenges and opportunities and
development impact of the program of investments for the sector, stand-alone project, or
corporate, business, or capital investment plan, as well as the nature and strength of the broad
approach to implementing and financing the program or a project thereof. Include detailed
assessments of both physical and nonphysical investments. These should bring out the main
investment and noninvestment bottlenecks, risks and mitigation measures and the strengths for
achieving the vision and development, and, in the case of a stand-alone project, the basis,
context, or need for the project. The analysis should also address social dimensions,
environmental considerations, and issues of good governance in sector management.
Outline the types and sequencing of the priority investments in a sector and indicate whether
they may be publicly, privately or publicprivately financed; for a stand-alone project, describe
the project and its components; for a credit line, describe the corporate, business, and capital
investment plans of the financial intermediary.
DRAFTING NOTES:
The transactions to be financed by an MFF are integral parts of the clients development plan and sector strategy,
business/corporate plan, or project concept, as appropriate. The implementation of the Investment Program is
expected to contribute to the achievement of these strategies, plans, and concepts, which in all cases, the
Counterparties must be committed to implementing.
This Schedule will describe the sector or stand-alone project, for which MFF financing is going to be made available.
The mission needs to highlight the type, estimated cost, selection, and sequencing of interventions in the program
of investments for the sector, stand-alone project, or corporate/business/capital investment plan, and the options
for delivering and financing such interventions. These interventions may include physical and nonphysical
investments such as (a) capital assets; (b) operation and maintenance; (c) investments for ensuring economic
viability, cost recovery and sustainability; (d) investments for improving the general governance and anti-corruption
frameworks; (e) investments for improving financial management and fiduciary oversight arrangements;
(f) investments for implementing the safeguards plans; (g) investments for building capacity in key institutions or
units to effectively and efficiently implement the Investment Program, deliver services; and (h) investments for
making the regulatory and legal framework responsive to the needs of the sector.
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If the investment program encompasses several sectors, there must be one development road
map that justifies the multisector approach, and also road maps for each of the supported sectors.
B.
Strategic Context
Strategic context may be sourced from the country partnership strategy (CPS), associated knowledge
products or elsewhere. The CPS is developed on the basis of macroeconomic reviews, detailed sector
diagnostics and crosscutting theme assessments. The CPS articulates the areas where ADB is to
deliver financing and ideas. The MFF sets out a long-term partnership for the chosen sector or sectors
and thematic areas. The strategic context should include key quantitative and qualitative principles,
and targets.
C.
Policy Framework
A policy framework must cover more than technical or operational aspects. It should summarize
the strategic vision for the sector and then the challenges, principles, and targets for change.
This information should lead to recommendations for a set of reform actions over the short,
medium and long term. The aim of a policy framework is the creation of the right environment
for investment, public and private alike. The recommended reform actions should deal with
financial, economic, commercial, legal, regulatory and institutional matters. The main principles
and outcomes should include cost recovery, optimum use of resources, sustainability, efficiency,
competition, and transparency. If the investment program encompasses several sectors, there
should be established policy frameworks for each sector.
D.
Investment Program
Describe the investment program. The investment program can be medium- or long- term in
nature. It articulates a series of actions required or prescribed under the road map. The
investment program covers long-term investment packages addressing physical requirements,
and enabling environment and thematic needscapacity, public policy reforms, governance,
legal matters, social dimensions and safeguard issues, procurement systems, fiduciary
oversight, anticorruption, and others. The investment program should relate to broad and
specific sector objectives and be linked to poverty reduction.
In the case of a large stand-alone project without an investment programdescribe the investment plan.
E.
Financing Plan
Provide additional information, e.g., on cofinancing, in respect of the Financing Plan described
in the FFA.
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SCHEDULE 2
DESIGN AND MONITORING FRAMEWORK FOR THE FACILITY
DRAFTING NOTES:
The DMF should contain statements, targets, and indicators at the impact, outcome, and (to the extent possible)
output levels for the entire Facility, as well as policy reform and capacity building activities that are required to
enhance the viability and sustainability of sector investments. Facility baseline data and impact area socioeconomic data would be useful additions for monitoring and evaluation of the facility implementation process and
performance.
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SCHEDULE 3
IMPLEMENTATION FRAMEWORK
DRAFTING NOTES:
Describe the implementation arrangements.
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SCHEDULE 4
SELECTION CRITERIA AND APPROVAL PROCESS FOR
[COMPONENTS] [PROJECTS]
Selection Criteria
NOTE: Include a definition of the criteria for selecting [components], [projects], for financing.
The criteria may include design and operational characteristics, financial and economic viability
criteria (including least cost choices). In addition, components or projects must be in compliance
with the requirements of social and environmental legislation and regulations of the client and
must conform to ADBs safeguard policies. Reference may be made to the understandings set
out in Schedule 5.
Approval Procedures
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SCHEDULE 5
SOCIAL DIMENSIONS AND SAFEGUARD REQUIREMENTS
1.
X [and Y] will ensure that all the requirements prescribed in this Schedule, and the
following social and safeguard frameworks and plans that have been prepared with respect to
the Facility and the first tranche and of which ADB has been provided full copies, and which are
deemed incorporated herein by reference, are complied with during the processing and
implementation of the [components] [projects] under the Facility.
(i)
(ii)
(iii)
(iv)
(v)
(vi)
environmental assessment and review framework, dated _____,

resettlement framework dated ______,
indigenous peoples development framework dated ______,
environmental management plan, resettlement plan, and indigenous peoples
development plan [dated ______] for the first tranche,
environmental and social management system, and/or
gender action plan dated ______.
2.
The frameworks cover the Facility-specific information and requirements in accordance
with ADBs safeguard policies: (i) the general anticipated impacts of the components or projects
likely to be financed under the MFF on the environment, involuntary resettlement, and
indigenous peoples; (ii) the safeguard criteria that are to be used in selecting components,
projects; (iii) the requirements and procedure that will be followed for screening and
categorization, impact assessments, development of management plans, public consultation
and information disclosure (including the 120-day disclosure rule, if required), and monitoring
and reporting; and (iv) the institutional arrangements (including budget and capacity
requirements) and the clients and ADBs responsibilities and authorities for the preparation,
review and clearance of safeguard documents.
3.
Prior to the preparation of each PFR, the applicability and relevance of each safeguard
framework for environmental assessment, involuntary resettlement, and indigenous people will
be reviewed by _________ and updated to ensure relevance and consistency with applicable
country legal frameworks and ADB's safeguard policies, as amended from time to time.
4.
In all cases, for each new PFR preparation, the client will review ongoing projects to
check on the status of compliance with the social and safeguard plans and frameworks, and
submit the review reports to ADB, together with other required safeguard documents relevant to
the [components] [projects] included in the tranche being processes. In any case if major
noncompliance is discovered in the course of the review of ongoing projects, a corrective action
plan will be prepared and submitted to ADB.
DRAFTING NOTES:
Gender action plans should be included for projects categorized as 'gender equity theme' or ''effective gender
mainstreaming'.
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SCHEDULE 6
Undertakings
X undertake as follows:
e.g.
Compliance with ADB's policies
Sector Specific Undertakings

a.
Tariffs
b.
Operation and Maintenance
c.
PublicPrivate Initiatives
d.
Budget resources
Fiduciary Oversight
Financial Management Plans
Governance and Anticorruption
Capacity and Institutional Development
Policy Framework and Dialogue
DRAFTING NOTES:
Undertakings. These could include specific actions in the Investment Program and the DMF that need to be
committed; compliance with the Implementation Framework [i.e., Schedule 3], Selection Criteria [i.e., Schedule
4], Social Dimensions and Safeguard Issues [i.e., Schedule 5].
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(Template)
PERIODIC FINANCING REQUEST
Date:
To:
Asian Development Bank

6 ADB Avenue
Mandaluyong City, Metro Manila
ATTENTION: Director General, [Department]

Fax No. [___________]
Sir/Madam:
RE:
[Insert name of Investment Program]: Periodic Financing Request # [___]
Please refer to the Framework Financing Agreement for [__________] dated _______ between
Asian Development Bank (ADB) and ______________. Expressions defined in the FFA shall
have the same meanings herein.
Pursuant to the provisions of the FFA, the [insert name of X] (X) requests ADB to process
this PFR for a tranche, in the form of a [loan] [grant] [guarantee] [administration of cofinancing]
from its [__Insert resource type__]. The proposed financing amounts, terms, conditions, and
financing plan are specified in Attachment A hereto. Descriptions of the [components] [projects]
for which financing is hereby requested are set out in Attachments [___] to [___] hereto.
(If sovereign or other guarantees of repayment are to be provided). [Y] (Y) hereby confirms
that a guarantee in form and substance acceptable to ADB will be executed and issued, and
confirmed as the valid and binding obligation of Y, as a condition precedent to the requested
tranche becoming effective.
[For second and subsequent PFRs X hereby certifies that it is in full compliance with the
understanding set out in the FFA].
By: [name of X]
[Signature of Authorized Representative]
[Full Name and Title of Authorized Representative]
By: [name of Y]
[Signature of Authorized Representative
Full Name and Title of Authorized Representative
OM Section D14/OP
Appendix 3
Page 2 of 3
OPERATIONS MANUAL
Attachment
Project Description
The [components] [projects] proposed for financing under the requested

PFR is/are:
[Describe the [components] [projects]
[The Design and Monitoring Framework for this tranche is in Annex (--).
Additional details are in Annex (--).]
Cost Estimates and The total cost of the [components] [projects] is estimated at _______,
[inclusive of taxes, duties, and interest and other charges on the loan
Financing Plan
during construction]. The detailed cost estimates and financing plan are
in Annex (--).
($ million)
Project/
Counterparty
ADB
Cofinanciers
component
A
B
Total
[Loan] 21 Amount
and Terms
The request is for a [loan] of $[___] million from the [__insert funding
source__] of the Asian Development Bank (ADB) provided under ADBs
London interbank offered rate (LIBOR)-based lending facility, with a (--)
year term including a grace period of (--) years, an interest rate
determined in accordance with ADBs LIBOR-based lending facility, and
such other terms and conditions as agreed in the FFA, and further
supplemented under the [Loan and Project, or other] Agreements. 22
Period of
Loan/Guarantee
Utilization
The [components] [projects] are expected to be completed by

(_______). No disbursements from the [loan] [grant] account will be
requested or made later than (---------).
Advance
Contracting
Advance contracting is requested for [___________]
Retroactive
Financing
Retroactive financing is requested for [the eligible expenditures], not

exceeding the amount of (__________), incurred before loan
effectiveness, but not earlier than 12 months before the signing of the
legal agreement.
21
22
Amend as appropriate for the conversion instrument, e.g., grant, guarantee, or administration of any cofinancing.
This should be suitably revised based if the source of funding is ADF or if the loan is in local currency.
OM Section D14/OP
Appendix 3
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OPERATIONS MANUAL
Implementation
Arrangements
The Executing Agency will be the (_____________). [Describe detailed

implementation arrangements in the context of the Facility
Administration Manual. A separate project administration manual may be
prepared for the purpose of each tranche, in such case, indicate 'a
project administration manual has been prepared for this tranche']
Procurement and
Consulting
Services
The procurement plan is attached as Annex (--). Terms of reference for

the engagement of advisors under this tranche are attached as Annex (-).
Confirmation of
Continuing Validity
of and Adherence
to Provisions of
FFA, Previous
Agreements, and
the Design and
Monitoring
Framework
X confirms that the understandings set out in the FFA [and provisions
of previous [loan agreements] have been adhered, and remain true to
date.
Readiness of the
Project for
Implementation
[Specify the actions necessary and already accomplished that make the
[components] [projects] ready for financing.]
Summaries of feasibility studies, engineering designs and economic and
financial assessments are attached as Annex (--).
A summary of [proposed, on-going] advance actions are in Annex (--).
Safeguards
For first PFR. Attach and refer to required safeguard documents.
A full report on compliance is attached as Annex (--).
For second and subsequent PFRs. [Attach and refer to (i) report(s) on
the status of compliance with ADB's safeguard requirements
(environment, involuntary resettlement and indigenous peoples) for
previous PFR(s), and (ii) required safeguard documents for the second
and subsequent tranches.]
OM Section D14/OP
Appendix 4
Page 1 of 6
OPERATIONS MANUAL
MULTITRANCHE FINANCING FACILITY APPROVAL PROCESS

Milestones
Responsible
Persons
Actions
A. Processing a Multitranche Financing Facility and the first Periodic Financing Request 1
1.
Concept
clearance
Vice-president (as
per standard
business processes)
A concept paper for the entire facility is

prepared by the project team and submitted to
the vice-president for approval. A
reconnaissance mission may be fielded prior to
concept clearance approval.
The MFF as a whole is categorized as either
"low-risk" or "complex" based on criteria set
forth in Operations Manual Section D11.
2.
Fact finding
Project team
The project team conducts due diligence in

respect of the MFF constituents and the first
tranche. Draft safeguard frameworks for the
facility are discussed and agreed. Drafts of the
FFA, RRP (including FAM) and first PFR are
also discussed with the client. The safeguard
classifications of the project under first PFR are
confirmed. This will typically coincide with the
interim review of the feasibility study and/or
project preparatory technical assistance.
The facility administration manual is agreed
upon with the client. The manual will fully
articulate the implementation arrangements.
3.
Management
review meeting
(MRM) applicable to
MFFs classified
as "complex"
and/or category A
first tranches for
safeguards.
Vice-president
Cross-departmental and sector-focused reviews

on the draft RRP (including FAM), FFA and loan
agreements for the first tranche are conducted
prior to quality assurance meetings. Safeguards
categorization for the first tranche is confirmed.
SPCM is issued for first tranches categorized A
for safeguards.
Consideration of key issues and specific
recommendations or guidance on content and
structure are discussed at the MRM.
At the MRM, the vice-president considers the
If PFR 1 is accompanied by another PFR, the two will be processed together as provided herein.
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Appendix 4
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OPERATIONS MANUAL
Milestones
Responsible
Persons
Actions
draft RRP (including the FAM and other linked
documents), FFA, first PFR, and draft legal
agreements, checks on all preconditions and
status of the recommendations made at MRM,
and then decides whether (i) to proceed with
negotiations of the FFA and the legal
agreements, or (ii) to conduct follow-up
missions and/or SRM.
Minutes of the MRM are signed off by the
director general and copied to the responsible
vice-president.
4.
Staff review
meeting (SRM) applicable to
MFFs classified
as "low-risk" and
first tranches
categorized other
than A for
safeguards.
Director general
The draft RRP (including FAM and other linked

documents), FFA, first PFR, and the legal
agreements are circulated by the project team
for cross-departmental and sector-focused
reviews.
At the SRM, the director general considers the
draft RRP (including FAM and other linked
documents), FFA, first PFR, and draft legal
agreements, checks on all preconditions and
status of the recommendations made at SRM,
and then decides whether (i) to proceed with
negotiations on the FFA and legal agreements
for the PFR, or (ii) to conduct follow-up missions
and/or a second SRM.
Minutes of the SRM are signed off by the
director general and copied to the responsible
vice-president.
5.
Follow-up
mission
Project team
The project team completes the due diligence

process and updates draft RRP (including FAM
and other linked documents), FFA, first PFR,
and draft legal agreements. The draft FFA and
first PFR are attached to the mission's MOU or
aide-memoire.
Although unlikely to occur in the case of a
complex MFF, this mission may, where
possible, be combined with loan negotiations.
6.
(Second) SRM
optional
Director general
As guided by the MRM or SRM minutes, a

further SRM may take place.
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OPERATIONS MANUAL
Milestones
Responsible
Persons
Actions
The revised draft RRP, FFA, first PFR, and the

legal agreements are circulated by the project
team for cross-departmental and sector-focused
reviews.
At the second SRM, the director general
considers the draft RRP (including FAM), FFA,
first PFR, and draft legal agreements, checks
on all preconditions and status of the
recommendations made at the first MRM and/or
SRM, and then decides whether to proceed with
negotiations on the FFA and legal agreements
for the PFR (unless a decision to proceed with
negotiations has already been made).
7.
Negotiation of
FFA, PFR, and
the legal
agreements
Execution of FFA
and PFR
Project team and

OGC
Director general or
authorized
representative (if
negotiations in
headquarters)
Country director or
authorized
representative (if
negotiations incountry)
FFA, first PFR, and legal agreements are

negotiated, together with the RRP and FAM.
ADB signs the FFA; the client signs both the
FFA and the first PFR. In exceptional cases, the
FFA may be signed after Board approval. In
these cases, the relevant RRP should discuss
the circumstances which prevented the FFA
from being signed; any material change must be
resubmitted to Board for approval.
8.
Editing RRP and

linked documents
Project Team
The project team leader submits the RRP and

the linked documents that require editing to
OSEC for editing and subsequently to OGC and
OSEC (in that order) for final clearance.
9.
Submission of
RRP, FFA, and
PFR for Board
consideration
President
The project team leader prepares a memo,

channeled through sector director, DG, VP and
President requesting approval to circulate the
RRP to the Board.
Board of Directors considers the proposal.
Approval of the
tranche, and
execution of legal
President
A memo is submitted to the President through

the vice-president requesting approval of the
tranche and the legal agreements.
10.
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Appendix 4
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OPERATIONS MANUAL
Milestones
Responsible
Persons
Actions
agreements
(i) The tranche and (ii) legal agreements, as
applicable, are signed by the President or the
authorized representative within 12 months of
the Boards approval of the MFF. Unless
otherwise agreed, the effectiveness of the
tranche is achieved within 3 months of signing.
B. Project Execution and Processing of Subsequent Tranches

1.
Project execution
EA
2.
Preparation of
subsequent
tranches
EA
3.
Submission of
PFR to ADB
Client and EA
Client sends PFR to director general.

The submission includes a government letter
and all relevant attachments required to assess
feasibility, detailed design and safeguards, as
relevant, defined in paras. 17 to 28.
4.
Draft PFR report

to management
Project team
Includes comprehensive information on the

proposed tranche; reports on ongoing tranche
implementation and the status of compliance
with the undertakings in the FFA and covenants
of the earlier legal agreement(s); provides
information on clients and/or EAs capacity; and
governance and policy issues; recommends
either approval or denial. Tranche risk
categorization is included in the PFR report to
Management, and an updated SPRSS and FAM
(or new PAM), if applicable.
The project team engages in dialogue with the

client, and monitors and reviews execution of
first tranche, preparation of subsequent
tranches, and the proposed safeguard
classifications. The project team works with the
client and/or its advisors on the road map, policy
framework, investment program, financing
arrangements, status of safeguards framework,
undertakings, etc. The client is regularly advised
to ensure consistency, completeness and
adherence to ADB policies and procedures.
DMFs are tracked and the reports prepared.
In parallel, safeguards categorization of the

tranche is conducted. For tranches classified as
OM Section D14/OP
Appendix 4
Page 5 of 6
OPERATIONS MANUAL
Milestones
Responsible
Persons
Actions
category B or FI, the operations department
reviews the IEE and/or EARF, resettlement plan
and/or resettlement framework, and/or IPP
and/or IPPF, or environmental and social
management system, respectively. For any
tranche classified as category A for any of its
environment, involuntary resettlement, or
indigenous peoples impacts, the operations
department reviews all safeguards documents,
and seeks comments on these documents from
RSES, which issues an SPCM before
Management considers the periodic financing
request (PFR) for the second and subsequent
tranches.
5.
Crossdepartmental
review
COSO, CTL, ERD,

IED, OGC, OREI (for
projects with regional
cooperation) and
OCO (for
cofinancing), RSES 2
To be completed in 5 working days. Project

team addresses points raised, brings them to
Managements attention, and submits the
revised PFR to the vice-president or director
general, with the draft legal agreements for this
tranche. Each agreement will carry the title of
the MFF and indicate the number of the
financing tranche (use Arabic numerals, e.g.,
tranche 2).
6.
Vice-president or
director general
reviews PFR
Vice-president
(applicable to
tranches categorized
"complex"),
or
director general
(applicable to
"lowrisk")
Special meeting with vice-president or director

general. The project team prepares an issues
note (summary of points for guidance and
decisions). The vice-president or director
general may engage other teams across ADB
as required. An SPCM is issued by RSES
before this stage for category A projects.
A decision to proceed with loan negotiations for
the specific PFR is made here or deferred to
MRM or SRM.
For any tranche classified as category A for any of its environment, involuntary resettlement, or indigenous peoples
impacts, the operations department reviews the EIA and/or EARF, resettlement plan and/or resettlement
framework, and/or the IPP and/or IPPF. The operations department seeks comments on these documents from
RSES, which issues an SPCM before the MRM for the first tranche and before Management considers the periodic
financing request (PFR) for the second and subsequent tranches. For any tranche classified as category B or FI,
the operations department reviews the IEE and/or EARF, resettlement plan and/or resettlement framework, and/or
IPP and/or IPPF, or environmental and social management system (ESMS), respectively.
OM Section D14/OP
Appendix 4
Page 6 of 6
OPERATIONS MANUAL
Milestones
7.
Optional
MRM/SRM
(Managements
discretion)
Responsible
Persons
Actions
Vice-President
(applicable to
'complex'),
or
Director general
(applicable to
'low-risk')
After reviewing the documentation with staff, the

vice-president may convene an MRM or the
director-general may convene an SRM if
considered appropriate. The issues note should
guide the decision-making process.
A decision to proceed with loan negotiations is
recorded in the minutes, signed by director
general and copied to vice-president.
8.
Communication
of Managements
decision and
invitation to
negotiate
Director general
Decision is communicated to the client.
9.
Negotiation of
documents
Project team and

OGC
Standard procedures. Changes, if any, to PFR,

are minuted or, alternatively, the client signs the
amended PFR.
Updated FAM and/or project administration
manual for the specific tranche are negotiated.
10.
Submission of
documents to
Management
President
Submissions for President's approval should

specifically request approval of (i) the tranche,
(ii) and legal agreements, as applicable.
11.
Approval of
tranche and
execution of legal
agreements
President
Standard procedures
ADB = Asian Development Bank, COSO = Central Operations Services Office, CTL = Controllers Department, DMF = design
and monitoring framework, EA = executing agency, ERD = Economic Research Department, FAM = facility administration
memorandum, FFA = framework financing agreement, IED = Independent Evaluation Department, MFF = multitranche
financing facility, MOU = memorandum of understanding, MRM = management review meeting, OCO = Office of Cofinancing
Operations, OGC = Office of the General Counsel, OREI = Office of Regional Economic Integration, OSEC= Office of the
Secretary, PFR = periodic financing request, RSES = Regional and Sustainable Development Department, Environment and
Social Safeguards Division, SPCM = safeguard policy compliance memorandum, SRM = staff review meeting.
OM Section D2/BP
Page 1 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
LENDING AND GRANT POLICIES
(Asian Development Fund)
A.
Introduction
1.
states that the operations of the Asian Development Bank (ADB) consist of ordinary operations
and special operations. The former are financed from ordinary capital resources (OCR) and the
latter from Special Funds resources. Articles 19 and 20 of the Charter provide for the
establishment and utilization of Special Funds resources.
B.
Definition
2.
The Asian Development Fund (ADF), established in 1974, is a Special Fund under the
Charter for carrying out concessional lending1 and grant2 operations. ADF is subject to the
Regulations of the Asian Development Fund (ADF Regulations), as amended from time to time.3
C.
The Policy
1.
Eligible Recipients
3.
ADB provides loans and grants from ADF to developing member countries (DMCs).
Access to the concessional terms of ADF assistance are based on country considerations, and
the benefits of concessionality are intended to accrue to the DMCs. Country eligibility is
determined in accordance with ADBs graduation policy,4 but ADF donors may choose to limit a
DMCs access to ADF resources regardless of eligibility. The actual allocation of ADF resources
and eligibility for grants are determined in accordance with ADBs policy on performance-based
allocation for ADF resources and the ADF grant framework.5
4.
The Charter and ADF Regulations also allow ADB to provide loan or grant financing from
ADF to (i) an agency, instrumentality, or political subdivision of a DMC; (ii) an entity or
enterprise operating in the territory of a DMC; or (iii) an international or regional agency or entity
concerned with the economic development of the region.
1
2
3
4
5
ADB. 2006. Special Operations Loan Regulations. Manila (1 January).

ADB. 2005. Special Operations Grant Regulations. Manila (7 February).
ADB. 2009. Regulations of the Asian Development Fund. Manila (27 April).
See OM Section A3 (Performance-Based Allocation of Asian Development Fund Resources).
OM Section D2/BP
Page 2 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
2.
Expenditures Financed
5.
ADF loans and grants finance the foreign exchange costs and local expenditures of
projects, subject to the rules on cost sharing and eligibility of expenditures.6
3.
Terms of Lending7
6.
For Group A DMCs: Project loans financed from ADF resources have a fixed-term, 32year maturity including a grace period of 8 years, a 1.0% interest charge during the grace period
and 1.5% during the amortization period, and equal amortization. Policy-based loans from ADF
resources have a fixed-term, 24-year maturity including a grace period of 8 years, a 1.0%
interest charge during the grace period and 1.5% during the amortization period, and equal
amortization.
7.
For Group B DMCs: Project loans and policy-based loans financed from ADF resources
have a fixed-term, 25-year maturity including a grace period of 5 years, a 2.0% interest charge
throughout the loan maturity, and equal amortization.8
8.
The terms of loans committed from ADF resources may be adjusted to reflect changes in
a countrys economic circumstances. Accordingly, if (i) the per capita gross national product of
the country has remained above the ADF eligibility threshold for 5 consecutive years, and (ii) the
country has achieved the capacity to repay debt on OCR terms, ADB may modify the terms of
repayment of the loan by increasing by 100% the amount of each maturity due thereafter until
the principal amount of the loan has been fully repaid. In lieu of such an increase in maturity
amounts, ADB may, at the request of the borrower, charge a higher interest rate on the loan
amount disbursed and outstanding balance, provided that the resulting grant element is the
same as it would be under the above-stated increase of maturity amounts. No adjustment of
terms may be considered during the grace period. Where, after such an adjustment in terms, a
countrys economic conditions deteriorate, ADB has the flexibility to allow the country to revert
to its original repayment schedule and interest charges.
4.
Prepayment of Loan
9.
A borrower can repay all or part of a loan in advance of the maturity specified in the
Loan Agreement by giving notice to ADB 45 days in advance and upon payment of all accrued
interest charges. ADB can reduce or waive the 45-day notice. There is no premium on
prepayment of ADF loans. On the date of prepayment of a portion of a loan, no portion of the
loan is to mature after the portion to be prepaid.
6
7
This does not affect the lending terms of emergency assistance loans. See OM Section D7 (Disaster and
Emergency Assistance). For the interest rate of the hard-term facility, see OM Section A3 (Performance-Based
Allocation of Asian Development Fund Resources).
The lending terms will be applicable to loans for which formal loan negotiations are completed on or after 1 January
2013.
OM Section D2/BP
Page 3 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
5.
Procurement
10.
Loan and grant proceeds from ADF are to be used for procurement, only in the territories
of contributors to ADF and of DMCs of ADB, of goods, works, and services supplied from and
produced in such territories.9
6.
Relending Terms
10.
Relending becomes necessary when the proceeds of an ADF loan or grant are loaned to
a beneficiary that is not the direct borrower or grantee of the ADF financing. The terms of
relending depend on the nature of the beneficiary, while maintaining the principle that the
benefits of the concessionality of ADF assistance should accrue to the DMC. ADB may allow
relending on the same terms as those of the ADF loan, if the beneficiary is a government
agency or instrumentality entrusted with implementing special social and economic policies of
the government. If the beneficiary is a commercially operated public corporation, relending is
generally to be on terms harder than those of the ADF financing, using the terms of lending from
ADBs ordinary capital resources as the minimum acceptable relending terms. If the beneficiary
is a private entity, the cost of external capital and the prevailing borrowing terms in the local
market as reflected in the interest rate structure of the DMC concerned are the major factors in
determining the relending terms. In all these cases, the proceeds of the ADF loan or grant may
be provided to the beneficiaries on terms more concessional than those determined on the
above basis, or in the form of equity capital, in circumstances to be specifically justified. The
justification depends on the special economic or social nature of the project and the need to
strengthen the financial position of the beneficiary. For ADF loans, an additional factor in the
determination of relending terms is whether the foreign exchange risk is borne by the borrower
or the beneficiary. In cases where such risk is borne by the borrower, a reasonable fee, included
in the relending spread, may be charged by the borrower under the relending terms.10
Basis:

ADB. 2012. Doc. R78-12. Tenth Replenishment of the Asian Development
Fund and Fifth Regularized Replenishment of Technical Assistance Special
Fund. Manila (5 June).
ADB. 2009. Regulations of the Asian Development Fund. Manila (27 April).
ADB. 2009. Doc. R59-09. Establishing the Legal Framework for the Use of
Asian Development Fund Resources for Grants. Manila (6 April).
9
10

See OM Section H7 (Foreign Exchange Risk).
OM Section D2/BP
Page 4 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
ADB. 2005. Doc. R359-05. Proposed Revisions to the Regulations of the

Asian Development Fund and the Special Operations Loan Regulations.
Manila (5 December).
ADB. 2005. Doc. R56-05. Proposed Revisions to the Asian Development
Fund Regulations and Adoption of Special Operations Grant Regulations.
Manila (21 January).
ADB. 1998. Doc. R205-98. Review of the Loan Terms for the Asian
Development Fund. Manila (23 November).
Compliance:
For inquiries:
Questions may be directed to the Performance-Based Allocation Focal Point,

26 March 2013

OM Section D2/OP
Page 1 of 1
OPERATIONS MANUAL
LENDING AND GRANT POLICIES
(Asian Development Fund)
26 March 2013

OM Section D3/BP
Page 1 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
SECTOR LENDING
A. Introduction
1.
Sector lending is a form of ADB assistance to a developing member country
(DMC) for project-related investments based on considerations relating to a sector or
subsector of the DMC as a whole. The purpose of a sector loan is to assist in the
development of a specific sector or subsector by financing a part of the investment in the
sector planned by the DMC. Such lending is particularly appropriate when a large
number of subprojects in the sector or subsector are to be financed. A sector loan is
expected to improve sector policies and strengthen institutional capacity.
B. Definitions
2.
The term subprojects refers to projects that make up a sector loan.
3.
The term capacity refers to the broad institutional framework within a DMC that
is responsible for the direction, management, and sustenance of the development
process in a sector or in the economy as a whole. Capacity dictates a countrys
receptivity to policy reform and adjustment; its ability to raise and manage domestic
resources; its efficiencies and effectiveness in creating necessary infrastructure,
maintaining it, and delivering required services; and its openness and skill in catalyzing
participation.
C. The Policy
1. Eligibility Criteria
4.
Certain criteria need to be satisfied in order to meet ADBs policy on sector
lending:
(i)
the borrowing DMC has a sector development plan to meet the priority
development needs of the sector;
(ii)
the borrowing DMC has the institutional capacity to implement the sector
development plan; and
(iii)
the policies applicable to the sector are appropriate and will be improved,
if warranted.
5.
If these criteria are not met adequately, technical assistance (TA) may be given
for project preparation, sector analysis, and capacity building before or together with the
provision of a sector loan.
OM Section D3/BP
Page 2 of 4
6.
Sector lending is expected to achieve a greater impact on a sector than standalone project lending by enabling an integrated focus on sector policies, sector
development perspectives, and sector development plans, and on the adequacy of
institutions to formulate and manage such plans for the sector as a whole. Sector
lending assists a DMC to achieve economic and social progress in a sector or subsector
through project-related investments in a geographic area (area slice), over a period of
time (time slice), or both, based on considerations relating to the sector as a whole.
2. Sector Analysis
7.
Sector projects need to be supported by a comprehensive sector analysis that
covers the factors that affect performance, including the policy, institutional, legal, and
regulatory frameworks; recent trends in current and capital expenditures; the type and
composition of the expenditures; the respective roles of the public and private sectors
and their relationships; pricing policy; the sustainability of investments; and the
possibility of intrasectoral resource allocation. Such analysis also needs to address
social dimensions, environmental considerations, and issues of good governance in
sector management. Where feasible, the analysis needs to establish well-defined
indicators and benchmarks of sector performance that can be monitored throughout
implementation of the sector project, and serve as a basis for assessing performance
and also for operations evaluation. Where the necessary analysis and information are
available and of good quality, these also serve as a basis for the formulation of sector
projects.
3. Institutional Analysis and Capacity Building
8.
The success of sector lending depends upon the capacity of the executing
agency in terms of investment planning, coordination, and implementation; postinvestment operation and maintenance; and the involvement of private, voluntary, and
community institutions. Assessment of institutional capacity is therefore a prerequisite for
sector lending, to identify institutional shortcomings and their causes, leading to the
selection of suitable advisory TA to remedy the constraints and enhance the capacity of
institutions and their performance.
9.
In the context of sector lending, institutional analysis is to be carried out before
the provision of the sector loan to assess levels of efficiencies and effectiveness in the
executing agency and to plan capacity-building measures as required. While the
assessment of institutional capacity remains a value judgment for ADB, three broad
conditions underpin a decision to proceed with sector lending without capacity building.
The overall assessment of institutional capacity must be positive. This means that the
executing agency is willing and able to take the lead. There must also be acceptable
levels of capacity in project management, especially in terms of procurement and
financial management (including disbursement, accounting, and internal control
systems), as well as in environmental impact assessment and social analysis. In
addition, there must be reasonably well-developed and articulated strategies for the
sector, as a sector loan project cannot exist in a policy vacuum and cannot be just the
sum of all existing or intended expenditure programs.
OM Section D3/BP
Page 3 of 4
4. Lending Terms
10.
ADB lending terms are the same for a sector loan as for a project loan. The
terms of a sector loan from ordinary capital resources depend on the average life of the
subprojects and the typical implementation period. For a sector loan from the Asian
Development Fund (ADF), ADF's standard terms apply.
5. Use of Loan Proceeds
11.
Sector loan proceeds are utilized primarily to meet the foreign exchange costs of
subprojects making up the sector loan. Recurring costs (e.g., fuel, essential supplies)
and local currency expenditures of subprojects may also be financed under a sector loan
in accordance with ADBs relevant policies.1
6. Cost Recovery
12.
In revenue-earning subprojects of a sector loan, full cost recovery (including
depreciation and debt service) will be sought to the extent feasible. When benefits2 are
difficult to quantify (as in public health, population, education, and some other sectors),
the need for the subprojects should be evaluated and the least-cost option established.
1
2

See OM Section G1 (Economic Analysis of Projects).
OM Section D3/BP
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Basis:

ADB. 1999. Doc. IN181-99, Review of the Banks Sector Lending
Policies, July. Manila.
ADB. 1984. Doc. R186-84, A Review of Sector Lending Operations,
28 December. Manila.
ADB. 1980. Doc. R52-80, Sector Lending, 15 Day. Manila.
Compliance:
For inquiries:

29 October 2003

of the President.
OM Section D3/OP
Page 1 of 4
OPERATIONS MANUAL
SECTOR LENDING
A. Introduction
1.
ADB policy governing sector lending allows the use of this lending instrument
where the policy and institutional framework of a developing member country (DMC) can
be improved through a sector project. Conversely, the existence of an adequate policy
and institutional framework does not preclude the use of sector lending if ADB has a
meaningful role to play in filling the resource gap in a sector. Full application of ADB
policy and operational procedures governing sector lending generally entails strategic
integration of sector policy reforms, institutional development, and investments.
1. Procedural Aspects
2.
In processing a sector loan,1 the following procedures are to be followed:

(i)
The borrowing DMC submits to ADB: an acceptable medium or long-term

sector/subsector development plan); a statement on sector policies that
affect the development of the sector/subsector concerned; and an
assessment of the technical and managerial capabilities of the sector
institutions to develop, process, and implement projects.
(ii)
Subject to the general acceptability to ADB of the sector plan, policies,

and institutions, and prima facie justification for ADB assistance, a
mission holds discussions with the borrower to assess the sector
development plan, the financing needs of the sector, and the adequacy of
the institutional arrangements available or proposed for implementing the
sector loan; and to identify key sector policy issues including costrecovery aspects.
(iii)
Based on the findings of the mission, and after Management has cleared
the loan proposal, a mission determines the scope and amount of the
proposed sector loan; examines the availability and types of subprojects
for financing; assesses the technical and managerial capabilities of the
executing agencies, and whether technical assistance is needed;
formulates relevant technical, financial, and economic criteria for selection
and appraisal of subprojects, including social and environmental criteria;
Forward planning is necessary to identify sectors that are suitable for sector lending sufficiently in
advance for inclusion in the country strategy and program; to analyze sector issues in detail, and assess
the need and scope for capacity building and sector policy reforms; and to locate the sector loan project in
the right context.
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agrees on the threshold for approval of subprojects by ADB; assesses
institutional risks in regard to processing and implementing capabilities;
and assesses the scope for resolution of key policy issues, including costrecovery aspects, necessary to achieve sectoral objectives.
3.
The processing stages applicable for project loans2 also apply to sector loans.
2. Appraisal of Subprojects
4.
Under a sector loan, the borrower or the executing agency is primarily
responsible for identifying, prioritizing, formulating, appraising, approving, and
implementing subprojects in accordance with technical, financial, and economic
appraisal criteria, including social and environmental criteria, mutually agreed upon
between ADB and the borrower/executing agency. ADB will be minimally involved in
processing subprojects, except that in the initial phase, if deemed necessary, a few
subprojects may be appraised by ADB to serve as models. Based on the experience and
capability of the executing agency, a suitable threshold for appraisal of subprojects (in
physical or financial terms) may be established. Subprojects above the threshold should
be submitted to ADB for approval, while subprojects below the threshold may be fully
processed and approved by the borrower or the executing agency in accordance with
the agreed upon criteria. ADB, however, will review these subprojects on a selective
basis to ensure compliance with the agreed upon criteria.
5.
Flexibility will be available to the borrower/executing agency to replace some
subprojects with others prior to the start of their implementation or to reallocate funds
among components of ongoing subprojects. Prior ADB approval is required for
replacement of subprojects above the threshold.
3. Delegation of Authority
6.
A discriminating approach is to be adopted in delegating authority to executing
agencies that is in line with their institutional capacity and the complexity of the sector
projects envisaged. A review of overall performance and compliance by the executing
agency with set standards is to be conducted by ADB in the context of the yearly
assessment of progress in implementing the sectoral strategy.
4. Policy Dialogue
7.
Policy dialogue is an important means to reorientate government policies and
introduce reforms in the sector, where needed. Effective dialogue based on targeted
sector policy reforms assists in the design of a sector loan project, and in strengthening
local ownership and management.
5. Coordination
8.
ADB needs to consult with the World Bank, other multilateral development banks,
and major bilateral aid agencies when formulating sector projects. Coordination
particularly addresses the interface of the ADB-supported policy and investment
2
See OM Section D11 (Processing Loan Proposals).
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program with macroeconomic aspects. Coordination among major aid agencies
operating in a sector maximizes the complementarity of their assistance programs.
Where sector investment and maintenance lending by the World Bank ongoing,
consistency between the World Bank and ADB of sector policy reforms and capacity
building needs to be ensured. However, coordination does not preclude ADB or other aid
agencies from pursuing different policies.
6. Conditionality
9.
Well-designed loan covenants facilitate the borrowers and executing agencys
adherence to the agreed upon sector policy reforms, which contribute to a sector loan
projects success. Loan covenants therefore need to concentrate on the critical goals of
a sector loan project, be appropriately time based over implementation of the project to
avoid leaving the most difficult sector policy reforms until late in the sector project, and
be within the institutional capacity of the borrower. However, conditionality per se does
not guarantee success. It is accepted that policy conditionality is not a necessary
condition for sector lending, though it may be required in certain situations.
7. Procurement
10.
Goods and works financed under a sector loan are to be procured in accordance
with ADBs Guidelines for Procurement Under Asian Development Bank Loans.3 Besides
international competitive bidding, other procurement procedures such as international
shopping, domestic procurement, direct purchase, repeat order, and force account may
be followed, where appropriate.
8. Disbursement
11.
ADBs standard disbursement procedures4 are normally used. For qualified
executing agencies, ADB may agree to the use of an imprest account for payments of
goods and services related to subprojects, not exceeding 6 months estimated
expenditures; and the statement of expenditures procedures up to the free limit for
subprojects may also be used.
9. Supervision and Monitoring
12.
The borrower or its executing agency is responsible for the direct supervision of
subproject implementation and monitoring of subproject operations and performance.
ADB, however, reviews the execution of subprojects on a selective basis, monitors the
capability and performance of the executing agency, and assesses any change in
circumstances that may have a bearing on the sector development plan in general and
on the implementation and operation of the sector subprojects in particular.
3
4

See OM Section J6 (Loan Disbursements).
OM Section D3/OP
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Basis:

cited therein.
Compliance:
For inquiries:
Questions may be directed to the Director; Strategic Planning, Policy,

29 October 2003

of the President.
OM Section D4/BP
Issued on 1 April 2013
Page 1 of 12
OPERATIONS MANUAL
BANK POLICIES (BP)
POLICY-BASED LENDING
A.
Introduction1
1.
The Asian Development Bank (ADB) provides policy-based lending in the form of
budget support in conjunction with structural reforms and development expenditure
programs of a developing member country (DMC). It is also used to provide balance-ofpayments (BOP) assistance during economic and financial crises. ADB makes policybased loans only to DMC governments
2.
Policy-based lending may be either from ADBs ordinary capital resources (OCR)
or the Asian Development Fund (ADF); for financing from the ADF, policies regarding
ADF lending to DMCs apply.2
3.
Policy changes that improve growth prospects and economic efficiency are the
basis for policy-based lending to a DMC. Such policy reform along with the development
expenditure program, consistent with ADBs strategy for the DMC and with the DMCs
own development strategy and plans, is set forth in a policy statement by the DMC
government concerned in the form of a letter to the President of ADB. The program
outlined in that development policy letter (DPL) is the focus of ADBs support.
B.
Definitions
4.
The term sector in the context of policy-based lending is to be understood in the
broad sense of the word. In addition to the traditional concept of a sector characterized
by production of particular goods or services (such as the agriculture, industry, and
service sectors), the term may also cover subsectors of more limited scope, or relate to
a cross-cutting sector addressing economy-wide themes or ownership (such as the
private sector and a public sector) with possible macroeconomic implications.
5.
In general, policy-based loans (i) are linked to the implementation of policy
reforms, and are disbursed quickly, and (ii) have sector-wide and economy-wide impact.
6.
A negative import list specifies imports that are excluded from financing under
the loan, either by item or by specification of the Standard International Trade
Classification. All items not listed may be financed under the loan. In contrast, a positive
import list specifies eligible imports for financing under the loan.
1
2
Review of the policy-based lending implementation is envisaged to be initiated in about 2016.

See OM Section D2 (Lending and Grant Policies [ADF]).
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OPERATIONS MANUAL
BANK POLICIES (BP)
C.
The Policy
7.
Policy-based lending supports sectoral and intersectoral development programs
in a DMC. It involves adjustments to policies and investment plans, and capacity building
of institutions. The program addresses underlying constraints that are sector-wide or
intersectoral, or have a bearing on links between sectors and the macroeconomy.
8.
Policy-based loans, as well as sector development programs (SDPs),3 must be
targeted at sectors in which the government is firmly committed to reform. Strong
government ownership of the reform program is essential. Policy-based lending should
also be limited to areas where ADB has or can readily acquire the requisite experience
to provide well-founded advice on the formulation and implementation of reform
programs.
9.
A DMCs experience in implementing policy conditions attached to project and
sector loans in the same sector, and implementation experience with past policy-based
loans, are important factors for planning further policy-based lending. This should cover
not only the status of tranche release of ongoing policy-based loans in the DMC, but also
post-evaluation results of completed policy-based and project or sector loans. Where
serious problems were experienced with other policy-based loans in the same DMC,
processing of further policy-based loans or SDPs needs to be particularly well justified,
and will be contingent on substantial front-loading of the relevant conditions.
D.
Scope of the Policy
10.
ADB has four policy-based lending products, each catering to a different situation
in a DMC. Stand-alone policy-based lending provides budget support and is typically
packaged as a multitranche loan to support structural reforms in a particular sector. The
program is short- to medium-term, and formal links to other programs are not envisaged.
The second policy-based lending product, the programmatic approach, is ADBs primary
mode of policy-based lending that is provided in conjunction with structural reforms over
a medium-term time frame. Programmatic budget support finances a series of
subprograms, each of which should be designated as a fully front-loaded single-tranche
intervention. The programmatic approach can take the form of chronologically
sequenced packaging (over time), vertical packaging (across levels of government), and
horizontal packaging (intersectoral). The third policy-based lending product, special
policy-based lending (SPBL), is used for emergency BOP support to a DMC in times of
payments crisis. It is short-term, large, and quick disbursing with nonstandard lending
terms, and it focuses on actions to reduce the severity of the crisis.4 The fourth policybased lending product is a loan from the Countercyclical Support Facility (CSF), which
3
4
See OM Section D5 (Sector Development Programs).

Exceptional assistance under SPBL would typically be provided in a crisis situation where a large
international rescue package led by International Monetary Fund is being mounted in one or more of
ADBs DMCs to help restore stability. Another dimension that would justify ADB intervention is when the
crisis has significant structural dimensions and is likely to have significant negative social impact.
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OPERATIONS MANUAL
BANK POLICIES (BP)
provides budget support to facilitate a DMCs fiscal stimulus at the time of the economic
crisis. It has the pricing and terms scheme equivalent to the SPBL. Stand-alone policybased lending and the programmatic approach form part of the assistance package
contained in a country partnership strategy (CPS) or indicative rolling country operations
business plan for a DMC. However, because a crisis is often hard to anticipate, SPBL
and CSF lending are not planned in advance.5 An SPBL and a CSF loan can lead to
subsequent planned stand-alone policy-based lending and/or programmatic approach
operations during the recovery phase following a crisis. Technical assistance (TA)6 may
also be attached to all policy-based lending products to study major policy issues and to
strengthen key sector institutions.
11.
Stand-alone policy-based lending and the programmatic approach, as well as
SPBL where applicable, are based on comprehensive sector analyses that identify
structural constraints to sector development, and on policy dialogue with the government
to determine the means to address these constraints. The program resulting from the
sector studies and policy dialogue must have the full commitment of the government, be
consistent with ADBs CPS for the DMC concerned, coincide with the DMCs
development plans and priorities, and be closely coordinated with other major
development agencies. Macroeconomic policy dialogue and assessment are essential
for CSF operations.
1.
Stand-Alone Policy-Based Lending
12.
Stand-alone policy-based lending for budget support is normally used to improve
the policy environment for enhanced sector efficiency and for higher returns on
investment. Structural reforms seek to improve the efficiency and amount of investment
in a sector by (i) enhancing resource mobilization through increasing cost recovery,
reducing or eliminating subsidies, and rationalizing interest rates; (ii) improving the
allocation of resources by lowering barriers; and (iii) promoting efficient resource use by
increasing competition and private sector involvement. Where policy adjustments are
required in a particular sector over an extended period, a succession of stand-alone
budget support loans may be considered to sustain the process.
2.
Programmatic Approach
13.
The programmatic approach is designed to provide more effective and flexible
ways of translating complex objectives of structural reforms into implementable policy
actions. The programmatic approach recognizes imperfections in information and its
availability, and allows for flexibility in designing policy packages. The logical links
between the packages are captured in a programmatic approach concept paper. Sound
policy and institutional settings that help improve the economic welfare within a country5
Incremental resource mobilization for SPBL and CSF lending should be permitted exceptionally during a
crisis and only to the extent that it does not hinder ADBs risk-bearing capacity. The minimum long-term
equity-to-loan ratio of 25% is expected to be preserved.
6
OM Section D12 (Technical Assistance).
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OPERATIONS MANUAL
BANK POLICIES (BP)
specific context are prerequisites for making financing commitments under the
programmatic approach.
14.
The first type of programmatic approach, the chronologically sequenced
packaging of policy reforms, allows for phasing in reforms over an adequate period in a
coherent yet flexible framework. The programmatic approach enables (i) the capacity to
deliver policy reform to be matched with the intended policy change; (ii) changes to be
made in nontraditional areas of policy where solutions are not obvious; (iii) solutions to
policy issues to be reframed in response to changes in the external environment; and
(iv) incentives to be balanced sequentially throughout the program cycle to sustain
commitment and ownership to change.
15.
Chronologically sequenced packaging is characterized by (i) a coherent reform
strategy with discrete subprograms linked as a program; (ii) a link between satisfactory
performance under the current subprogram and the decision to proceed with a
successive subprogram ; and (iii) the provision of flexibility, which enables experience
and changes in the external environment to be incorporated in downstream
subprograms.
16.
The second type of programmatic approach, the vertical packaging of policy
reforms, is a variant of the chronologically sequenced package. It is based on the
understanding that the implementation of certain types of policy objectives will involve
several levels of government and that follow-through will be required at each level over
an adequate time frame. Vertical packaging of policy reforms allows for concurrent
implementation of logically linked subprograms across several levels of government and
provides the means of managing the complexity and dynamics of multilevel policy
change. Concurrent implementation in this type of programmatic budget support should
be structured to avoid a top-down approach in implementing policy change, and to
ensure that a constraint at a particular level of government does not impede
implementation of the other subprograms of reform while the constraint is addressed at
the source. Each of the subprograms should be designed to link the policy instruments,
actions, and institutional arrangements at a particular level of government. While
implementation of some of the subprograms may occur concurrently, others may be
implemented subsequently based on the experience gained with the initial subprograms.
17.
The third type of programmatic approach, the horizontal packaging of policy
reforms, is another variant of the chronologically sequenced packaging, involving crosssectoral policy goals. In horizontal packaging, policy change would be undertaken
simultaneously and followed through in a number of sectors to achieve a common goal.
This approach may be used to address thematic policy change where solutions to
problems are multifaceted and have substantive policy and investment requirements that
are mutually reinforcing.
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OPERATIONS MANUAL
BANK POLICIES (BP)
3.
Special Policy-Based Lending
18.
Extraordinary financial crisis situations, principally as a feature of globalized
capital markets, can reoccur and be unexpected. Large reversals of capital flows and
marked unexpected swings in relative prices require very sizable resources to restore
stability. A protracted recovery phase is likely to ensue after stability has been restored,
during which period the structural weaknesses that precipitated the crisis are addressed.
19.
Typically, these crises are likely to affect DMCs at a more advanced stage of
development: emerging market economies that are OCR eligible or those that have
graduated. The special characteristics of crisis-related lending, particularly its
unanticipated character and exceptional scale, and the associated credit risk require
adequate risk-bearing capacity at the side of ADB to back up such lending. The SPBL is
used to address payments crisis situations by providing large-scale BOP support as part
of an international rescue effort, usually including the International Monetary Fund (IMF)
and the World Bank. To avail itself of assistance under an SPBL, a DMC must be OCR
eligible. 7 Countries that have graduated from regular ADB assistance are eligible for
SPBLs.
4.
Countercyclical Support Facility Lending
20.
A severe financial crisis may adversely affect the business cycle of the real
economy and trigger a broader economic crisis. The CSF provides budget support to
DMCs undertaking fiscal stimulus for growth in the form of countercyclical development
expenditures.8 CSF lending has features similar to those of SPBL, such as accessibility
to OCR-eligible countries only and the requirement to secure adequate risk-bearing
capacity at ADB. However, given its purpose to provide budget support for fiscal
stimulus, rather than BOP support to DMCs with payment difficulties, the CSF requires a
DMC to have a countercyclical development expenditure/policy program (investment in
public infrastructure or a social safety net scheme), rather than the international rescue
package. Countries that have graduated from regular ADB assistance are eligible for
CSF lending.
21.
While the CSF lending takes the form of a single-tranche operation, its
precautionary financing option (PFO) allows a borrower to postpone drawing a loan for a
defined drawdown period after the loan agreement has been declared effective, and
served as an effective contingency financing scheme during the crisis.9 The PFO can be
implemented within ADB's existing policy for policy-based lending, and may be executed
when the context warrants contingent support. A country may exercise the PFO
7
SPBL and CSF lending are not proposed for ADF-only borrowers.
A loan from the CSF is aimed at making up for lost aggregate demand at the time of economic crisis and
containing its adverse impacts on growth.
9
Given the potential impacts on ADBs risk-bearing capacity, the PFO can be proposed only with prior
clearance by the Strategy and Policy Department, Treasury Department, and Office of Risk Management.
8
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OPERATIONS MANUAL
BANK POLICIES (BP)
drawdown, particularly but not exclusively when the market condition reaches a certain
threshold.
5.
Identification
22.
Identification of policy-based loans is made in the context of ADBs CPS for the
DMC concerned to achieve medium-term objectives in a particular sector or across
sectors. SPBL and CSF lending can be identified only when a crisis arises. The decision
to initiate preparation of policy-based loans requires a comprehensive assessment of
sector or cross-sectoral issues and their analyses. Full commitment by the government
to institute a reform program is a prerequisite for a policy-based loan, as are the ability
and political will to implement the needed reforms. In addition, the reform program must
merit ADB support on account of its scope and strength, and the policy-based lending
must facilitate and accelerate implementation of the reform program.
6.
Sector Analysis
23.
Comprehensive sector or intersectoral studies are a prerequisite for considering
stand-alone policy-based lending and the programmatic approach.10 A problem analysis
should be conducted as part of the summary sector assessment linked to the report and
recommendation of the President (RRP). The analysis is expected to help clients identify
the most binding constraints to development and hence streamline the conditions
attached to policy-based lending. The RRP should briefly explain how ADB contributed
to the design and implementation of the government-owned reform package, including
TA support (if applicable), and present a summary of the envisaged reform impacts. In
addition to policy issues, the sector or intersectoral studies are to address social and
environmental issues, 11 the relative roles of the public and private sectors, and
institutional development needs. TA may be processed with the policy-based loan to
study unresolved policy issues or to strengthen the capacity of key sector institutions.
24.
An assessment must be carried out of the impact of the proposed sector reforms
on the poor and other vulnerable groups. Where a reform program entails adverse shortterm impacts on the poor or other vulnerable groups, the policy-based loan must seek to
include mitigating or offsetting measures to the extent feasible. When applicable,
counterpart funds generated by the foreign currency disbursed under the loan may be
used for this purpose.
10
This does not mean that a formal sector study must necessarily be carried out by ADB. Where the
necessary information is already available, for example through ongoing sector work by ADB or studies
carried out by other institutions, these may serve as a foundation for policy-based loan formulation.
11
For environmental and social safeguards, the Safeguard Policy Statements provisions on program
lending should apply. Strategic environmental assessment may be usefully applied where appropriate.
ADB. 2009. Safeguard Policy Statement. Manila. See OM Section F1 (Safeguard Policy Statement).
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OPERATIONS MANUAL
BANK POLICIES (BP)
7.
Fiduciary Safeguard
25.
Since general budget support under stand-alone policy-based lending and
programmatic approach are absorbed into a DMCs public expenditures in the form of
counterpart funds of loan proceeds, fiduciary arrangements need to be in place to
ensure efficient utilization of overall resources through sound public financial
management. Hence, knowledge of the public financial management environment in the
country should be supported by up-to-date diagnostic work. Risk assessments, as
mandated by the Second Governance and Anticorruption Action Plan,12 are to be carried
out at the country, priority sector, and program levels to evaluate public financial
management, procurement, and corruption issues. The country-level assessments can
serve as an important evaluation of country systems, and the CPS needs to describe the
extent of fiduciary risks to budget support. 13 When the available analysis identifies
weaknesses in the borrowers budget management system, ADB should identify the
additional steps needed to secure sound fiduciary arrangements for policy-based
lending. In such a case, the policy matrix should designate conditions for prior actions to
improve budget performance, such as allocative or expenditure efficiency.
8.
Macroeconomic Link and Aid Coordination
26.
A policy-based loan must take into account the link between the loan and the
macroeconomic conditions in the DMC. The direction of macroeconomic policies must
be deemed satisfactory before a policy-based loan can be considered. Also, the effects
of untied capital inflows on the money supply and exchange rate must be considered.
ADB is to systematically consult and closely coordinate with the IMF, the World Bank,
and, where applicable, other multilateral development banks, and major bilateral funding
agencies in formulating and implementing policy-based loans. Aid coordination must in
particular address the interface of the ADB-supported program with macroeconomic
aspects, including the adequacy of the macroeconomic framework for successful
implementation of the program, and the potential impact of the latter on the abovementioned macroeconomic variables. At the same time, there should be efforts to
mobilize cofinancing.
27.
Proper macroeconomic policy management is a prerequisite for CSF operations.
Individual CSF loan proposals should be screened based on an objective set of access
criteria, comprising (i) the adverse impact of the global economic crisis; (ii) planned
countercyclical development expenditures for poverty reduction; and (iii) sound
12
ADB. 2006. Second Governance and Anticorruption Action Plan. Manila. See OM Section C4
(Governance).
13
To this end, the public expenditure and financial accountability assessment could be a good point of
reference where available. The public expenditure and financial accountability program was founded in
December 2001 as a multi-donor partnership to strengthen recipient and donor ability to (i) assess the
condition of country public expenditure, procurement, and financial accountability systems; and (ii) develop
a practical sequence of reform and capacity building actions.
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OPERATIONS MANUAL
BANK POLICIES (BP)
macroeconomic management, including a sound fiscal position.14 ADB shall confirm the
debt sustainability of the CSF borrower, including potential impacts of the prospective
CSF loan. Article IV consultations with the IMF should have been conducted within the
previous 18 months, and its findings should provide inputs for the review of
macroeconomic policy and public finance of the potential CSF borrower. An IMF
assessment letter should be secured before Board consideration.
9.
State- or Provincial-Level Policy-Based or Subprogram Loans
28.
Policy-based lending (including subprogram loans) at the state or provincial
levels may be considered selectively in DMCs where sufficient policy autonomy exists at
these levels of government, and where there are no legal or administrative impediments
to such loans. The ability of these levels of government to address all relevant sector
issues, and the full concurrence of the national government and the state or provincial
level government, are required for this approach.
10.
Tranching
29.
A policy-based loan is divided into multiple tranches if major elements of the
structural reforms are to be introduced after the loan agreement becomes effective.
Multiple tranches enable ADB to monitor and expedite phased program implementation.
The program period and number of tranches are determined case by case. Singletranche loans may be considered if the most important reforms can be implemented
before effectiveness.
30.
Considerable importance in policy-based lending is attached to the proper timing
and sequencing of reforms. Tranche conditions must be formulated with a view to
optimizing the sequencing of reform steps, as well as minimizing short-term costs of
adjustment. The policy matrix should be used as a flexible implementation guide15 for
assessing whether intended objectives were substantively achieved, and conditionality
should be streamlined. Staff should adopt a flexible approach to conditions in policybased loans, and apply the following good practice principles in the design and
implementation of conditionality in policy-based loans: (i) conditions should reinforce
country ownership, (ii) they should be agreed with the government and linked closely to
national development strategies, (iii) only a minimum number of actions critical for
removing or mitigating binding constraints should be selected as conditions, and (iv)
transparent progress reviews that contribute to predictable and performance-based
financial support should be conducted regularly. Not all structural reforms that are
14
Any assessment of qualification involves a degree of judgment. The assessment of the qualification
criteria will need to take into account the diversity in DMCs' circumstances and the uncertainties
underpinning economic projections. Strong performance against all relevant criteria would not be
necessary to secure qualification under the CSF. However, significant shortcomings on one or more of
these criteriaunless there are compensating factors, including corrective policy measures under way
could generally signal that the DMC is not among the strong performers for whom the CSF is intended.
The state of net resource transfers to DMCs should be taken into account.
15
ADB. 2009. Program Lending Policy: Clarification. Manila.
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beneficial in the long run should be undertaken in the midst of the crisis addressed by
SPBL. Because the CSF is a countercyclical response at the macroeconomic level, the
policy matrix listing structural reform conditionality at the microeconomic level is not
required.
31.
In view of the dislocations often caused by drastic policy changes and the
sometimes adverse short-term impact of reform on specific groups, ADB can, where
justified, support an incremental pace of reform. This may be accomplished through a
succession of policy-based loans in a sector, or through the adoption of a longer time
frame together with multiple tranches.
11.
Loan Amount
32.
The overall loan size for stand-alone policy-based lending and programmatic
budget support should be determined by the development financing needs of the country
at the broad macroeconomic level. 16 Additional reference should be made to more
specific elements of the development expenditure programs17 (within the entire public
finance) supported by counterpart funds 18 of ADBs policy-based loan proceeds and,
where relevant, other supports provided by development partners. A clear basis for
determining the loan amount based on the overall and sector-specific requirement of the
DMC should be presented. Lending to each country under the CSF is capped at $500
million for each crisis episode.
12.
Loan Terms
33.
Stand-alone policy-based loans and subprogram loans under the programmatic
approach from OCR have a 15-year maturity including a 3-year grace period. ADBs
London interbank offered rate (LIBOR)-based loan lending terms19 apply. The terms for
standard policy-based loans and subprogram loans under the programmatic approach
16
The loan amount should be determined individually to accommodate country-specific circumstances,

including overall projected budgetary (or BOP-related) financing requirements, the availability of
alternative financing, and debt sustainability at the macroeconomic level. As appropriate, development
financing needs as reflected in the key macroeconomic indicators, such as the budget deficit (or current
account deficit), should be referenced.
17
The development expenditure program supported by the CSF is primarily aimed at stimulating the
aggregate demand and, in principle, should include investment in public infrastructure or a social safety
net scheme targeting the poor or vulnerable group. The development expenditure program supported by
other forms of budget support (stand-alone policy-based lending or programmatic budget support) has
broader objectives of contributing to the acceleration of the economic development.
18
No specific rules are possible for use of counterpart funds generated from policy-based loans. Each
policy-based loan RRP should take into account country-specific circumstances, particularly the budget
mechanism and accounting environment. Where relevant, the cost of adjustment can still be counted in a
development expenditure program financed by the counterpart fund of policy-based lending, but does not
have to be regarded as a prime determinant of loan size.
19
See OM Section D1 (Lending and Relending Policies for Sovereign and Sovereign-Guaranteed Borrowers
[Ordinary Capital Resources]).
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from ADF follow the applicable policy-based loan terms.20 . The pricing and terms of
SPBL and CSF lending comprise interest rates set at a minimum spread of 200 basis
points over LIBOR, a rebate or surcharge reflecting the cost of funds, maturity of 58
years including a grace period of up to 3 years, and a commitment charge at 75 basis
points per year on the undisbursed loan balance. The lending terms of SPBL and CSF
lending should be determined by the crisis situation (including its severity and market
conditions), country-specific considerations (including the borrowers debt repayment
capacity), and ADBs risk-bearing capacity.21
13.
Ceilings
34.
There are no individual country ceilings for policy-based lending. Total annual
stand-alone policy-based loans, subprogram loans under the programmatic approach,
the policy-based component of SDP loans, and policy-based guarantees are not to
exceed 20% of total public sector lending on a 3-year moving average basis under
normal circumstances.22 Similar lending from ADF is subject to a ceiling of 22.5% of total
ADF lending. Loans under SPBL and the CSF are exempted from counting towards the
ceiling on regular policy-based lending.
14.
Technical Assistance
35.
TA projects attached to policy components of a policy-based loan must be
carefully targeted to meet key capacity building needs in the sector and/or address major
policy issues having a bearing on future strategy decisions. The number and design of
attached TA projects must be geared to the absorptive capacity of the executing
agencies involved. Close supervision of TA execution by ADB, and incorporation of TA
20
See OM Section D2 (Lending and Grant Policies [Asian Development Fund])

Given the potential impacts on ADBs risk-bearing capacity, designation of lending terms for SPBL and
CSF loans requires prior clearance by the Strategy and Policy Department, Treasury Department, and
Office of Risk Management. A complete analysis of the impact on ADBs relevant financial indicators and
discussion on the measures to ensure consistency with ADBs financial policy should be undertaken, As a
preliminary benchmark, a spread of 200 basis points above LIBOR should be regarded as an initial default
pricing basis for loans up to $500,000,000 with the 5-year maturity (including the 3-year grace period),
while case-by-case adjustments in the spread and maturity may be made within the permissible range
prescribed herein. Repayment terms of equal installments or the annuity method with the general practice
of 10% discount rate are applicable.
22
The first such 3-year period following the adoption of the ceiling covering 20002002. Under the current
practice stated in the 1999 policy R-paper on program lending, the 3-year moving average is computed
with the current year regarded as the middle year. See ADB. 1999. Review of ADBs Program Lending
Policies. Manila. This approach has two problems: (i) the estimates of the most recent year are tentative
since the policy-based lending pipeline for future years is usually indicative, and (ii) departure from the
policy ceiling limit can be identified only after 1 year. In case that the current year is proposed to be
treated instead as the third year in computation of the 3-year moving average, for both ordinary capital
resources and ADF, the Board should be duly informed of the applied method of 3-year average
calculation with the relevant documents (such as the R-paper seeking waiver of the ADF policy-based
lending ceiling).
21
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BANK POLICIES (BP)
findings in ongoing policy dialogue, are an essential part of policy-based loan

administration.
15.
Counterpart Funds
36.
Policy-based lending must include a broad review of budgetary allocations to and
within the sector, with a view to ensuring that essential expenditures are met. Where
shortfalls in the allocation of development or operating expenditures to the sector are
identified, the policy-based loan must seek to correct these, to the extent feasible, by
obtaining matching expenditure commitments from the borrowing government in
exchange for the counterpart funds generated. Such matching expenditure commitments
may, where applicable, take the form of policy covenants, and may be documented in
the loan agreement and indicated in the policy matrix.
16.
Procurement and Disbursement
37.
The approach to procurement and disbursement under policy-based lending is
different from that under project loans. There is considerable flexibility in the use of
policy-based loan proceeds to meet a DMCs development needs. The loan proceeds
will be disbursed against economy-wide import requirements on the basis of a negative
import list, or, where necessary and appropriate, sector-specific import requirements on
the basis of a positive import list.
38.
Where the foreign exchange provided by ADB is used for procurement by public
sector entities rather than private, commercial importers, ADB must review the standard
public sector procurement procedures used in the DMC with regard to their economy
and efficiency. Where exchange controls are in effect, ADB will review the general
foreign exchange allocation mechanism in the DMC with regard to its efficiency and
transparency; where these cannot be guaranteed, remedial steps should be adopted as
an integral part of program design. Also, ADB must always ensure that policy-based loan
proceeds are used for procurement in and from member countries and that the standard
exclusion negative list applies in the case of economy-wide imports.
Basis:

ADB. 2011. Review of ADBs Policy-Based Lending. Manila.
ADB. 2009. Safeguard Policy Statement. Manila.
ADB. 2009. Enhancing ADBs Response to the Global Economic
Crisis Establishing the Countercyclical Support Facility. Manila.
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BANK POLICIES (BP)
ADB. 1998. Simplification of Disbursement Procedures and Related

Requirements for Program Loans. Manila.
ADB. 1996. Review of Banks Program-Lending Policies. Manila.
ADB. 2006. Second Governance and Anticorruption Action Plan.
Manila.
ADB. 2004. Disaster and Emergency Assistance Policy. Manila.
Compliance:
For inquiries: Questions may be directed to the Director, Strategy, Policy, and
1 April 2013

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OPERATIONS MANUAL
POLICY-BASED LENDING
A.
Introduction
1.
Although the objectives of policy-based lending are different from project or
sector lending, operational procedures for processing policy-based loans are generally
the same, 1 except that (i) the emphasis is on understanding the existing policy
framework in the sector (or sectors) and on assessing the need and scope for reform
and development; (ii) for operations that require prior reform actions by the developing
member country (DMC), the Management-cleared concept paper should be circulated to
the Board for information and comments, if any, within 10 working days;2 and (iii) fasttrack business processes and documentation requirements similar to those applicable to
emergency assistance loans should be adopted for crisis response with Countercyclical
Support Facility (CSF) loans.3 Sector work on the relevant policy and institutional issues
generally precedes formulation and due diligence of a policy-based loan.
B.

1.
Identification
2.
A policy-based loan 4 supports a government program for sector reform and
development. The decision to start preparing a policy-based loan must be made in the
context of the Asian Development Bank (ADB) strategy for the DMC concerned, with a
view to achieving certain medium-term sector, multisector or subsector objectives. The
initiating department must be convinced that the DMC authorities are willing and able to
1
2
See OM Section D11 (Processing Sovereign and Sovereign-Guaranteed Loan Proposals).

This concept clearance should not be confused with the programmatic approach concept paper to be
presented to the Board together with the first subprogram loan proposal in the report and recommendation
of the President. For the first subprogram loan under a programmatic approach and for a single-tranche
stand-alone policy-based loan, the Board should be informed through circulation of a loan concept paper
upon Managements clearance. The loan concept paper should present the main features of the broad
reform program being supported by the single-tranche loan, as well as financing, policy conditions, and
the supported reform and outcomes. The concept papers that are circulated to the Board for information
should be edited by the Office of the Secretary before approval by the operations vice president
concerned. Concept clearance for subsequent subprogram loans is not required. It should be noted,
however, that sovereign project preparatory technical assistance (TA) within the Management's approval
authority is processed up front as an integral part of the concept clearance, except in the case of standalone small-scale project preparatory TA. See OM Section D12 (Technical Assistance).
ADB. 2004. Disaster and Emergency Assistance Policy. Manila. See OM Section D7 (Disaster and
Emergency Assistance). For CSF loans, an economic assessment is conducted in lieu of the damage and
needs assessment. Unless the Management advises otherwise, concept clearance should not be
required. Special abbreviated Board consideration will be done within 1 week after RRP circulation.
Unless it specifically includes a special policy-based loan (SPBL) or a CSF loan or otherwise stated, a
policy-based loan in this section generally refers to a stand-alone policy-based lending or a subprogram
loan under the programmatic approach.
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institute an acceptable reform program and to maintain close and continual policy
dialogue with ADB. This also includes an assessment that the program proposed merits
ADB support on account of its scope and strength, and that policy-based lending by ADB
will facilitate and accelerate program implementation. The decision to initiate preparation
of a policy-based loan also requires careful assessment of available sector analysis and
the demand on ADB staff for sector work and policy dialogue.
2.
Development Policy Letter
3.
During policy-based loan processing, ADB will need to determine whether the
existing and envisaged policy framework and institutional development plan form an
appropriate basis for ADB support. This also includes an assessment of public
investment plans in the sector, and of the envisaged distribution of roles between the
public and private sectors. Hence, a major objective in policy-based loan processing is to
reach an understanding with the government on the medium-term development
framework in the sector and on the schedule of policy steps to be undertaken during the
program period which will be formalized as the government's policy statement in the
form of a letter from an appropriate government official to the President of ADB. This
development policy letter (DPL) is a key document throughout policy-based loan
processing. The letter must spell out in appropriate detail medium-term sector
objectives, the measures already taken and those to be taken to achieve them, and
various indicators to be used in monitoring program implementation and sector
performance.
4.
The focus of the policy-based loan process is to reach an understanding with the
government, and to develop and review the draft DPL with the government. In the early
stages of processing, an initial draft of the DPL is produced and discussed with the
authorities for reference purposes only, that would also be subject to subsequent
Management approval at various stages of the policy-based loan process. The draft DPL
is included in full in the successive stages of the draft report and recommendation of the
President (RRP) on the policy-based loan. The RRP also includes a policy matrix, i.e., a
table setting out the overall objectives of the program, measures already taken, specific
actions to be taken under the program and their timing, and further actions needed over
the medium term.5 The DPL remains a draft until ADB and the DMC authorities reach an
understanding on its finalization. 6 However, agreement must have been reached
regarding the essential features of the DPL prior to loan negotiations. The signed DPL is
an integral part of the documentation sent to the Board when seeking its approval of the
policy-based loan.
5.
For stand-alone policy-based lending and the programmatic approach, specific
elements of a DMCs development expenditure program to be supported need to be
5
Staff should use the policy matrix as a flexible implementation guide rather than as way to monitor and
control condition fulfillment. Staff should ensure that the link between the policy matrix and the design and
monitoring framework is enhanced.
The mission must inform the government accordingly.
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indicated in the DPL. For CSF lending, the DPL should indicate the governments
countercyclical development expenditure program for fiscal stimulus and its commitment
to implementation.
3.
Programmatic Approach Concept Paper
6.
For programmatic budget support, the programmatic approach concept paper is
a key design element. The broad objectives and scope of the various subprograms will
be set forth in the programmatic approach concept paper, with particular attention paid
to articulating the logical link among the subprograms. The programmatic approach
concept paper covers (i) initial conditions and issues to be addressed under the policybased loan, (ii) the desired end state, (iii) the logical link among the issues, (iv) the
rationale for adopting the programmatic approach, (v) an outline of the intended
objectives and scope of each subprogram, (vi) an approximate cost estimate of the
cluster, and (vii) an indicative implementation time frame of the cluster. The
programmatic approach concept paper forms the basis for a memorandum of
understanding with the borrower on the broad design and the implementation approach
of the programmatic budget support. 7 The first subprogram under the programmatic
approach is presented to the Board of Directors for approval along with the
programmatic approach concept paper, which indicates the total amount that ADB is
willing to provide over the entire program period. The programmatic approach should
emanate from the country partnership strategy and should be grounded in a sector
study. As in stand-alone policy-based loans, each subprogram will include a policy
matrix. The multiyear programmatic approach concept paper will include a design and
monitoring framework that will serve as a route map to reach the target/outcome. All
subprograms under a programmatic approach operation will be placed within an
indicative rolling schedule that would be reviewed and amended as needed. Subject to
satisfactory performance on the subprogram and after consultation with the DMC, further
subprograms are presented for Board approval. Disbursements are made against each
subprogram's policy matrix.8
7.
Performance monitoring at each stage of implementing the programmatic
approach is of critical importance for ADB to (i) determine whether to proceed with the
next subprogram, and (ii) incorporate the lessons learned into the design of subsequent
7
A policy-based loan under the programmatic approach also has a DPL, which reflects the understanding
reached in this memorandum.
The programmatic approach comprises a series of single-tranche loans, whose processing is initiated by
broadly identified triggers. Prior actions are a set of mutually agreed policy and institutional actions that
are deemed critical to achieving the objectives of the program supported by a policy-based loan and that a
country agrees to take before the Board approves the loan. Triggers are expected prior actions of the next
subprogram in a programmatic series. Lending is committed based on prior actions completed by the
client country before Board approval. Expected prior actions for subsequent subprograms will be
indicative and such actions will not be disbursement conditions, and the actions may be amended as
subsequent subprograms are developed jointly with the DMC. However, if during subsequent subprogram
processing there are deviations from the original indicative actions, staff should make these clear when
the subsequent subprogram is presented to the Board for its approval. Staff should also explain the
impact such changes are likely to have on the output and/or outcome indicators.
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subprograms. Performance indicators should comprise three main categories: (i) policy
indicators that monitor the policy and institutional actions, (ii) ownership and capacity
indicators, and (iii) outcome indicators. Some policy indicators will be unique to a
subprogram; others could be common to two or more subprograms. Ownership and
capacity indicators, although difficult to develop ex ante, are particularly important for the
programmatic approach. Identifying such indicators at the outset and tracking them will
help in the design of later subprograms and in the evaluation of the impact of the
programmatic approach as a whole. Ownership indicators will normally be common
across all the subprograms whereas capacity indicators could be distinct or overlapping.
Outcome indicators will be based on the desired end state and should be specified in the
overall programmatic approach framework. The contribution of individual subprograms to
the desired outcomes should also be kept under review.
4.
Fact-Finding
8.
Preparation of a policy-based loan involves ADB conducting detailed sector
analysis; reviewing with the government its plans and needs for policy and institutional
change; firming up details on specific policy measures to be taken; evaluatingand if
necessary modifyingthe sectoral investment program 9 and institutional support
provided; coordinating with the International Monetary Fund (IMF), 10 the World Bank,
and important bilateral agencies; and determining the criteria for measuring progress in
program implementation and sector performance. Continual dialogue between ADB and
key policy makers in the DMC is essential to assess the degree of the government's
commitment to concrete policy actions and to determine when the policy-based loan is
ready to be appraised.
9.
The RRP for policy-based loans should address the following issues: (i)
diagnosticsassessing the extent to which a particular policy distortion leads to a
particular binding constraints; (ii) the policy matrixselecting policy actions for inclusion
in the matrix based on the extent to which they address problems identified in the
diagnostics; (iii) the link with the sector strategyensuring that the program formulation
is consistent with the governments plan for the sector and ADBs sector strategy; (iv)
tranchesapportioning policy actions into tranches to ensure proper sequencing and
implementation of required policy actions; (v) policy-focused institution building
providing complementary assistance to enhance policy delivery capacity; (vi) indicative
costs of specific elements of a DMCs development expenditure program to be
9
Especially with regard to the adequacy of capital and recurrent spending and the appropriate split
between public and private sector activities.
10
When processing a policy-based loan, ADB staff is required to request an assessment letter from the IMF.
The IMF letter shall be used by ADB staff to help assess the macroeconomic situation and development
trends of the concerned country. The director general of the concerned regional operations department
shall send a formal request letter to head of concerned area department of the IMF. If ADB staff and
Management decide to proceed with submission to the Board for approval of the proposed policy-based
loan, the director general of the concerned regional operations department is required to post the IMF
assessment letter as a linked document to the RRP. The list of linked documents to the RRP will indicate
if the information contained may be disclosed to the public.
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supported11 and, where relevant, support provided by development partners other than
ADB; (vi) performance indicatorsspecifying monitorable indicators in the design and
monitoring framework that can subsequently be used to assess the development impact
of the program; (vii) ADBs contribution to the design and implementation of the reform
package, including technical assistance support (if applicable); and (viii) a summary of
the envisaged reform impacts. Policy-based loan designs are complex exercises in
economic and institutional reform.12 Their successful implementation depends not only
on the technical design but also the manner in which the political economy of the
reforms is factored into the design.
5.
Due Diligence
10.
As part of due diligence, it is important that an understanding is reached on
detailed program objectives and content, conditions of loan effectiveness, tranches and
conditions for tranche release, use of counterpart funds, procurement and disbursement,
how key elements of the program will be monitored, and all other issues listed in the
draft RRP and the minutes of the management review meeting or the staff review
meeting.
6.
Legal Documents
11.
As the governments DPL is the basis on which a policy-based loan is granted,
the letter must be referred to in the loan agreement and must serve as the basis for any
major conditions for effectiveness and conditions for tranche release that are reflected in
the policy matrix attached to the DPL. The interpretation of DPL-related covenants or
tranche release conditions and their compliance question must be considered in the
context of the program framework laid out in the DPL. The loan agreement will also
contain appropriate arrangements for procurement and disbursement.
11
In all cases, agreement on the appropriate development expenditures out of the additional budgetary
resources generated by the policy-based loan must be reached during loan negotiations, and specified as
counterpart funds and explained in the report and recommendation of the President.
12
While the RRP for a CSF loan is expected to be kept concise on account of the time-pressing crisis
situation, at the minimum, it should be written in a manner to allow assessment of the country's
compliance with the access criteria, including: (i) adverse impacts of the crisis; (ii) countercyclical
development expenditures; and (iii) sound macroeconomic management. The brief RRP should present:
(i) project at a glance; (ii) proposal; (iii) country context under the crisis, comprising assessment of the
adverse impact of the crisis and soundness of macroeconomic management; (iv) government's
countercyclical development expenditure/policy program and capacity assessment; (v) objectives, scope,
and coverage of the loan, including justification and estimate of resources requirement; (vi) justification of
the proposed lending term, including impacts on ADBs risk bearing capacity; (vii) implementation
arrangements; (viii) coordination with other development partners; (ix) monitoring arrangements; and
(x) recommendation. Appendixes must include: (i) program framework, indicating the estimated economic
impacts of the countercyclical development expenditure/policy program (and its basis); (ii) DPL; and
(iii) state of access criteria compliance (in a table form). Linked documents include (i) debt sustainability
analysis; (reflecting potential impacts of CSF borrowing); (ii) summary poverty reduction and social
strategy; (iii) list of ineligible items; and (iv) development coordination matrix.
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7.
Negotiations
12.
ADB and the government must agree on the essential features of the DPL prior
to loan negotiations. Although the final wording of the DPL may still change during
negotiations, these changes should be relatively minor and be cleared quickly with the
negotiators capital. A final agreed version of the DPL and of the policy matrix is normally
confirmed on the last day of negotiations, which is normally the date of the DPL. The
final step of the negotiation process is furnishing to the President the DPL, duly signed
by an appropriate government official.
8.
Loan Agreement Signing and Effectiveness
13.
Following Board approval of a policy-based loan, standard rules and regulations
for loan agreement signing and effectiveness must be followed, and in addition, staff
should generally try to arrange for signing almost immediately after Board approval.
Conditions for effectiveness will thus generally be kept to a minimum, with all substantial
program-related matters having been resolved as a precondition for Board
consideration. This also means making advance arrangements with the borrower to
have a draft legal opinion furnished to ADB at the time of negotiations or as soon as
possible thereafter so that the final legal opinion may be ready as soon as the loan
agreement is signed.
9.
Release of Tranches13
14.
Tranche release will be conditional on the introduction of the agreed upon
program elements. The policy matrix should be used as a flexible implementation
guide14 for assessing whether intended objectives were substantively achieved. Before
the release of the second and subsequent tranches, a progress review should be
undertaken. If the conditionality for a tranche release has been met, tranche release is
authorized by the President, after a progress report reviewing and assessing program
implementation and compliance with conditionality has been circulated for the Board's
information. Board members may request a discussion of the report if they wish. The
tranche release will be effected not less than 10 working days after the progress report
has been distributed to the Board.
15.
If a tranche release is proposed even though compliance with conditionality has
been incomplete, Board approval will be sought through a progress report on a noobjection basis. The progress report will be similar to that under para. 14, but will also
13
Tranche release (or its equivalent) under the single-tranche loans whose conditionality has not been met
within 6 months of Board approval of the loan will require a progress report. In this case, the progress
report should be prepared following the same procedure as that for release of the second and any
subsequent tranches presented in paras.14-15. If conditionality for the tranche release (or its equivalent)
under the single-tranche loans is met within 6 months of Board approval, then a progress report will not be
required.
14
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explain the factors justifying the proposed release despite the incomplete compliance.
Board approval will be sought for an appropriate waiver of or amendment to the relevant
loan covenant. The advice of the Office of the General Counsel should be sought in
cases of doubt whether particular loan covenants require waiver or amendment.
10.
16.
There is considerable flexibility in the use of policy-based loan (including special
policy-based and CSF lending) proceeds to meet a DMCs developmental needs. The
loan proceeds may be utilized to finance economy-wide import requirements on the
basis of a negative import list, or sector-specific import requirements on the basis of a
positive import list. Normally, negative import lists will be appropriate, although positive
lists may also be applied, for example when foreign exchange is scarce and ADB wishes
to ensure that sector import requirements are met.
17.
The proceeds of a policy-based loan for which there is only a negative list of
ineligible items may be disbursed without supporting import documentation, if during
each year in which the proceeds of the policy-based loan are expected to be disbursed,
the value of the DMCs total imports minus (x) imports from non-member countries, (y)
ineligible imports, and (z) disbursements made under other official development
assistance, is greater than the amounts expected to be disbursed during such year. The
borrower will be required to submit with each withdrawal request a certification
confirming the borrowers compliance with the above formula in respect of the period
covered by the withdrawal request. Otherwise, import documentation under existing
procedures will still be required. Documentation in respect of specific imports will
continue to be required for policy-based loans for which a positive list of eligible items is
utilized.
18.
ADBs international competitive bidding procedures are not required for contracts
financed under policy-based loans. For goods commonly traded in international
commodity markets (e.g., petroleum products and fertilizers), normal commercial
procedures appropriate to the trade are regarded as acceptable for ADB financing.
Financing of specific commodities may be limited to an agreed upon maximum
percentage (say 60% of the total loan amount). The specific procurement procedures
proposed for each policy-based loan are based on ADBs assessment of the procedures
in the borrowing DMC and are set out in the loan documentation. The borrower and,
where appropriate, concerned agencies are required to keep accurate records of the
accounts under the policy-based loan.
19.
Disbursement under policy-based loans normally takes the form of
reimbursement to the central bank of the DMC acting as a depository. The central bank
is generally responsible for administering policy-based loans15 in close consultation with
the government and sector-specific entities responsible for implementing the sector
15
Occasionally, this role can be played by the ministry of finance.
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program. Where appropriate, the central bank may disburse the loan through
commercial banks or development finance institutions or both.
Basis:

cited therein.
Compliance:
This OM section is subject to compliance review
For inquiries:
Questions may be directed to the Director, Strategy, Policy, and

1 April 2013

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OPERATIONS MANUAL
BANK POLICIES (BP)
PROMOTION OF COOPERATION WITH NONGOVERNMENT ORGANIZATIONS
A. Introduction
1.
This OM section describes ADBs policies associated with its cooperation with
nongovernment organizations (NGOs). The section considers the nature of ADBs
cooperation with NGOs at the institutional, country, and project/program levels in relation
to the achievement of ADBs strategic objectives and in terms of ADB support for NGO
initiatives. Cooperation between ADB and nongovernment organizations is consistent
with ADBs role and functions as set out in Article 2(i) and (v) of the Agreement
Establishing the Asian Development Bank (the Charter).
B. Definitions and Typologies
2.
The term nongovernment organization refers generically to organizations (i) not
based in government, and (ii) not created to earn profit.
3.
ADB is concerned primarily with developmental NGOs, which can be regarded as
private organizations entirely or largely independent of government; which are not
created for financial or material gain; and which address concerns such as social and
humanitarian issues of development, individual and community welfare and well-being,
disadvantage, poverty, and environmental and natural resources protection,
management, and improvement. ADBs interest is directed primarily toward
organizations that do not exist to serve their members self-interests, ADB still must be
concerned with organizations such as self-help, and peoples and community-based
organizations formed by or around disadvantaged persons, groups, and communities.
Terms parallel to developmental NGO include voluntary organization, private voluntary
organization, or private voluntary development organization; peoples organization;
community organization or community-based organization, community group or
community association; grassroots organization; intermediary organization; and public
interest group.
4.
A wide range of organizations can be regarded as developmental NGOs, with
significant variations according to philosophy, purpose, clientele, expertise, program
approach, and size and scope of operations. Significant functional distinctions also exist
between operational and advocacy NGOs. This distinction is important with regard to
the kind of interaction ADB has with individual NGOs, such as operational cooperation
and collaboration versus policy dialogue. ADB also cooperates with a continuum of
NGOs from the local level, to the national level, and to the regional and international
levels.
OM Section E4/BP
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C. The Policy
5.
ADBs 1999 Poverty Reduction Strategy clearly articulates that poverty reduction
is ADBs overarching goal.1 ADBs framework for poverty reduction is based on three
pillars:
(i)
pro-poor, sustainable economic growth;
(ii)
social development (including human capital development, social capital

development, gender and development, and social protection); and
(iii)
good governance.
6.
As these objectives are at the center of the agendas and activities of NGOs
involved in development, ADB recognizes that NGO activity is directly relevant to ADBs
operations. ADB also recognizes that NGOs are significant actors in development
processes at both the advocacy and operations levels. Globally, civil society is
demanding a greater voice and role in decision-making and in governance issues that
affect people, with NGOs representing different segments of civil society. In this context,
NGOs form an important ADB stakeholder group.
7.
ADB pursues an expanded program of cooperation with NGOs in its member
countries with a view to strengthening the effectiveness, sustainability, and quality of the
development services ADB provides. The objective of ADBs cooperation with NGOs is,
where appropriate, to integrate NGO experience, knowledge, and expertise into ADB
operations, such that the development efforts ADB supports will more effectively address
the issues and priorities reflected in ADBs development agenda.
8.
ADB seeks cooperation with NGOs that is proactively, responsively, and
productively mainstreamed within its operations. At the same time, however, the
concerns and priorities of governments must be acknowledged. The fundamental
relationship between ADB and a government and the sovereignty of governments
continue to be recognized. The ability of ADB to work with governments and execute its
development mandate remains a priority. At the country level, cooperation with NGOs is
a dynamic process that encourages constructive and mutually beneficial relationships
involving ADB, governments, and NGOs.
9.
Within the broad objective of expanding cooperation with NGOs, ADB recognizes
that an important characteristic of the NGO sector is its diversity. NGO communities
display significant differences country by country, reflecting country-specific factors that
affect the structure and composition of NGO communities and the roles NGOs play in
national development. Because of the diversity the NGO sector displays, operationally
and in the context of individual countries, it will not be appropriate, and perhaps
counterproductive, for ADB to approach cooperation with NGOs through generalizations
or with a single view or strategy. Given such diversity, ADB approaches cooperation
1
ADB. 1999. Fighting Poverty in Asia and the Pacific: The Poverty Reduction Strategy, November. Manila.
p. 2.
OM Section E4/BP
Page 3 of 3
with NGOs flexibly, through a range of relationships appropriate to different contexts,
rather than through a single relationship, mechanism, or model that is all encompassing.
Basis:

ADB. 1999. Doc. R179-99, Fighting Poverty in Asia and the Pacific:
The Poverty Reduction Strategy of the Asian Development Bank, 19
October. Manila.
ADB. 1998. Doc. R54-98, Corrigendum 1, Cooperation between the
Asian Development Bank and Nongovernment Organizations, 06
April. Manila.
ADB. 1998. Doc. R54-98, Cooperation between the Asian
Development Bank and Nongovernment Organizations, 27 March.
Manila.
This OM section is to be read with OM Sections E4/OP.

OM Sections A2 (Country Strategy
(Incorporation of Social Dimension).
and Program)
and
C3
Compliance:
For inquiries:
Questions may be directed to the Head, NGO Center, Regional and

Sustainable Development Department.
29 October 2003

OM Section E4/OP
Page 1 of 3
OPERATIONS MANUAL
PROMOTION OF COOPERATION WITH NONGOVERNMENT ORGANIZATIONS
A. Introduction
1.
ADB seeks to cooperate with nongovernment organizations (NGOs) that have
established capacity and that are credible, accountable, and transparent and with which
cooperation is appropriate and mutually beneficial. Such NGOs must be competent and
have substantial knowledge in their areas of focus. To support effective cooperation with
the NGOs, ADB maintains and strengthens processes for ADB-NGO consultation and
dialogue. As appropriate, ADB seeks to identify mechanisms to expand and strengthen
interaction with NGOs in loan and technical assistance (TA) activities, in country
programming and country-level work, and in policy development.
2.
Mechanisms for cooperation with NGOs vary according to the type of NGO, the
issue or interest in question, the specific kind of cooperation being considered, and the
specific circumstances in each case. Cooperation with NGOs is affected especially by
country-specific circumstances. Cooperation with NGOs in ADBs operations proceeds
as a part of or in parallel with other operational considerations, including the emerging
process approach of ADBs operations. In any case, NGO input into ADB operations
needs to be considered carefully, as is input from any other source.
1. Institutional/Policy Level Cooperation
3.
Mechanisms for consultation and dialogue with NGOs are maintained and
strengthened. At the same time, ADB seeks to establish a regular, institutionalized
program of consultation and dialogue with NGOs. Cooperation with NGOs needs to be
conducted ADB-wide. Consultation meetings are held with NGOs at the ADB
headquarters, regional, sub-regional, and country or resident mission levels to address
general issues as well as specific policy and project concerns as they arise. ADB also
considers and responds to NGO external inquiries, public complaints, or other relevant
issues addressed to ADB as a whole either individually, or by means of generic
responses sent to NGO groups and/or posted on relevant ADB web sites.
4.
In its operations, ADB recognizes institutional development and capacity-building
support for the NGO sector as a development initiative. ADB thus may provide
necessary and appropriate institutional and capacity-building support to NGOs,
particularly at the local and national levels. Similarly, ADB may provide necessary and
appropriate institutional development and capacity-building support to DMC
governments, toward the creation of an environment that fosters government-NGO
relations and supports NGO contributions to the development processes. To facilitate
closer operational relationships with NGOs, ADB continues to strengthen its internal
OM Section E4/OP
Page 2 of 3
capacity for NGO cooperation, through staff training, skills development activities, and
other specific activities.
2. Country-Level Cooperation
5.
In programming and country level work, it is important that the interests of the
governments and the fundamental relationship between ADB and governments be kept
in view. While benefits in involving NGOs in programming and country level work may be
apparent, such involvement must be consistent with the rights and responsibilities of
governments in identifying and pursuing national policies and priorities.
6.
As appropriate and with government concurrence, NGOs can complement
existing processes and serve as additional sources of information and expertise. In
addition to their role in the delivery of development services, NGOs can play a role in
reflecting, explaining, and advancing the views, concerns, and needs of the groups and
communities they represent.
7.
In some countries, there also may be scope for NGO participation in countrylevel economic, sector, and thematic work, particularly in the social and environmental
sectors. Even when not formally involved as consultants or researchers, NGO
consultative or advisory input can be important, particularly in accessing the voices and
incorporating the interests of target or affected groups.
8.
Country-level issues or concerns raised by NGOs need to be considered and
responded to in a timely fashion.
3. Project Level Cooperation
9.
Consultation with NGOs has increasingly become a standard part of ADB project
identification and design activities. Either as sources of information, partners, or project
consultants, NGOs can provide alternative perspectives on development questions; new
views on the needs, desires, and perspectives of intended beneficiary communities; and
input on implementation modalities for ADB-funded loan and TA activities.
10.
During project or TA implementation, NGOs with sufficient capacity may be
engaged, where appropriate, and subject to government concurrence, as executing or
implementing agencies, or can be contracted to deliver specific project components or
services, including community mobilization, training, or the delivery of project services to
selected communities or populations. NGOs may also have a role in monitoring
program/project and TA implementation, and in helping to address issues of project
sustainability, such as ongoing operation and maintenance of community infrastructure.
In the case of private sector projects, NGO engagement is subject to the concurrence of
project sponsors.
11.
NGO knowledge and perspectives similarly can be applied to project benefit or
impact monitoring and evaluation. Where appropriate, ADB review, monitoring, and
evaluation missions may contact NGOs to gain their views and gather additional
information.
OM Section E4/OP
Page 3 of 3
12.
ADB considers and responds to project-specific issues raised independently by
NGOs, including those raised on behalf of project-affected groups.
C. Overall Responsibility
13.
ADBs overall relationship with NGOs is monitored and coordinated by the
Regional and Sustainable Development Department (RSDD) through the NGO Center.
The responsibility for implementing ADBs relationship with NGOs at the strategic and
regional level (i.e., across two or more subregions) rests with RSDD, with the NGO
Center as its focal point. The NGO Center facilitates the work of regional departments
and other ADB offices in their efforts to strengthen cooperation with NGOs. Together
with the Human Resources Division, Budget, Personnel and Management Systems
Department; the NGO Center designs and delivers capacity-building programs.
14.
ADBs relationship with NGOs at the subregional, country, and project levels,
including correspondence, is the responsibility of the regional departments, with support
from the NGO Center, and from the representative offices as appropriate. The views of
the NGO Center need to be sought on the involvement of NGOs in programming and
project activities and, along with those of the Office of External Relations, in preparing
formal responses to country- and project-specific issues raised by NGOs.
15.
Involvement of NGOs in ADB operations is necessarily within the context of
ADBs existing policies and procedures and related ADB business practices.
Basis:
This OM section is based on OM Section E4/BP and the documents

cited therein.
Compliance:
For inquiries:
Questions may be directed to the Head, NGO Center, Regional and

Sustainable Development Department.
29 October 2003

OPERATIONS MANUAL
BANK POLICIES (BP)
OM Section E1/BP
Page 1 of 16
These policies were prepared for use by ADB staff and are not necessarily a complete treatment of
the subject.
FINANCING PARTNERSHIPS
A.
Introduction
1.
Article 2(i) of the Agreement Establishing the Asian Development Bank (the Charter)
provides that one of main functions of the Asian Development Bank (ADB) is to promote public and
private capital investment for development in Asia and the Pacific. Article 2(v) of the Charter enjoins
ADB to cooperate with international institutions and national entities, both public and private,
involved in the investment of development funds in the region, and to promote interest among such
institutions and entities in new opportunities for investment and assistance. Financing partnerships
are an important element in fulfilling this function.1
2.
The term financing partnership refers to any arrangement, generally expressed through an
agreement or operational document, between ADB and financing partners at the institutional or
program level with mutual recognition of the objectives to combine financial resources and create
cofinancing opportunities.
3.
The term cofinancing refers to any transaction-specific arrangement under which funds or
risk-sharing capacity provided by a third party (other than from the borrowing or host developing
member country and its government agencies, or the project sponsors) are associated with ADB
funds, guarantees, or other financial instruments. For performance reporting purposes, ADB has
introduced the concept of direct value-added (DVA) cofinancing, which involves active coordination
and formal agreements among financing partners that bring about defined client benefits.2
4.
Financing partnerships aim to (i) mobilize additional financial resources through cofinancing;
(ii) complement and draw upon the comparative advantage and knowledge of ADB and its
development partners; and (iii) broaden, replicate, and sustain development impact by ensuring
coordination and avoiding duplication.
B.
The Policy
5.
ADBs financing partnerships and cofinancing operations add value to its clients by
leveraging financial assistance and expertise for investment and effective development in Asia and
the Pacific. In pursuing financing partnerships and cofinancing arrangements, ADB seeks to
catalyze and increase the flow of financial resources from external sources (other than project
sponsors) and improve the terms and structures of ADB-assisted interventions by combining ADBs
capital and knowledge with those of other institutions. Besides making effective use of ADB's capital
1
2
Other forms of "partnership" that go beyond financing as the main purpose are covered under OM Section E3.
The full definition of DVA cofinancing is provided in paras. 1620. The principles of application are in Appendix 1 of
ADB. 2012. Financing Partnerships. Operations Manual. OM E1/OP. Manila.
OPERATIONS MANUAL
BANK POLICIES (BP)
OM Section E1/BP
Page 2 of 16
resources and mitigating risks for ADB and its financing partners, financing partnerships also aim to
reduce the administrative burden of clients in dealing with multiple parties, and support ADBs
commitment to development partner harmonization under the Paris Declaration on Aid
Effectiveness and related agreements.
6.
At the institutional level, financing partnerships are characterized through arrangements
such as trust funds, framework agreements, and financing partnership facilities. At the transaction
level, financing partnerships are carried out through cofinancing arrangements for project-specific
initiatives.
7.
Financing partners include a wide range of parties concerned with development in the
region, including multilateral and bilateral development assistance agencies and financial
institutions; public and private foundations; nongovernmental organizations; private companies;
sources of commercial funding or risk sharing such as banks, insurance companies or pension
funds; and export credit agencies.
8.
Cofinancing is classified according to the nature of the source:

(i)
Official cofinancing. Flowing mainly from financing partnerships with multilateral

and bilateral development assistance agencies, foundations, nongovernmental
organizations, and public sector lending windows of export credit agencies, official
cofinancing mobilizes grants and loans for projects supported by ADB and grants for
ADBs technical assistance operations. Such cofinancing is usually sourced from
official development aid. Consistent with ADBs strategic directions and resource
allocations, official cofinancing focuses on strong partner and client coordination for
(a) easy access and efficiencies in processing, (b) low transaction costs, and (c)
harmonized and transparent mechanisms in reporting to financing partners on the
development impact of their contributions.
(ii)
Commercial cofinancing. 3 Commercial cofinancing complements ADBs ordinary

capital resources lending mainly through the application of ADBs credit
enhancement instruments. Both private and public institutions provide such
cofinancing. It is usually sourced from financial markets and priced at commercial
terms. Credit enhancements and risk-sharing arrangements are instrumental in
mobilizing financial flows, particularly for projects and programs that commercial
partners would consider risky without ADB involvement.
This section of the Operations Manual focuses exclusively on official financing partners and cofinancing for which the
Office of Cofinancing Operations (OCO) is responsible. It does not cover the Japan Fund for Poverty Reduction, which
is discussed in section E2. Further, commercial cofinancing and ADBs credit enhancement operations, which form a
substantial portion of commercial cofinancing, fall within the mandate of the Private Sector Operations Department
(PSOD) and are discussed in detail in section D9 (Credit Enhancement Operations).
OPERATIONS MANUAL
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OM Section E1/BP
Page 3 of 16
C.
Scope of the Policy
9.
Financing partnerships and cofinancing are mainstream activities integrated in all aspects of
ADB operations, with cofinancing as a standard financing source, to the extent feasible, for all ADB
interventions. This entails building financing partnerships in the context of ADBs regional, country,
sector, and thematic work. Further, specific attention should be paid to (i) identifying cofinancing
opportunities as early as during the country partnership strategy formulation and the country
operation business planning stages; (ii) effectively structuring, processing, and administering
cofinanced initiatives with emphasis on innovation and product development; and (iii) effecting the
appropriate institutional coordination of knowledge sharing and management to ensure the
achievement of the targets of Strategy 2020.
D.
Operational Policies
10.
Cofinanced projects are subject to ADBs operational policies and the provisions of the
Operations Manual on those specific policies unless otherwise specified therein.
Basis:
This OM Section is based on:

ADB. 1984. Doc. R74-84, Revision 1, Final, Cofinancing with Official
Sources, 9 August. Manila.
ADB. 2006. ADBs Financing Partnership Strategy. Doc. Sec.M56-06. Manila.
This OM section is to be read with OM Section E1/OP.

ADB. 2006. Review of ADBs Credit Enhancement Operations. Doc. R168-06.
Manila.
Compliance: This OM Section is subject to compliance review.
For inquiries: Questions may be directed to Head, Office of Cofinancing Operations.
7 January 2013
This supersedes OM Section E1/BP

OPERATIONS MANUAL
OM Section E1/OP
Page 1 of 10
FINANCING PARTNERSHIPS
A.
Introduction
1.
Financing partnerships require long-term constructive engagement with financing partners
and clients with a view to improve project structures for greater development impact. Thus,
mobilizing external resources through cofinancing requires a continual effort to match client
requirements with the products and priorities of financing partners in order to enhance
developmental impact, while identifying new cofinancing sources or new and innovative financial
instruments.
2.
Strategy 2020 provides for increased partnership-based cofinancing and operations. ADBs
cofinanced lending is envisaged to increase faster than ADBs stand-alone financing operations.
The long-term objective is for total annual direct cofinancing to exceed the value of ADBs standalone project financing. Reinforcing financing partnerships and cofinancing as a mainstream activity
inherent in all Asian Development Bank (ADB) operations can be achieved through a concerted
effort by all ADB departments.
3.
The Office of Cofinancing Operations (OCO) has primary responsibility for initiating,
strengthening, and managing financing partnerships at the institutional level, focusing on official
cofinancing. To fulfill this mandate, this Operations Manual section seeks to spell out the
procedures that govern OCOs engagement with other ADB departments with regard to cofinancing.
B.
Classification of Cofinancing
1.
Procurement
4.
Official cofinancing can be categorized as untied or tied according to the procurement
arrangements.
5.
Untied cofinancing. The procurement eligibility of this external funding applies to all ADB
members. In the case of administration of this type of funding by ADB, ADBs Procurement
Guidelines (2010, as amended from time to time) and Guidelines on the Use of Consultants (2010,
as amended from time to time) apply.4
6.
Tied cofinancing. The administration of this external funding is subject to restrictions in
terms of ADB members procurement eligibility or deviates from ADBs Procurement Guidelines and
Guidelines on the Use of Consultants. ADB cannot administer this type of funding.
4
See ADB. 2006. Consultants. Operations Manual. OM J2. Manila; and ADB. 2006. Procurement. Operations Manual.
OM J3. Manila.
OPERATIONS MANUAL
OM Section E1/OP
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2.
Project Structuring
7.
Joint financing. ADB and its financing partners finance a common list of goods, works, and
services required for the project in agreed-upon proportions. ADBs guidelines on procurement and
the use of consultants govern the procurement of goods, works, and services. This mode is
generally suitable when financing partners do not tie their assistance or impose any special
procurement restrictions.
8.
Parallel financing. The project is divided into specific, identifiable components or contract
packages, each of which is separately financed by ADB and financing partners. Under these
conditions, financing of the components assigned to the financing partners can be either on untied
or tied terms. If it is untied, it can be administered by ADB and ADBs policies and procedures
apply. If it is tied, it cannot be administered by ADB and the financing partners implement and
administer the assigned components in parallel with the ADB-financed ones by using their own
procurement guidelines. The ADB project processing department and the client borrower (or grant
recipient) decide whether to include a financing partners proposed parallel tied funding in a specific
project based on technical and implementation considerations.
3.
Administration
9.
ADB administers only untied funds free from procurement restrictions, i.e., ADB policies and
procedures apply in the administration of these funds. The two types of ADB administration are
discussed in paras. 1011. Subtle differences may be allowed in each type of administration to
cater to the specific requirements of financing partners. ADB charges fees to recover the
incremental costs incurred for the services provided by ADB staff in processing and administering
cofinanced funds.
10.
Full administration. Under full administration, ADB provides to the financing partner a full
range of services, including (i) procurement of goods, works, and services; (ii) selection and
engagement of consultants; (iii) supervision of implementation; and (iv) disbursement of funds. The
financing partners funds are usually transferred to an ADB interest-bearing account in tranches
based on an agreed schedule, and may be invested by ADB, pending disbursement. OCO, in
coordination with other relevant departments, provides the financing partners with periodic progress
reports and financial statements on the utilization of its funds. Full administration applies to
cofinanced loans and grants for projects and to grants for technical assistance (TA) projects.
11.
Partial administration. Under partial administration, the funds provided by the financing
partner are not transferred to ADB. ADB is responsible for providing a limited range of services to
the financing partner. These services may involve one or a combination of the following: (i)
procurement of goods, works, and services; (ii) selection and engagement of consultants; and (iii)
disbursement supervision. Reporting to the financing partner is through the provision of standard
ADB implementation progress documentation produced under the overall project as opposed to the
more detailed progress and financial reports generally prepared by ADB under the full
administration modality. For the disbursement of cofinanced funds under this modality, two sets of
OPERATIONS MANUAL
OM Section E1/OP
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withdrawal applications are prepared by the borrower (or grant recipient) and one set is sent to ADB
and the other to the financing partner. ADB reviews the withdrawal application submitted by the
borrower and advises the financing partner to effect the requested payment, as appropriate. Partial
administration applies to cofinanced loans and grants for projects only.5
4.
Disbursement
12.
When ADB administers cofinanced funds, eligible expenditures are typically financed based
on one of three financing options: (i) pro-rata; (ii) front-loading of cofinanced funds (i.e., cofinanced
funds are disbursed before ADB funds); or (iii) different ratios specified for each cost category
and/or subcategory.6
13.
In the case of investment projects whereby cofinancing is administered by ADB under a joint
financing arrangement, ADB normally follows a disbursement pattern of pro-rata or different ratios
specified for each cost category and/or subcategory. However, upon a specific request by a
financing partner or a recipient developing member country (DMC), subject to the financing
partners approval, ADB may front-load the cofinanced funds. If the ADB-administered cofinancing
is provided on a parallel basis, ADB will disburse the cofinanced funds based on the specific
components and different ratios for which the cofinancing has been provided.
14.
In the case of TA projects financed by multiple funds comprising both ADB and cofinanced
funds, disbursements follow the financing rules described for Operations Manual section on Project
Structuring (B2). The disbursement arrangements agreed upon with the financing partners must be
specified in the TA report. If no disbursement arrangements are specified, ADB may elect to frontload the cofinanced funds even if these funds have been provided on a joint basis.
15.
The project documentsthe report and recommendation of the President (RRP), the project
administration manual, and/or TA reportmust specify the preferred financing option and
disbursement arrangements for the project. Project and TA team leaders are required to ask the
financing partners about the preferred financing option for cofinanced investment projects or TA
projects, and consult with OCO and the Controllers Department accordingly.
5.
Performance Reporting
16.
ADB achieves results by focusing on direct value-added (DVA) cofinancing, which it
supports through (i) the provision of services to financing partners (contractual DVA cofinancing), or
(ii) formal collaboration with financing partners (collaborative DVA cofinancing). DVA cofinancing is
the performance indicator against which ADBs financing partnership operations are measured.
Appendix 1 provides detailed classification criteria for cofinancing based on performance reporting
considerations, supplementing the definitions provided in paras. 1719. OCO is responsible for
ensuring correct and consistent application of the criteria for DVA official cofinancing through the
5
6
External grants for TA projects can be managed only under full administration modality.
Disbursement of ADB-administered external funds is carried out in accordance with the provisions of ADB. 2012.
Disbursement. Operations Manual. OM J6. Manila; and the applicable disbursement policies and guidelines.
OPERATIONS MANUAL
OM Section E1/OP
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review of project processing documents, and for recording the validated amounts under each
cofinancing classification.
17.
Contractual direct value-added cofinancing. Contractual DVA cofinancing includes all
cofinancing with contractual obligations, i.e., cofinancing for which ADB assumes financial,
fiduciary, and/or administrative responsibilities in implementation, and for which ADB resources are
committed, normally in exchange for a fee. ADBs obligations under contractual DVA cofinancing
vary according to its financing partners, and the degree of financial, fiduciary, and/or administrative
responsibilities. However, the common denominator is the cofinancing agreement, 7 which
documents the obligations and responsibilities of both ADB and the financing partner. By
implication, all joint cofinancing transactions are classified as DVA cofinancing. All agreements (and
their amendments) pertaining to contractual DVA cofinancing need to be cleared by the head of
OCO.8
18.
Collaborative direct value-added cofinancing. This form of cofinancing imposes no
contractual obligations on either ADB or the financing partner, but requires close coordination
during the processing and implementation of the specific project or program, documented through
project- or activity-specific memoranda of understanding (MOUs) and/or aide memoires signed by
the operations department and corresponding financing partner staff. No administrative services are
provided by ADB and the financing partner follows its own policies and procedures in implementing
the assigned project component(s). Regional departments and the Private Sector Operations
Department can enter into such MOUs and aide memoires, but only with the concurrence of OCO.9
19.
Discrete cofinancing. This form of cofinancing does not involve direct ADB support or
collaborative arrangements. Coordination may take place at all stages of the project cycle, as both
clients and financing partners may benefit from ADBs involvement. However, such coordination
varies from project to project and it is difficult to assess in the absence of explicit value-adding
arrangements. Discrete cofinancing is recorded for overall statistical purposes only but not targeted
explicitly.
20.
A summary matrix of the cofinancing classifications based on the modalities described in
section B is in Appendix 2.
7
The cofinancing agreement is a transaction-specific contractual document signed by ADB and the financing partner. It
details the procurement and disbursement methods; the amount, terms, and modality of cofinancing; the extent of
reporting and information exchange; the responsibilities of the administering party; and any other agreed-upon
procedures. Project-specific cofinancing agreements are mandatory for all ADB-administered cofinancing transactions
(except in the case of trust funds in which the trust fund agreement covers all transactions under the specific trust fund).
For various reasons, cofinancing agreements may be referred to as letter of administration, letter of agreement,
memorandum of agreement, memorandum of understanding, procedural arrangement, or final acceptance letter.
However, all have the same purpose, i.e., underpinning the ADB-administered cofinancing arrangement.
For signatories of cofinancing documents, please refer to ADB. 2012. Signature of Written Instruments. Administrative
Orders. AO 1.03. Manila.
MOUs or aide memoires of project processing missions co-signed by relevant ADB staff and representatives of DMC
governments and of financing partners or subsequently endorsed by financing partners, may also be applicable
provided that they describe in detail the collaborative arrangements on cofinancing between ADB and the financing
partners.
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C.
Financing Partnership Arrangements
21.
To deepen and focus relationships with financing partners, as well as to offer them more
entry points for cofinancing opportunities, ADB enters into a range of financing partnership
arrangements10 (paras. 2326) that seek to commit partners to support ADBs program and project
operations in line with agreed upon principles and procedures.
22.
Before entering into new financing partnership arrangements, ADB considers both client
demands and ADBs strategic directions and resource allocations. It responds selectively to offers
from financing partners so as not to divert ADBs resources into areas of lesser priority and with
little added value.
23.
Project-specific cofinancing. Project-specific cofinancing is mobilized in the form of grant
and loans on a case-by-case basis. Such cofinancing is effected through joint or parallel
arrangements. If the cofinanced funds for this purpose are either fully or partially administered by
ADB, project-specific cofinancing partnerships are generally governed by individual cofinancing
agreements. ADB has agreed upon standard cofinancing agreement templates with some of its key
financing partners.
24.
Trust funds. Trust funds channel grant cofinancing to ADBs project and TA operations
through more comprehensive arrangements than those in project-specific cofinancing. The primary
advantage of a trust fund is that funding for a number of individual projects may be provided by the
financing partner(s) under a single agreement. Under a trust fund, a financing partner provides a
lump sum untied grant fund to cofinance a number of ADB interventions for an agreed theme,
sector, or group of DMCs. In exchange, ADB manages the grant fund under full administration
arrangements and is tasked with the fiduciary responsibility of reporting the outcomes and/or
progress of such trust funds periodically to the financing partners. Trust funds minimize the need for
detailed negotiations on a case-by-case basis and foster administrative efficiency. Trust funds can
be either single-donor or multi-donor initiatives. Trust funds that require specific sector, theme,
regional expertise are generally jointly processed and managed by OCO and ADB departments that
possess that relevant expertise (e.g., the Regional and Sustainable Development Department, the
Office of Regional Economic Integration, regional departments). Once these trust funds have been
established, OCO is responsible for liaising with the contributing partners on financial matters while
the co-managing ADB department is in charge of day-to-day technical implementation.
25.
Framework arrangements. Applicable mainly to financing partners that are willing to
support ADB projects through loan cofinancing, framework arrangements are aimed at increasing
the predictability of cofinancing volumes, minimizing detailed negotiations for each transaction, and
streamlining methods and practices for reporting and exchanging information. Generally structured
as two-party (ADB and financing partner) agreements, these arrangements (i) formalize the country,
sector, and thematic priorities of the financing partner; (ii) establish the terms and mode of
cofinancing; (iii) identify the role and responsibilities of each party (such as project administration
10
Financing partnership arrangements are often part of a broader institutional partnership with development partners.
They may also include innovative instruments such as sector-wide approaches, debt for development swaps, and loan
buy-downs.
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and information sharing); and (iv) commit the financing partner to a cofinancing amount over a
period of time. In concluding framework arrangements, ADB gives priority to financing partners that
can provide funding on an untied basis, although exclusively parallel cofinancing arrangements are
also possible. OCO, in close coordination with relevant ADB departments, is responsible for drafting
and negotiating framework arrangements.
26.
Financing partnership facilities.11 Financing partnership facilities (FPFs) are operational
mechanisms for strategic, long-term, multi-partner cooperation and link various forms of assistance
in a coordinated manner for well-defined purposes. As such, an FPF may include any or all of the
following: (i) trust funds, (ii) framework arrangements, and (iii) any other form of cooperation
(including arrangements for knowledge sharing) that the financing partners may agree upon for a
defined program of activities. In line with ADBs Strategy 2020, FPFs support initiatives in ADB
priority sectors and themes, such as clean energy, water, the urban sector, and regional
cooperation and integration. As with sector, theme, and regional trust funds, the processing,
management, and implementation (which may include regular consultations with the contributing
financing partners) of FPFs is a joint undertaking between OCO and ADBs relevant expert
departments including the Regional and Sustainable Development Department. FPFs have their
own secretariats and steering committees. ADB provides regular progress reports to the FPFs
contributing financing partners.
D.
Mainstreaming of Financing Partnerships and Official Cofinancing during the

Planning and Programming Process
27.
ADB pays specific attention to financing partnership objectives and the potential for
cofinancing opportunities in the course of country strategy formulation and implementation, taking
into account the existing partnership arrangements developed at the regional, country, sector, or
thematic levels.12
28.
At the country level, it is critical that ADBs operations departments are made responsible for
identifying areas of cofinancing opportunities during the country partnership strategy exercise.
During this stage, operations departments initiate contacts with field representatives of development
institutions, exchange information on operational programs, and identify areas for possible
collaboration. The scope, possible sources, and the mode of cofinancing for projects in the pipeline
are also discussed with the DMC government and other potential clients.
29.
To ensure that cofinancing opportunities are fully explored, OCO may be invited as a
country team member. 13 In any event, OCO participates in discussions that pertain to the
formulation of the country-specific cofinancing strategies, and assists in identifying the appropriate
11
An FPF is established through a Board paper and is governed by specific implementation guidelines. For an example of
an FPF, see ADB. 2007. Clean Energy Financing Partnership Facility: Establishment of the Clean Energy Fund and
Clean Energy Trust Funds. Manila (R61-07).
12
A linked document to the country partnership strategy presents the state of broader development coordination for the
DMC concerned.
13
The composition of the country team should be proposed by the country team leader in consultation with the
departments and offices concerned and endorsed by the regional director general as the chair of the regional
management team. See ADB. 2010. Country Partnership Strategy. Operations Manual. OM A2. Manila.
OPERATIONS MANUAL
OM Section E1/OP
Page 7 of 10
cofinancing avenues through an appraisal of existing partnership platforms. As a part of this
exercise, OCO initiates, where necessary, headquarters-level contacts with financing partners.
E.
Official Cofinancing as Part of the Project Processing Cycle
30.
Flowing from the systematic assessment described in paras. 2729, ADB identifies official
cofinancing opportunities for transactions. The scope, source, and mode of cofinancing, as well as
whether it is direct and adds value, are assessed and discussed with the borrower or recipient at
the concept clearance stage. Where a DVA cofinancing opportunity is identified, OCO is to be
called upon to provide advisory structuring support as a member of the project team to ensure
consistent and best application of ADBs cofinancing products. All project documents (i.e., RRP and
TA documents) should outline cofinancing arrangements if cofinancing is involved. This entails
specifying whether the cofinancing is joint or parallel, administered by ADB (full or partial) or not,
and contractual or collaborative.
31.
Where required, OCO will advise the operations departments on the modalities to be
followed by the client in order to source cofinancing. In the case of official cofinancing, the borrower
or recipient14 usually requests cofinancing directly from the identified potential financing partners
with a copy to ADB. The operations departments in consultation with, or with the knowledge of
OCO, coordinate with potential financing partners at the transaction level, including inviting them to
join processing missions to participate in due diligence and incorporate their inputs.
32.
For cofinancing to form part of the financing plan of an investment or TA project, the
financing partner's confirmation to cofinance the project, on terms satisfactory to ADB as reviewed
and determined by OCO, in consultation with the Office of the General Counsel, as necessary,
should be received by ADB (i) any time during the processing stage for TA operations but before a
TA report is submitted to Management or the Board, depending on the approval authority;15 and (ii)
before loan or grant negotiations for investment projects.16 However, in case confirmation of the
financing partner is not received on or before the date of the Management review meeting (MRM) or
staff review meeting (SRM) for the project, the MRM or SRM will need to determine whether the
project without the component(s) or expenses that are expected to be financed by the financing
partner is still viable. If the MRM or SRM decides that the project is not viable without the
cofinancing, loan or grant negotiations will not be held until the financing partner has confirmed its
commitment to the cofinancing. If the MRM or SRM decides that the project is viable without the
cofinancing, the cofinancing will be delinked from the project scope if cofinancing is not confirmed
before loan or grant negotiations. The internal approval procedures of financing partners need to be
14
As official cofinancing requires sovereign recourse, the request for cofinancing should be made by the borrower or
recipient, and not by the executing agency or line ministry.
15
For project preparatory TA, the scope and the cost of which are already included in the concept papers of the related
investment project, confirmation of cofinancing needs to be obtained ideally before concept clearance but certainly
before the start of implementation of the TA. For TA attached to an investment project, confirmation of the cofinancing
must be obtained by loan or grant negotiations of the investment project to which the TA is related.
16
For a number of trust funds (generally those under FPFs), the contributing financing partners have delegated to ADB
the authority to endorse financing for TA projects and other project activities. Under these circumstances, the
authorization of the technical focal point departments for such trust funds (indicating the completion of the application
review process) serves as both confirmation and availability of funds for the proposed initiatives.
OPERATIONS MANUAL
OM Section E1/OP
Page 8 of 10
taken into account to try to synchronize them with the processing and implementation milestones of
the relevant ADB projects. In case an investment or TA project is approved without cofinancing, the
cofinancing may be processed later as a change in scope or additional financing once cofinancing
is confirmed (para. 34).17
33.
If the financing partners commitment is received after ADBs approval of a project, and such
cofinancing has not explicitly been reflected in the original financing plan, the cofinancing amount
will be captured in ADBs performance record in the year the financing partners commitment is
received. It will be documented in a way acceptable to OCO.18
34.
ADB-administered cofinancing can be used as a source of additional financing for ADBfinanced investment and TA projects. This can happen under the following two scenarios. The first
scenario occurs when cofinancing was intended for the original TA or investment project but could
not be included in the TA paper or project documents because the cofinancier was unable to
confirm the financing before the project was approved by Management (or the Board). The second
scenario is when a financing partner provides new funds to an ongoing TA or investment project.
Under both situations, the project team can incorporate the cofinancing after Management (or
Board) approval of the original project. Streamlined procedures on required documentation and
level of approval have been developed to enable project teams to effect additional funding
efficiently through cofinancing under both of these scenarios. These procedures are outlined in
relevant directional documents.19
35.
In the case of ADB-administered cofinanced grants or loans for which ADB is the lender of
record, the Office of the General Counsel prepares a grant agreement or loan agreement between
the recipient or borrower (as the case may be), which requires proper negotiation.
36.
Depending on the specific project considerations, the execution of the grant or loan
agreement for the cofinanced grant or loan may be included as a condition for the effectiveness of
the financing (loan, grant, or other form of financing) provided by ADB for the project. Depending on
the specific project considerations, the execution of the grant or loan agreement for the cofinanced
grant or loan may be included as a condition for the disbursement of all or a portion of the financing
(loan, grant, or other form of financing) provided by ADB for the project.
F.
Departmental Responsibilities and Relationships
37.
As the focal point for official financing partnership operations, OCOs role is to build and
maintain financing partnerships, promote cofinancing approaches at the policy and institutional
level, and provide cofinancing support and advice at the transaction level.
17
Exceptions to the rule are (i) emergency assistance interventions, and (ii) cases in which OCO obtains privileged
information (short of official commitment) from the financing partner that cofinancing will materialize.
18
This is mainly expected for multitranche financing facilities and financial sector loans to corporate entities.
19
For TA projects: ADB. 2009. Administering Grant-Financed Technical Assistance Projects. Project Administration
Instructions. PAI 5.09. Manila. For investment projects: ADB. 2011. Additional Financing. Operations Manual. OM H5.
Manila. The streamlined approval procedure applied to cofinancing under section H5 of the Operations Manual only
applies to investment projects and not to policy-based loans. However, cofinancing can still be added to already
approved policy based loans. This can be effected through the submission of a Board paper.
OPERATIONS MANUAL
OM Section E1/OP
Page 9 of 10
38.
The following ADB-wide functions are the primary responsibilities of OCO, which are
exercised in close coordination with other relevant departments: (i) formulating cofinancing policy
and strategy alignments to ensure the consistency of operational approaches to financing
partnerships; (ii) developing suitable financing instruments and services in support of institutional
priorities; (iii) raising awareness of financing partnerships through knowledge management, both for
financing partners and internally; (iv) monitoring and reporting on ADB-wide financing partnership
and cofinancing results; and (v) managing relationships and outreach activities at the institutional
level. Within this context, OCO is an integral part of the ADB teams involved in conceptualizing,
structuring, processing, and obtaining Management (and/or Board) approval for all financing
partnership initiatives, such as trust funds, FPFs, framework arrangements, and any other ADBwide or department-level special initiative requiring cofinancing.
39.
At the transaction level for project-specific cofinancing, the respective operations
departments lead the cofinancing process with OCO support as a team member in transactions
involving DVA cofinancing. OCO need not be involved in projects with discrete cofinancing. The
departmental responsibilities at different stages of the project cycle are as follows:
(i)
(ii)
(iii)
Origination. Operations departments, in coordination with OCO, open the dialogue

with potential financing partners on specific opportunities early in the programming
cycle. The potential for DVA cofinancing is determined during the project concept
clearance process. OCO supports the origination of cofinancing opportunities by
letting the operations departments know about any opportunities brought to its
attention from its regular dialogue with financing partners.
Processing. Operations departments lead the dialogue with financing partners on all
operational and technical matters. OCO provides advisory services and compliance
oversight on DVA cofinancing. OCO structures, arranges for interdepartmental
review of (as needed), negotiates, and signs cofinancing agreements.
Implementation,
monitoring,
and
reporting.
communicate directly with financing partners on all project implementation matters.
OCO concludes and administers cofinancing agreements for contractual DVA
cofinancing and, in coordination with other relevant departments, oversees financial
administration and reporting to financing partners.
OPERATIONS MANUAL
OM Section E1/OP
Page 10 of 10
G.
Institutional Coordination, Knowledge Sharing, and Management of Financing
Partnerships
1.
Analytical Report on Official Cofinancing Operations
40.
Strategic coordination and knowledge sharing form an important part of cofinancing.
Financing partners have requested a strategic institutional approach to mobilizing funds in support
of ADBs cofinancing operations. Given this need for clearly established institutional priorities, their
identification and coordination must start at the highest level of ADB Management. To that end,
OCO produces an annual analytical report that assesses the patterns of official cofinancing
activities (e.g., the flow of cofinancing by donor, geographic region, theme, sector, driver of change,
each of the five core operational areas, and department).
41.
The report (i) reviews whether cofinancing operations are in line with the priorities of
Strategy 2020, (ii) analyzes the attractiveness of ADBs strategic priorities to financing partners, and
(iii) assesses the effectiveness of the utilization of financing partners funds. The report and its
findings are presented at the Management Committee Meeting to seek views on the effectiveness
of past cofinancing strategies and to draw conclusions from the lessons learned for future initiatives.
2.
Outreach Activities and Promotion of Financing Partners Visibility by the
Office of Cofinancing Operations
42.
OCO prepares an annual donor report on partnering for development. This publication is
targeted at current and prospective official financing partners for grant and loan operations. The
report explains the wide range of financing options and modalities available to partners seeking to
expand their commitment to development in Asia and the Pacific. Further, it highlights case studies
drawn from ADBs cofinanced projects to illustrate the impact of financing partners contributions.
43.
As an additional tool to enhance the visibility of ADBs cofinancing activities, OCO prepares,
from time to time, individual partnership briefs to illustrate the cofinancing history with key financing
partners, highlighting emblematic examples of ADBs cooperation in terms of instruments, sectors,
and geographical distributions.
Basis:
This OM section is based on OM Section E1/BP and the documents cited therein.

For inquiries: Questions may be directed to Head, Office of Cofinancing Operations
07 January 2013
This supersedes OM Section E1/OP

with the approval of the President
OPERATIONS MANUAL
OM Section E1/OP
Appendix 1
Page 1 of 2
CLASSIFICATION CRITERIA FOR COFINANCING

GENERAL PRINCIPLES
A.
Direct Value-Added Cofinancing
The Asian Development Bank (ADB) is directly involved in direct value-added (DVA) cofinancing
through active collaboration with the financing partner(s) during processing and implementation.
Cofinanced project components form an integral part of the overall project scope outlined in the
report and recommendation of the President (RRP) with (a) the cofinancing amount and source
mentioned and shown in the financing plan, and (b) the cofinancing arrangement described in
the RRP and/or periodic financing request report in the case of multitranche financing facilities.
DVA cofinancing is divided into contractual cofinancing and collaborative cofinancing.
1. Contractual Cofinancing
(i)
(ii)
(iii)
2.
Collaborative Cofinancing
(i)
(ii)
Contractual cofinancing may be joint or parallel (untied with full or partial

administration by ADB).
ADB's project administration services are approved by the Board through
the RRP and/or periodic financing request, and are documented through
a full-fledged cofinancing agreement.
Contractual cofinancing that was not included in the financing plan and is
received after the project or program is approved by the Board is
governed by ADBs Additional Financing Policy. As this involves
interdepartmental documentation, the Office of Cofinancing Operations
(OCO) is able to automatically identify this transaction and enter it in the
relevant cofinancing performance statistics.
Collaborative cofinancing is parallel (tied or untied, without administration

by ADB).
ADB does not provide any administration services. Each financing partner
may follow its own procurement and disbursement procedures. However,
each partners responsibilities in terms of coordination, exchange of
information, and overall implementation of the respective portions of the
project or program need to be fully documented through the signing of
procedural agreements and/or memorandums of understanding between
ADB and its partners.1
ADB. 2010. Safeguard Policy Statement. Operations Manual. OM F1. Manila. Applies to all ADB-supported projects
and their components regardless of the source of financing. ADB will make efforts to collaborate with the borrower or
client and financing partners to adopt a single social and environmental assessment and planning process and
unified safeguard documentation, consultation, and disclosure requirements to satisfy the safeguard principles and
requirements of ADB and the cofinanciers.
OPERATIONS MANUAL
OM Section E1/OP
Appendix 1
Page 2 of 2
(iii)
(iv)
In cases where ADB participates (not necessarily taking the lead) in the
funding of multi-donor projects and program initiatives, the appropriately
signed consortium or implementation documents showing that ADB is a
fully active part of the group of donors need to be provided to OCO by the
operations departments for such cofinancing to be classified as
collaborative.
Operations departments are required to inform OCO at the earliest
opportunity about collaborative cofinancing that is not included in the
financing plan and is received after the project or program is approved by
the Board. They should inform OCO at the earliest opportunity and
provide a memo highlighting the additions to the project or program and
the change in costs, and including a relevant memorandum of
understanding with the financing partner for the additional funding to be
recorded as collaborative and therefore to count as DVA cofinancing in
the relevant performance indicator statistics.
B. Non-Direct Value-Added or Discrete Cofinancing

Non-DVA or discrete cofinancing is processed independently by financing parties with little or no
cofinancing coordination (the executing agency or project sponsor deals separately with each
financing party) and limited direct influence by ADB on the decision-making process of the
financing partner. The cofinancing amount and source are mentioned in the RRP and included
in the financing plan (recorded for reporting cofinancing statistics purposes only).
Note: If ADB is joining non-project-specific funding initiatives led by others (e.g., by making a contribution to an
external trust fund or by making equity contributions), the financing provided or mobilized by others is not considered
cofinancing.
OPERATIONS MANUAL
OM Section E1/OP
Appendix 2
Page 1 of 1
SUMMARY MATRIX OF COFINANCING CLASSIFICATIONS
Modality/
Arrangement
Scenario 1
Scenario 2
Scenario 3
Scenario 4
Untied
Untied
Untied or tied
Tied
Joint
Component-based
parallel
Component-based
parallel
Component-based parallel
ADB
administration
Full
Full or partial
None
None
Financing plan
ADB + financing
partners
ADB + financing
partners
ADB + financing
partners
ADB + financing partners
Procurement
Project structuring
Disbursement
Pro-rata, frontloading
(carried out by
ADB)
Different ratios,
Different ratios,
specified for each cost Different ratios, specified
specified for each cost
category
for each cost category
category
under the
under the
under the
earmarked
earmarked
earmarked
components
components
components
(carried out by the
(carried out by the
(carried out by ADB)
financing partner)
financing partner)
Cofinancing agreement
Memorandum of
understanding,
1
aide memoire
None
Contractual
cofinancing
Contractual
cofinancing
Collaborative
cofinancing
Discrete
cofinancing
DVA
DVA
DVA
Non-DVA
Documentation
Cofinancing
agreement
Performance
indicator
Performance
reporting
ADB = Asian Development Bank, DVA = direct value-added.

1
These documents can also take the form of procedural agreements and co-lenders agreements.
2
Can be made DVA by signing an MOU.
OM Section E2/BP
Page 1 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
JAPAN FUND FOR POVERTY REDUCTION
A.
Introduction
1.
The Japan Fund for Poverty Reduction (JFPR), 1 made available by the
Government of Japan, is designed to support ADBs poverty reduction strategy by
financing, on a grant basis, activities that address poverty, build up human resources,
and empower institutions and communities in Asia and the Pacific. To this end, the
Government of Japan has appointed the Asian Development Bank (ADB) as
administrator of the JFPR.
2.
As administrator of the JFPR, ADB will ensure that all applicable ADB policies
govern each JFPR-financed activity.
B.
The Policy
3.
The main objective of the JFPR is to add substantive value and development
impact to ADB assistance through grants for poverty reduction and technical assistance
(TA) activities, in line with ADBs agenda as articulated in its long-term strategic
framework 20082020 (Strategy 2020) 2 . Accordingly, the proceeds of JFPR project
grants (projects) and TA grants are to be utilized for the following purposes:
Project Grants
(i)
support well-targeted poverty reduction and social development activities

that have a direct impact on the poor and on socially or economically
excluded or vulnerable groups;
(ii)
stimulate the self-help capacities of the poor;
(iii)
stimulate widespread stakeholder participation at the community level;

and
(iv)
provide a systematic impact on operations and approaches of developing

member countries (DMCs) toward sustainable poverty reduction.
TA Grants
1
2
(i)
enhance the capacity of executing agencies and other development

partners, including implementing and operating projects;
(ii)
formulate and coordinate development strategies, plans, and programs,
ADB. 2009. Revised Operating Framework for the Japan Fund for Poverty Reduction. Manila.
ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank. Manila.
OM Section E2/BP
Page 2 of 3
and undertake studies related to sectors, policies, and issues;
(iii)
improve knowledge about development issues in Asia and the Pacific and
foster inclusive growth, environmentally sustainable growth, and regional
cooperation and integration among DMCs; and
(iv)
identify, formulate, and prepare development projects.
C.
Eligible Countries
4.
All ADB DMCs will be eligible for funding from the JFPR.
D.
Eligible Activities and Sectors

1.
Projects
5.
Under the JFPR, grants will finance projects that are aimed directly at poverty
reduction, and provide innovative and demonstrable impacts on poverty reduction.
JFPR-financed activities should have strong relation to and enhance the effectiveness of
ADB operations. Typical types of activities to be covered are (i) the provision of basic
economic and social services, (ii) support for social development funds, (iii) support for
development of nongovernment organization (NGO) activities for poverty reduction and
social development, (iv) project support activities, and (v) social protection.
2.
6.
JFPR grants will be used to finance or cofinance capacity development TA,
policy and advisory TA, research and development TA, and project preparatory TA; as
well as to finance or cofinance, in special cases on a grant basis, TA components of
development projects or programs financed under loans from ADB. TA may be provided
to one DMC or to more than one DMC (regional TA).
E.
Size and Cost Sharing

1.
Project
7.
Given the extensive demand for activities and investments in support of poverty
reduction, JFPR projects are likely to be spread throughout Asia and the Pacific. As
projects to be financed by the JFPR will be innovative and pilot projects to enhance
ADB-financed projects, JFPR-financed projects are likely to be smaller than ADBfinanced projects.
8.
As the scheme specifically targets the poor, any beneficiary cost sharing is
expected to be limited, and would in most cases be in the form of in-kind contributions
such as locally available materials and labor. In addition, as one of the salient features of
the grant scheme is its intended financing of innovative and pilot projects, it would be
quite difficult to identify an appropriate cost sharing level prior to implementation of the
JFPR. Therefore, the cost-sharing level of individual activities will be determined on a
case-by-case basis.
OM Section E2/BP
Page 3 of 3
2.
9.
TA financed from the JFPR will follow ADBs cost-sharing arrangements for TA
projects.
Basis:

ADB. 2009. Doc. R165-09, Revised Operating Framework for the Japan
Fund for Poverty Reduction, 16 September. Manila.
ADB. 2009. Arrangement Letter, Revised Operating Framework for the
Japan Fund for Poverty Reduction between the Government of Japan
and ADB, 7 October. Manila.
This OM section is to be read with OM Section E2/OP.

For inquiries: Questions may be directed to the Head, Office of Cofinancing Operations.
1 March 2011
This is an updated version of OM section
E2/BP issued on 26 November 2008.
Prepared by the Office of Cofinancing

Operations and issued by the Strategy
and Policy Department with the
approval of the President.
OM Section E2/OP
Page 1 of 4
OPERATIONS MANUAL
JAPAN FUND FOR POVERTY REDUCTION
A.
Introduction
1.
The Operating Framework for the Japan Fund for Poverty Reduction (JFPR)
covers project grants and technical assistance grants.
2.
JFPR proposals are required to be developed and agreed upon with the
recipients in the developing member country (DMC) and other stakeholders, including
national and local governments, public institutions, community groups, nongovernment
organizations (NGOs), and other civil society organizations, through a participatory
approach.
B.

1.
Executing Agency
a.
Projects
3.
JFPR projects will, in principle, be executed by DMC central or local
governments, public institutions, international or local NGOs, or local community
groups.1 If central and local governments and public institutions are expected to be the
executing agencies, projects to be financed by the JFPR will still probably be managed
and maintained by communities. Efforts will be made to ensure that communities are
involved in determining the desired outputs and activities, and in setting targets and
indicators. Likewise, input from civil society will be essential for the effective
implementation of the JFPR. The active participation of communities and civil society in
activity design, implementation, monitoring, and evaluation is essential to the success of
JFPR projects.
b.
4.
JFPR TA will, in principle, be executed by ADB and governed by ADBs
applicable policies.
This does not preclude the possibility that ADB may recruit consultants or procure works, equipment, or
goods with the Government of Japan's concurrence on a case-by-case basis.
OM Section E2/OP
Page 2 of 4
2.
Processing Procedures
5.
Projects and TA will be prepared and proposed by relevant operations and other
departments in cooperation with a DMCs central or local governments, public
institutions, beneficiary communities, and NGOs or other organizations as appropriate.
Regional departments, including resident missions, will coordinate the no objection
procedures and the processing of each proposal with the DMC government concerned.
Departments and/or offices concerned will forward proposals to the Office of Cofinancing
Operations (OCO) for submission to the Government of Japan for funding approval at
such intervals as shall be agreed with the Government of Japan. After government
approval, the proposals will then be approved by ADB in accordance with the
procedures provided below.
a.
Project
6.
ADBs Board of Directors will be required to approve projects where JFPR
financing exceeds $1.5 million, while the President will be authorized to approve all
projects for which JFPR financing is $1.5 million or below.2 All projects approved by the
President will be circulated to the Board for information. Among other considerations, the
Board will review the likely impact of JFPR financing on ADB operations. Following
approval of a proposed project, ADB, as administrator of the JFPR, will enter into a
JFPR assistance letter of agreement with the executing agency to channel such portion
of the proceeds of the JFPR as shall be required to carry out the approved project.
b.
7.
ADBs standard operational policies and procedures for TA will be applicable to
JFPR-financed TA projects, 3 except where agreed otherwise with the Government of
Japan.
3.
8.
Recruitment of consultants will be carried out in accordance with ADBs
Guidelines on the Use of Consultants (2010, as amended from time to time).
Procurement of goods and services will be carried out in accordance with ADBs
Procurement Guidelines (2010, as amended from time to time).
9.
ADB will review and approve all relevant actions undertaken by executing
agencies associated with the JFPR (i.e., recruitment of consultants, procurement of
goods and services, and disbursement) in accordance with established procedures. In
cases where ADB recruits consultants, such as for TA projects, all relevant procedures
governing such recruitment will be followed.
10.
Expenditures arising from JFPR-funded activities will be paid in accordance with
ADBs standard procedures for disbursements, except where agreed otherwise with the
Government of Japan.
2
3
This is in line with the Presidents approval authority for ADB TA projects.
See OM Section D12 (Technical Assistance).
OM Section E2/OP
Page 3 of 4
4.
Monitoring and Evaluation
11.
ADB will monitor and evaluate JFPR-financed activities in the same manner as
all other ADB-financed projects or TA projects, and in accordance with established ADB
procedures. To make JFPR-financed activities more effective, the outcomes of activities
will be monitored and the results fed back to DMCs operations. Methods for monitoring
and evaluation of the impacts of each JFPR activity will be well designed.
12.
ADB will prepare an annual report evaluating activities financed by the JFPR that
will be submitted to the Government of Japan.
5.
Coordination and Harmonization with Trust Funds Administered by

the World Bank
13.
The Government of Japan is providing funds to the World Bank for similar
operations in Asia and the Pacific. ADB and the World Bank will coordinate the utilization
of such funds to ensure they complement each other within DMCs and to promote
sharing of results and lessons learned.
6.
Administration Arrangements
a.
Contribution and Bank Account
14.
The existing funds of the current JFPR, which are composed of contributions
from the Government of Japan as well as investment income, comprise the core funds of
the JFPR. At its discretion, the government may, after the signing of the Arrangement
Revising the Operating Framework for the Japan Fund for Poverty Reduction (the
Arrangement), provide additional resources to the JFPR into an account with the Bank of
Japan in the name of ADB or any other accounts agreed between ADB and the
government. Interest and investment income earned from the contributions will be used
for the purpose of the JFPR.
b.
Administration Cost
15.
ADB may use part of the JFPR (together with any interest earned thereon) to
cover the direct and identifiable costs 4 incurred in JFPR administration, including
monitoring and evaluation.
ADB. 2000. Review of Service Charges for the Administration of Grant Cofinancing from Bilateral Sources.
Manila. The service charge structure proposed in this paper does not apply to the JFPR.
OM Section E2/OP
Page 4 of 4
c.
Records and Accounts
16.
ADB will maintain records and accounts in accordance with its normal
procedures to show expenditures financed by the JFPR. ADB will arrange to provide the
Government of Japan with periodic reports on the utilization of the JFPR and the
activities financed by the JFPR. ADB will maintain records and accounts of the JFPR,
and such records and accounts will be audited annually by independent auditors.
d.
Termination and Residual Funds
17.
If and when the purpose of the JFPR is considered to have been fulfilled, and the
arrangements of the JFPR terminate, the use of any residual funds (including investment
income of such funds) will be determined in consultation between the Government of
Japan and ADB.
Basis:
This OM section is based on OM Section E2/BP and the documents cited

therein.

For inquiries: Questions may be directed to the Head, Office of Cofinancing Operations.
1 March 2011
This is an updated version of OM section
E2/OP issued on 26 November 2008.
Prepared by the Office of Cofinancing

Operations and issued by the Strategy
OM Section E3/BP
Page 1 of 2
OPERATIONS MANUAL
BANK POLICIES (BP)
COOPERATION ARRANGEMENTS FOR DEVELOPMENT PARTNERSHIP1
A. Introduction
1.
Article 2(v) of the Agreement Establishing the Asian Development Bank (The Charter)
provides that one of the functions of the Asian Development Bank (ADB) is to cooperate, in
such manner as ADB may deem appropriate within the terms of the Charter, with the United
Nations (UN), the UN's organs and subsidiary bodies, and other public or private international
and national institutions and entities concerned with the investment of development funds in the
Asia and Pacific region; and to interest such institutions and entities in new opportunities for
investment and assistance.
B. The Policy
2.
To address the risks and challenges facing the region, and to meet the many different
requirements for achieving inclusive growth, environmentally sustainable growth, and regional
integration, ADB will engage in partnerships with a diverse group of institutions. Partnerships
with international development agencies, multilateral and bilateral institutions, the private sector,
nongovernment organizations (NGOs), community-based organizations, and foundations will
become central to planning, financing, and implementing ADB operations. It will make use of all
its natural attributes as the Asia and the Pacifics home development institution, including onthe-ground capabilities provided by resident missions across the region. ADB has developed
productive relationships with governments of its developing member countries (DMCs), World
Bank, International Monetary Fund, World Trade Organization, UN agencies, and other major
multilateral and bilateral institutions.
3.
Strategy 20202 expands the scope of ADBs partnership agenda beyond official
development finance partners to include endeavors with the private sector and private
institutions. ADB will be open to a new range of future partnership activities that can deliver aid
effectively, improve development results, and strengthen disaster and emergency assistance.
Underpinning these partnerships are likely to be the promotion of new assistance modes,
greater use of DMCs technical and managerial skills, and closer collaboration with the private
sector and use of market-based investment instruments.
4.
Partnerships with a diverse range of institutions are a core element of ADB's business
model. These partnerships will mobilize financial resources, pool knowledge, put ADBs unique
abilities to wider and better use, meet special needs for specialized development projects, and
improve aid effectiveness throughout the Asia and Pacific region. Partnerships will be central to
ADB's planning, financing, and implementing operations. The partnership agenda under
1
OM Section E3 is intended to cover broad administrative arrangements for forming development partnerships, but
is not applicable to general agreements for cooperation with other international organizations referred to in Article
28.2 (v) of the Charter. Cofinancing is covered mainly by the separate OM Section E1.
Manila.
OM Section E3/BP
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BANK POLICIES (BP)
Strategy 2020 will be designed to increase resource flows, disseminate new technology, and
enrich networking expertise.
5.
Partnering with its DMCs and other development agencies, ADB will share
responsibilities in a defined, transparent, harmonized, and mutually accountable manner to
improve aid effectiveness. It will continue to report operational and institutional performance
under the annual common performance assessment system, as well as in the annual Global
Monitoring Report, both of which were developed through collaboration between the multilateral
development banks and other international financial institutions. ADB is committed to meeting
all major commitments under the Paris Declaration on Aid Effectiveness by the target of 2012.
6.
The partnership development category under the ADB Results Framework3 assesses
the extent to which development partners are associated with ADB operations. Two indicators in
this categoryprogram-based approaches, and joint country partnership strategy and country
portfolio review missionsdirectly correspond to Paris Declaration indicators (use of common
arrangements or procedures and shared analysis). ADB will also participate in interagency
exercises coordinated by the Organisation of Economic Co-operation and Development aimed
at reporting progress on the implementation of Paris Declaration commitments, using the full set
of monitoring indicators.
Basis:

ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the
Asian Development Bank 2008-2020. Manila.
ADB. 2008. ADB Results Framework. Manila.

ADB. 1998. Cooperation Between the Asian Development Bank and
Nongovernment Organizations. Manila.
ADB. 2006. ADBs Financing Partnership Strategy. Manila.
ADB. 2006. Review of ADBs Credit Enhancement Operations. Manila.
Compliance:
For inquiries:

ADB. 2008. ADB Results Framework. Manila.
26 March 2009
This supersedes OM Section E3/BP

OM Section E3/OP
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OPERATIONS MANUAL
COOPERATION ARRANGEMENTS FOR DEVELOPMENT PARTNERSHIP
A.
1.
Cooperation arrangements can emerge in different ways. In some cases, the idea of
putting in place a formal institutional cooperation framework is based on previous collaboration
on a particular project that the Asian Development Bank (ADB) and a development partner wish
to extend through a strategic framework that will provide clearer and more coherent procedures
and practices. The earlier project experience can be a useful starting point for defining
implementation arrangements. In this context, the process of formulating a formal cooperation
arrangement may be relatively straightforward, as ADB and the partner organization will know
each other well and there will be well-established points of communication.
2.
However, in other cases, a strategic interest in establishing a formal cooperation
arrangement may be based on little or no previous operational collaboration. In such
circumstances, concerned staff should initiate the process by contacting the Strategy and Policy
Department (SPD) and/or any other relevant unit in ADB to explain the background and context
for considering a new institution-wide cooperation arrangement and to ascertain their views on
the potential partner. This may then be followed by contacts (e.g., videoconferences or
consultation missions) between ADB and the potential partner to discuss the scope of
collaboration, identify potential administrative difficulties (e.g., procurement), manage
differences in the organizations policies and memberships, and set out the next steps.
3.
B.
A cooperation arrangement is to be concluded as either:

(i)
a memorandum of understanding or administrative arrangement established at

the organizational or institutional level; or
(ii)
a letter of intent, usually applied to cooperation at the sector, thematic, and/or

operational level.
4.
The main ADB units involved in preparing an institutional cooperation arrangement are:
(i) SPD; (ii) Regional and Sustainable Development Department; (iii) Office of the General
Counsel; (iv) Central Operations Services Office; (v) Budget, Personnel, and Management
Systems Department (if there are issues such as staff exchanges); (vi) Office of Cofinancing
Operations; and (vii) the other main user department(s) and office(s).1 These arrangements will
include a planned timetable to review and assess the results of the collaboration (usually after 3
1
Officers who may sign letters of intent and memorandums of understanding for administrative or cooperation
arrangements between ADB and a national or international organization are designated in Administrative Order
No. 1.03.
OM Section E3/OP
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OPERATIONS MANUAL
years) and to determine whether it needs to be amended. Designation of the custodian of the
final cooperation arrangement within ADB will depend on the purpose and scope of the
arrangement.
Basis:
This OM section is based on OM Section E3/BP and the documents cited

therein.

Administrative Order No. 1.03 (signature of written instruments).
Compliance:
For inquiries:

26 March 2009
This supersedes OM Section E3/OP

OM Section F1/BP
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OPERATIONS MANUAL
BANK POLICIES (BP)
SAFEGUARD POLICY STATEMENT
1.
The Asian Development Bank (ADB) affirms that environmental and social sustainability is
a cornerstone of economic growth and poverty reduction in Asia and the Pacific. Therefore, ADBs
Strategy 2020 1 emphasizes assisting developing member countries (DMCs) as they pursue
environmentally sustainable and inclusive economic growth. In addition, ADB is committed to
ensuring the social and environmental sustainability of the projects it supports. The goal of the
Safeguard Policy Statement (SPS) 2 is to promote the sustainability of project outcomes by
protecting the environment and people from potential adverse impacts of projects.
2.
The objectives of ADBs safeguards are to

(i)
avoid adverse impacts of projects on the environment and affected people, where
possible;
(ii)
minimize, mitigate, and/or compensate for adverse project impacts on the
environment and affected people when avoidance is impossible; and
(iii)
help borrowers/clients to strengthen their safeguard systems and develop the
capacity to manage environmental and social risks.
3.
ADB adheres to the objectives of the safeguards and is committed to their delivery. ADB
assumes the responsibility for conducting due diligence and for reviewing, monitoring, and
supervising projects throughout the ADBs project cycle in conformity with the principles and
requirements embodied in the SPS. By adhering to its social and environmental safeguards, ADB
enhances the predictability, transparency, and accountability of its actions and decision making;
helps borrowers/clients manage social and environmental impacts and risks; and promotes the
long-term sustainability of investments. Transforming this commitment into results on the ground
depends on shared, but differentiated, efforts by ADB and its borrowers/clients.
4.
ADBs SPS sets out the policy objectives, scope and triggers, and principles for three key
safeguard areas:
(i)
environmental safeguards,3
(ii)
involuntary resettlement safeguards,4 and
(iii)
Indigenous Peoples safeguards.5
ADB. 2008. Strategy 2020: The Long-Term Strategic Framework of the Asian Development Bank 2008-2020. Manila.
3
Footnote 2, p 16.
4
Footnote 2, p 17.
5
Footnote 2, p 18.
2
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BANK POLICIES (BP)
5.
To achieve the policy objectives and deliver the policy principles, ADB carries out the
actions described in the subsection B of the SPS.6 To help borrowers/clients and their projects
achieve the desired outcomes, ADB adopts a set of specific safeguard requirements that
borrowers/clients are required to meet in addressing environmental and social impacts and risks.
ADB staff, through their due diligence, review, and supervision, will ensure that borrowers/clients
comply with these requirements during project preparation and implementation. These safeguard
requirements are as follows:
(i)
Safeguard Requirements 1: environment,7
(ii)
Safeguard Requirements 2: involuntary resettlement,8
(iii)
Safeguard Requirements 3: Indigenous Peoples9, and
(iv)
Safeguard Requirements 4: special requirements for different finance modalities10
6.
ADB will not finance projects that do not comply with its SPS, nor will it finance projects that
do not comply with the host countrys social and environmental laws and regulations, including
those laws implementing host country obligations under international law. In addition, ADB will not
finance activities on the prohibited investment activities list.11
7.
This SPS applies to all ADB-financed and/or ADB-administered sovereign and
nonsovereign projects, and their components regardless of the source of financing, including
investment projects funded by a loan; and/or a grant; and/or other means, such as equity and/or
guarantees.
8.
ADB shall implement the SPS through the safeguard review procedures outlined in OM
Section F1/OP.
Basis:

This OM section is to be read with OM Section F1/OP.
Compliance:
For inquiries:
Questions of interpretation of this OM section are decided by the chief

compliance officer.
Footnote 2, paras. 4970.

Footnote 2, Appendix 1.
8
9
10
11
7
______________________________________________________________________________________
_
4 March 2010
Prepared by the Regional and Sustainable Development
This supersedes OM Section F1/BP
Department and issued by the Strategy and Policy
issued on 20 January 2010
Department with the approval of the President
OM Section F1/OP
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OPERATIONS MANUAL
SAFEGUARD REVIEW PROCEDURES
A.
Introduction
1.
This Operations Manual (OM) section outlines the procedural requirements through which
the Asian Development Bank (ADB) ensures the social and environmental sustainability of the
projects it supports. The commitments are elaborated on in ADBs Safeguard Policy Statement
(SPS).1
2.
ADB, through its due diligence, review, and supervision, ensures that the borrower/client
complies with the safeguard policy principles and requirements laid out in the SPS and set out in
Safeguard Requirements 14, 2 in the ADB prohibited investment activities list, 3 and in the
requirements for strengthening and use of country safeguard systems4 during project preparation
and implementation.
B.
Scope of Application
3.
The SPS applies to all ADB-financed and/or ADB-administered sovereign and
nonsovereign projects, and their components regardless of the source of financing, including
investment projects funded by a loan; and/or a grant; and/or other means, such as equity and/or
guarantees (hereafter broadly referred to as projects).
C.
General Procedures
1.
Project Identification
a.
Project Screening and Categorization
4.
The operations department screens and categorizes each proposed project at the project
identification stage in accordance with the procedures in paras. 511. Project screening and
categorization are undertaken to (i) determine the significance of potential impacts or risks that a
project might present with respect to the environment, involuntary resettlement, and Indigenous
Peoples; (ii) identify the level of assessment and institutional resources required to address
safeguard issues; and (iii) determine the information disclosure and consultation requirements.
Using environment, involuntary resettlement, and Indigenous Peoples screening checklists, the
project team5 proposes an initial categorization for the project's potential environmental, involuntary
resettlement, and Indigenous Peoples impacts and risks. As part of screening process, the
operations department also proposes whether the project is to be considered highly complex and
sensitive.6 The project team, through the sector division director, submits the initial checklists and
1
2
3
4
5

Footnote 1, Appendixes 14.
A project team consists of ADB staff and consultants responsible for project preparation, administration, and
supervision throughout the project cycle.
Highly complex and sensitive projects are a subset of category A projects that ADB deems to be highly risky or
OM Section F1/OP
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OPERATIONS MANUAL
categorization results to the chief compliance officer (CCO), 7 through the Environment and
Safeguards Division (RSES) of the Regional and Sustainable Development Department (RSDD),
for concurrence or further discussion, as required. The CCO is responsible for the final
categorization, and determination of whether a project is to be deemed highly complex and
sensitive.
5.
Projects are tentatively classified during the initial screening of anticipated impacts and
risks, and this classification can be reconfirmed at the stage of management review meeting (MRM)
or staff review meeting (SRM) for sovereign operations, or the final investment committee meeting
(ICM) for nonsovereign operations. However, classification is an ongoing process, and the
classification can be changed at any time with the concurrence of the CCO as more detailed
information becomes available and project processing proceeds.
i.
Environment
6.
A proposed project is assigned to one of the following categories depending on the
significance of the potential environmental impacts and risks:
(i)
Category A. A proposed project is classified as category A if it is likely to have
significant adverse environmental impacts that are irreversible, diverse, or
unprecedented. These impacts may affect an area larger than the sites or facilities
subject to physical works. An environmental impact assessment (EIA), including an
environmental management plan (EMP), is required.
(ii)
Category B. A proposed project is classified as category B if its potential adverse
environmental impacts are less adverse than those of category A projects. These
impacts are site-specific, few if any of them are irreversible, and in most cases
mitigation measures can be designed more readily than for category A projects. An
initial environmental examination (IEE), including an EMP, is required.
(iii)
Category C. A proposed project is classified as category C if it is likely to have
minimal or no adverse environmental impacts. An EIA or IEE is not required,
although environmental implications need to be reviewed.
(iv)
Category FI. A proposed project is classified as category FI if it involves the
investment of ADB funds to, or through, a financial intermediary (paras. 5358).
7.
A projects environment category is determined by the category of its most environmentally
sensitive component, including direct, indirect, induced, and cumulative impacts. Each proposed
project is scrutinized as to its type, location, scale, sensitivity and the magnitude of its potential
environmental impacts. The level of detail and comprehensiveness of the EIA or IEE are
commensurate with the significance of the potential impacts and risks.
ii.
Involuntary Resettlement
8.
significance of the probable involuntary resettlement impacts:
(i)
significant involuntary resettlement impacts. A resettlement plan, including
assessment of social impacts, is required.
contentious or involve serious, multidimensional and generally interrelated potential social and/or environmental
impacts.
The President appoints the director general of RSDD as the CCO for safeguard policies.
OM Section F1/OP
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OPERATIONS MANUAL
(ii)
(iii)
(iv)
Category B. A proposed project is classified as category B if it includes involuntary

resettlement impacts that are not deemed significant. A resettlement plan, including
assessment of social impacts, is required.
Category C. A proposed project is classified as category C if it has no involuntary
resettlement impacts. No further action is required.
9.
A projects involuntary resettlement category is determined by the category of its most
sensitive component in terms of involuntary resettlement impacts. The involuntary resettlement
impacts of an ADB-supported project are considered significant if 200 or more persons will
experience major impacts, which are defined as (i) being physically displaced from housing, or (ii)
losing 10% or more of their productive assets (income generating). The level of detail and
comprehensiveness of the resettlement plan are commensurate with the significance of the
potential impacts and risks.
iii.
Indigenous Peoples
10.
significance of the potential impacts on Indigenous Peoples:
(i)
significant impacts on Indigenous Peoples. An Indigenous Peoples plan (IPP),
including assessment of social impacts, is required.
(ii)
Category B. A proposed project is classified as category B if it is likely to have
limited impacts on Indigenous Peoples. An IPP, including assessment of social
impacts, is required.
(iii)
Category C. A proposed project is classified as category C if it is not expected to
have impacts on Indigenous Peoples. No further action is required.
(iv)
11.
A projects Indigenous Peoples category is determined by the category of its most sensitive
component in terms of impacts on Indigenous Peoples. The significance of impacts of an ADBsupported project on Indigenous Peoples is determined by assessing (i) the magnitude of impact in
terms of (a) customary rights of use and access to land and natural resources; (b) socioeconomic
status; (c) cultural and communal integrity; (d) health, education, livelihood, and social security
status; and (e) the recognition of indigenous knowledge; and (ii) the level of vulnerability of the
affected Indigenous Peoples community. The level of detail and comprehensiveness of the IPP are
commensurate with the significance of potential impacts on Indigenous Peoples.
b.
Initial Poverty and Social Analysis
12.
An initial poverty and social analysis (IPSA) 8 is prepared for every project as early as
possible in the project cycle as an integral part of ADB's overall project preparation process. The
IPSA helps to flag the social dimensions of a proposed project, as well as develop the terms of
reference of project preparation consultants, including those that relate to involuntary resettlement
8
An IPSA is required by ADB. 2007. Operations Manual. Section C3/OP: Incorporation of Social Dimensions into ADB
Operations. Manila (25 April).
OM Section F1/OP
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OPERATIONS MANUAL
and Indigenous Peoples. The assessment of social impacts forms an integral part of a resettlement
plan and/or an IPP. 9 The assessment of social impacts is carried out based on the issues of
involuntary resettlement and/or Indigenous Peoples that are identified in the IPSA.
c.
Project Concept Paper
13.
To the extent possible, the project team summarizes the results of the screening and
records the proposed category in the project concept paper, and seeks comments and technical
advice from RSES on the project concept paper. Once the concept paper is cleared, the project
team reflects the screening results in the initial project information documents (PID), and makes
the initial PID publicly available in accordance with ADB's Public Communications Policy (2005).
2.
Project Design and Preparation

a.
Preparation and Review of Environmental and Social Assessments and

Plans
14.
Early in the project design, the project team discusses with the borrower/client the scope of
the EIA, IEE, resettlement plan, IPP, and/or other instruments specified in this OM section (part
D), 10 as well as the procedures, schedules, and outlines for preparing these documents. The
project team (i) confirms that the borrower/client understands ADBs safeguard policy principles
and requirements set out in Safeguard Requirements 14 that apply to the project; and (ii) advises
the borrower/client to submit the EIA, IEE, resettlement plan, IPP, and/or other instruments to ADB
for review as early as possible. The project team includes appropriate social and environmental
safeguard expertise in missions and field visits. The project team coordinates social and
environmental due diligence processes to ensure that social impacts related to environmental
media are appropriately addressed.
15.
The operations department reviews the EIA, IEE, resettlement plan, IPP, and/or other
instruments that have been submitted by the borrower/client, against the applicable safeguard
policy principles and requirements set out in Safeguard Requirements 14. For projects classified
as category A for environment, involuntary resettlement, or Indigenous Peoples, the operations
department also seeks review and comments from RSES on the EIA,11 resettlement plan, IPP,
and/or other instruments. If the review of the operations department and/or RSES reveals gaps
between the documents submitted by the borrower/client and applicable ADB requirements, the
project team advises and assists the borrower/client in filling such gaps, and requires the
borrower/client to address these concerns during the project preparation phase. The project team
assesses the borrowers/clients capacity to address environmental and social impacts and risks,
identifies capacity building needs, and integrates necessary capacity building programs into the
project design. For a highly complex and sensitive project, the operations department ensures that
9
A summary poverty reduction and social strategy (SPRSS) is prepared for each project (see OM Section C3). The
results of the social analysis and planning, including specific plans such as the gender action plan, resettlement plan
and IPP or other measures to address social issues are summarized in the SPRSS.
10
Depending on the projects, a range of instruments can be used to satisfy ADB's requirements on environmental and
social assessments and planning, including EIA, IEE, resettlement plan, IPP, environmental assessment and review
framework, resettlement framework, Indigenous Peoples planning framework, audit, strategic environmental
assessment, and environmental and social management system. One or more of these instruments apply to a project,
as appropriate.
11
In addition, environment category A projects are peer reviewed through the environment community of practice.
OM Section F1/OP
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OPERATIONS MANUAL
the borrower/client engages an independent advisory panel during project preparation and
implementation, in consultation with ADB.
16.
To supplement its own review, the operations department may request RSES to review and
comment on (i) the IEE, resettlement plan, IPP, and/or other instruments for projects classified as
category B for environment, involuntary resettlement, or Indigenous Peoples; and (ii) the
arrangement for an environmental and social management system for projects classified as
category FI. RSES reviews these documents, upon request. CCO can request operations
departments to submit the safeguard documents of category B or FI projects for review by RSES.
b.
Information Disclosure
17.
The project team, through due diligence and review, determines how the borrower/client
has met or will meet the information disclosure requirements outlined in Safeguard Requirements
14. The project team advises the borrower/client that information disclosure processes must be
documented and appropriately reflected in the EIA, IEE, resettlement plan, and/or IPP. When the
borrower/client submits the EIA, IEE, resettlement plan, and/or IPP, the operations department
reviews them to confirm that (i) relevant information on potential project impacts and mitigation
measures, including information from the EIA, IEE, resettlement plan, and/or IPP, has been made
available, in a timely manner and before project appraisal, in an accessible place, and in a form
and language(s) understandable to project-affected people and other stakeholders; and (ii)
information disclosure requirements during project implementation are appropriately specified.
18.
The operations department ensures that the following safeguard documents are posted on
ADBs website: (i) draft EIA report at least 120 days before Board consideration for an environment
category A project; (ii) draft environmental assessment and review framework (EARF), draft
resettlement framework and/or draft resettlement plan, draft Indigenous Peoples planning
framework (IPPF) and/or draft IPP before project appraisal for a sovereign project,12 or before the
final ICM for a nonsovereign project; and (iii) the final13 or updated EIA, IEE, resettlement plan,
and/or IPP upon receipt. The project team makes the draft IEE reports available to interested
stakeholders before project approval by the Board on request. In addition, if the final IEE is not
available upon Board approval, the draft IEE is posted on ADB's website upon Board approval of a
project.
c.
Consultation and Participation
19.
The project team advises the borrower/client that meaningful consultation with affected
people will be carried out, and the consultation processes will be appropriately documented in the
EIA, IEE, resettlement plan, and/or IPP. The operations department, through due diligence and
review, determines how the borrower/client has met or will meet the requirements on consultation
and participation outlined in Safeguard Requirements 14. The project team pays special attention
to ensure that vulnerable groups have sufficient opportunities to participate in consultations. For
projects classified as category A for environment, involuntary resettlement, or Indigenous Peoples,
the project team participates in consultations to understand the main concerns of the projectaffected people so that these concerns and recommendations can be adequately addressed in
project design and safeguard plans.
12
If no further mission for appraisal is required, these documents are posted on ADB's website before the MRM or the
first SRM.
13
If no revision is made to the draft EIA, IEE, resettlement plan, and/or IPP, they are treated as final documents.
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OPERATIONS MANUAL
20.
Safeguard Requirements 3 requires that the borrower/client and ADB ascertain whether
there is broad community support from affected Indigenous Peoples communities under three
circumstances.14 In such cases, ADB requires the borrower/client to document the processes and
outcomes of consultation with, and participation of, affected Indigenous Peoples communities.
Such documents are submitted to ADB for review. The operations department reviews the
consultation process documentation done by the borrower/client, and also through its own
investigation, verifies that broad community support for the project activities has been
demonstrated. ADB does not proceed further with project processing if it is unable to determine
that such broad support by affected Indigenous Peoples communities exists.
d.
Project Appraisal
21.
The project appraisal process15 for a sovereign project, or the due diligence process for a
nonsovereign project, includes appropriate social and environmental safeguard expertise. The
appraisal or due diligence process appraises and confirms with the borrower/client that (i) the
social and environmental safeguard measures recommended in the EMP, resettlement plan, IPP,
and/or other instruments are properly integrated into the project design; (ii) adequate institutional
capacity and arrangements are in place for implementing the EMP and/or EARF, resettlement plan
and/or resettlement framework, IPP and/or IPPF, and/or other instruments; (iii) third-party risks16
are appropriately addressed; and (iv) the financing arrangements for implementing the EMP and/or
EARF, resettlement plan and/or resettlement framework, IPP and/or IPPF, and/or other
instruments are adequate. The appraisal or due diligence process seeks to resolve all outstanding
applicable safeguard issues.
e.
Report and Recommendation of the President
22.
In the formulation of project documents for the submission to the Board, the project team
documents in the report and recommendation of the President (RRP) for sovereign projects, or in
the Board paper for nonsovereign projects, the project's environment, involuntary resettlement, and
Indigenous Peoples categories, as well as the main findings and conclusions of due diligence and
review. The findings and conclusions include (i) the major anticipated social and environmental
impacts, and the adequacy of environmental and social impact assessments; (ii) the adequacy of
mitigation measures and safeguard planning documents (including the EMP and/or EARF,
resettlement plan and/or resettlement framework, and IPP and/or IPPF); (iii) the adequacy of the
14
Indigenous Peoples may be particularly vulnerable when project activities include (i) commercial development of the
cultural resources and knowledge of Indigenous Peoples; (ii) physical relocation from traditional or customary lands;
and (iii) commercial development of natural resources within customary lands under use that have potential impacts on
the livelihoods or the cultural, ceremonial, or spiritual uses that define the identity and community of Indigenous
Peoples. According to Safeguard Requirements 3, if such activities occur, the borrower/client and ADB ascertain that
broad community support for such activities by the affected Indigenous Peoples communities exists, before
proceeding further with the project processing. Broad community support is a collective expression by the affected
Indigenous Peoples communities, through individuals and/or their recognized representatives, of support for such
project activities. Broad community support by affected Indigenous Peoples communities may exist even if some
individuals or groups object to the project activities.
15
Project appraisal process refers to as an overall assessment of the relevance, feasibility, and potential sustainability of
a project before its approval.
16
At times, a third partys involvement will influence implementation of social and environmental outcomes. A third party
may be, inter alia, a government agency, a contractor, or an operator of an associated facility. ADB requires that the
borrower/client collaborate with the third party to achieve the outcomes consistent with the ADB's requirements, when
the third-party risk is high and the borrower/client has control or influence over the actions and behavior of the third
party. Specific actions will be determined on a case-by-case basis.
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OPERATIONS MANUAL
institutional capacity and commitment of the borrower/client to manage social and environmental
risks, or the arrangements for an environmental and social management system for category FI
projects; and (iv) the proposed capacity development program as part of the project design, where
needed. The project's compliance with ADB information disclosure and consultation requirements
is also discussed. For projects where broad community support by affected Indigenous Peoples
communities must be ascertained, the RRP records the project team's verification of such support.
23.
For projects classified as category A for environment, involuntary resettlement, or
Indigenous Peoples, the CCO informs Management of the status of compliance of a proposed
project with all applicable safeguard requirements before the MRM or the final ICM by issuing a
safeguard policy compliance memorandum (SPCM). For all projects, the operations department
confirms to Management that all applicable safeguard requirements have been met before
Management approves circulation of the RRP or the Board paper to the Board.
3.
Legal Agreements
24.
The project team ensures that legal agreements include adequate covenants to address
implementation of the SPS and specifically the EMP and/or EARF, resettlement plan and/or
resettlement framework, IPP and/or IPPF, and/or other instruments, where applicable, including
the submission of monitoring reports. The versions of the EMP and/or EARF, resettlement plan
and/or resettlement framework, IPP and/or IPPF, and/or other instruments that ADB and the
borrower/client have agreed upon are referred to in legal agreements. Where relevant, the legal
agreement includes clauses on obligation of the borrower/client to incorporate safeguard
requirements in bidding documents and civil work contracts.
4.
Project Monitoring and Supervision
25.
ADB reviews and supervises project performance against the commitments of the
borrower/client, as described in the legal agreements. Monitoring of the implementation of the EMP
and/or EARF, resettlement plan and/or resettlement framework, IPP and/or IPPF, and/or other
instruments is integrated into project performance reports.
26.
For all projects with environmental or social impacts, project review missions visit project
sites to ascertain the status of implementing the EMP and/or EARF, resettlement plan and/or
resettlement framework, IPP and/or IPPF, and/or other instruments. In addition, for projects
classified as category A for environment, involuntary resettlement, and Indigenous Peoples, the
operations department conducts supervision missions, with detailed review by ADB's safeguard
specialists, officers and/or consultants. The frequency of supervision missions is proportionate to
the nature and potential impacts and risks. For highly complex and sensitive projects, the
operations department confirms that the borrower/client continues to engage an independent
advisory panel during project implementation in consultation with ADB.
27.
The operations department reviews periodic environment, resettlement, and Indigenous
Peoples monitoring reports submitted by borrowers/clients. The project team ensures that the
borrower/client submits the following monitoring reports to ADB for review: (i) semiannual reports
during project construction, and annual reports during project operation for environment category
A projects; and periodic monitoring reports for environment category B projects as deemed
appropriate by ADB; (ii) semiannual reports for involuntary resettlement category A and B projects;
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(iii) semiannual monitoring reports for Indigenous Peoples category A and B projects; and (iv)
quarterly monitoring reports for highly complex and sensitive projects.
28.
If any of the safeguard requirements that are covenanted in the legal agreements are found
not to be satisfactorily met, ADB requires the borrower/client to develop and implement an
appropriate corrective action plan (CAP) agreed upon with ADB to rectify unsatisfactory safeguard
compliance. ADB may also consider exercising its legal remedies, including suspension,
cancellation, or acceleration of maturity, specified in the legal agreements.
29.
The environment, resettlement, and Indigenous Peoples monitoring reports, and the CAP if
any, submitted by borrower/clients during project implementation are disclosed on ADBs website
upon receipt.
30.
ADB's monitoring and supervision activities are carried out on an ongoing basis until a
project completion report (PCR) 17 is issued.
5.
Uncertainties in Location and Alignment of Infrastructure and Unanticipated

Impacts
31.
Where specific locations or alignments of major infrastructure or project facilities are uncertain
at the time of Board approval, the operations departments reviews and confirms that the EMP and/or
EARF, resettlement plan and/or resettlement framework, IPP and/or IPPF, and/or other
instruments present the agreed processes to be followed for (i) updating environmental and social
assessments, including any special studies on environmental, involuntary resettlement, and
Indigenous Peoples issues, and specification of mitigation measures during project implementation;
(ii) the institutional arrangements, including capacity development for managing environmental and
social impacts and risks associated with the uncertainties; and (iii) the financial commitment,
including counterpart funds for implementing the mitigation measures. The project team assists the
borrower/client in drafting the terms of references for consultants for relevant tasks, where needed.
The agreed process is also summarized in the RRP or the Board paper, and is included in legal
agreements.
32.
If any unanticipated environmental or social impacts become apparent during project
implementation, the operations department advises and requires the borrower/client to (i) assess the
significance of such unanticipated impacts; (ii) evaluate the options available to address them; and
(iii) prepare or update the EIA, IEE, resettlement plan, IPP, and/or other instruments. ADB helps the
borrower/client mobilize the resources required to mitigate any adverse unanticipated impacts or
damage.
6.
Changes in Scope and Supplementary Financing
33.
A major change in scope is one that materially alters or fundamentally affects the projects
purpose (immediate objectives), components, costs, benefits, procurement, or other
implementation arrangements as approved by the Board. All major changes in scope need to be
17
For a sovereign project, ADB issues a PCR within 12 years after the project is physically completed and in operation.
For a nonsovereign project for which a PCR is not issued, an expanded annual review report is prepared after early
operating maturity.
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screened by the project team for their environmental and involuntary resettlement impacts, and
their impacts on Indigenous Peoples, and categorized in accordance with paras. 411. Proposed
major changes in scope that are classified as category A for environment, involuntary
resettlement, or Indigenous Peoples require a new or updated EIA, resettlement plan, or IPP.
Those classified as category B require a new or updated IEE, resettlement plan, or IPP. The
operations department reviews the new or updated EIA, resettlement plan, and/or IPP, and seeks
further comments from RSES on these documents before approval of the change in scope, if the
proposed change in scope is classified as category A. The operations department reviews and
clears the new or updated IEE, resettlement plan, and/or IPP before approval of the change in
scope, if the proposed change in scope is classified as category B. The operations department
ensures the following documents are disclosed on the ADB website: (i) the new or updated EIA
report at least 120 days before the change in scope is approved, and (ii) the new or updated IEE,
resettlement plan and IPP upon receipt.
34.
ADB may provide supplementary financing at the request of the borrower/client to cover a
financing gap that may emerge because of changes in the original cost estimates, financing
arrangements, or an operations scope and/or design. When the supplementary financing is
provided for physical changes within the original project scope and/or design, or modified for
incremental activities or components, the proposed change is screened and categorized for
safeguard significance following the procedures for environmental and social assessment and
planning, according to the requirements of this OM section (part C).
7.
Project Completion
35.
The operations department prepares the PCR for sovereign projects, or the expanded
annual review report for nonsovereign projects, which includes an evaluation of the implementation
of safeguard plans and the degree of compliance with safeguard-related covenants. The PCR
includes the following core topics, where applicable: (i) the degree and the quality of the
participation of project-affected people in the project cycle; (ii) if the project involved involuntary
resettlement, a comparison of the livelihoods of the displaced persons with the baseline situation;
(iii) if there were significant impacts on livelihood caused by project activities other than land
acquisition, a comparison of the livelihoods of the affected persons with the baseline situation; (iv)
the achievement of the objectives of the EMP and/or EARF, resettlement plan and/or resettlement
framework, IPP and/or IPPF, and/or other instruments; and (v) lessons learned for future
operations.
36.
If the objectives of the EMP and/or EARF, resettlement plan and/or resettlement framework,
IPP and/or IPPF, and/or other instruments have not been realized, or if some safeguard issues are
outstanding, the PCR recommends additional measures necessary to resolve these issues, and
ADB engages with the borrower/client to take appropriate actions to address the issues.
8.
Project Evaluation
37.
The Independent Evaluation Department includes an analysis of the adequacy of the EMP
and/or EARF, resettlement plan and/or resettlement framework, IPP and/or IPPF, and/or other
instruments of the project and the effectiveness of their implementation whenever a project
performance evaluation report is prepared. The project performance evaluation report assesses
the project's relevance, effectiveness, efficiency, and sustainability with consideration given to
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social and environmental impacts. The evaluation also comments on (i) the content and objectivity
of the PCR with regard to safeguard issues; (ii) compliance with safeguard covenants in the legal
agreements; (iii) the lessons learned; and (iv) follow-up actions, if any.
D.
Special Procedures for Different Financing Modalities
38.
Project loans follow the procedures detailed in this OM section (part C). A number of
financing modalities require special procedures to address environmental and social impacts and
risks.
1.
Program Lending
39.
ADB requires that the environmental and social impacts of policy actions associated with
program loans be evaluated, and that appropriate mitigation measures be identified and
incorporated as loan covenants. The environmental and social assessments focus on the policy
actions to be supported by the program loan. A matrix of potential environmental and social
impacts of each policy action, together with appropriate mitigation measures, is prepared. It
includes a qualitative indication of the likely order of magnitude of each impact and brief reasons
for the judgment. The project team works together with the borrower/client to prepare the matrix. A
strategic environmental assessment and social assessments, which facilitate systematic evaluation
of the environmental and social impacts of a policy, plan, or program and its alternatives, may be
usefully applied in the preparation of program loans, and ADB will encourage the borrower/client to
use these tools, where appropriate. For a category A program loan project where a strategic
environmental assessment (SEA) is prepared, the draft SEA is disclosed on ADBs website 120Days before the Boards consideration.
2.
Safeguard Frameworks
a.
Sector Lending
40.
Under sector financing, most subprojects are unlikely to be identified before Board approval.
An EARF, resettlement framework, and/or IPPF, following the outlines detailed in Safeguard
Requirements 4, are required to be in place before the approval of a sector investment project to
provide guidance on subproject selection, screening and categorization, information disclosure and
consultation, assessment, planning, institutional arrangement, and processes to be followed in the
formulation and implementation of subprojects during project implementation.
41.
The project team (i) reviews the potential environmental and social impacts and the risks
associated with a sector investment project; (ii) assesses the capacity of the borrower/client for
social and environmental management; and (iii) incorporates capacity development measures in
the design of the sector investment project. For any sector investment project that is classified as
category A or B for environment, involuntary resettlement, or Indigenous Peoples impacts, the
project team works with the borrower/client to prepare an EARF, resettlement framework, or IPPF.
One or more sample subprojects will be appraised before project approval. For the sample
subproject(s), ADB requires the borrower/client to prepare EIA(s), IEE(s), resettlement plan(s),
and/or IPP(s) in accordance with the general procedures detailed in this OM section (part C). The
operations department reviews the EARF, resettlement framework, IPPF, EIA(s) and/or IEE(s),
resettlement plan(s), and IPP(s) of the sample subproject(s). For a sector investment project that is
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classified as category A for environment, involuntary resettlement, or Indigenous Peoples impacts,
the operations department also seeks review and comment from RSES on these documents.
42.
To determine whether the application of safeguard frameworks is appropriate, the project
team will assess the capacity of the borrower/client to manage environmental and social impacts
and risks, and to implement national laws and ADBs requirements. If gaps exist between ADBs
requirements and a country's laws, or where gaps in a borrower's capacity are apparent, the
safeguard frameworks should include the details of the specific gap-filling requirements to ensure
that ADB policy principles and safeguard requirements are achieved.
43.
For any subproject classified as category A that is prepared during project implementation,
the operations department reviews the EIA, resettlement plan, and IPP; and seeks RSES
comments. For any subproject classified as category B that is prepared during project
implementation, the operations department ensures the reviews and clearance of the IEE,
resettlement plan, and IPP. The operations department ensures that the draft EIA report is
disclosed on ADB's website at least 120 days before the approval of the subproject, and that the
draft resettlement plan and draft IPP for category A projects are posted on ADB's website before
the approval of the subproject.
b.
Multitranche Financing Facility
44.
An EARF, resettlement framework, and/or IPPF are prepared for a multitranche financing
facility (MFF). ADB and the borrower/client agree on the EARF, resettlement framework, and/or
IPPF, which are incorporated by reference into the framework facility agreement. The EARF,
resettlement framework, and/or IPPF include key elements specified in Safeguard Requirements 4,
which provide guidance on social and environmental screening and categorization, impact
assessments, development of management plans, public consultation and information disclosure,
monitoring and reporting, and institutional arrangements (including budget and capacity
development). This guidance is to be followed in the formulation of project components and
subprojects that are prepared after Board approval of the MFF, including the criteria for component
or subproject selection. The operations department assists the borrower/client in preparing the
safeguard frameworks, and seeks RSES review.
45.
In addition, where significant sector or regional environmental impacts from the investments
under an MFF are anticipated, ADB requires the borrower/clients to undertake a strategic
environmental assessment to identify mitigation measures to be built into the MFF design.
46.
The MFF as a whole is not screened and categorized as to its environment, involuntary
resettlement, or Indigenous Peoples impacts. Instead, each tranche of the MFF is screened and
categorized according with the procedures set out in paras. 411 of this OM section. For any
tranche classified as category A for any of its environment, involuntary resettlement, or Indigenous
Peoples impacts, the operations department reviews the EIA and/or EARF, resettlement plan
and/or resettlement framework, and/or IPP and/or IPPF. The operations department seeks
comments on these documents from RSES, which issues an SPCM before the MRM for the first
tranche and before Management considers the periodic financing request (PFR) for the second
and subsequent tranches. For any tranche classified as category B or FI, the operations
department reviews the IEE and/or EARF, resettlement plan and/or resettlement framework, and/or
IPP and/or IPPF, or environmental and social management system (ESMS), respectively. For all
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tranches, the operations department confirms that all applicable safeguard requirements have
been met before Management considers the PFR.
47.
The operations department ensures the following documents are posted on ADB's website:
(i) EARF, resettlement framework, and IPPF prepared for the MFF before the appraisal of the MFF;
(ii) the draft EIA report for the tranche, where applicable, at least 120 days before the approval of
the PFR; (iii) the draft resettlement plan and draft IPP before appraisal, in case of the first tranche,
and before Managements consideration of the related PFR in the case of a subsequent tranche;
and (iv) the final or updated EIA, IEE, resettlement plan and/or IPP upon receipt for all tranches.
48.
When the operations department prepares the consolidated annual report on the
performance of all approved MFFs in each country,18 the report will reflect safeguard-related risks
and issues, and actions being taken to mitigate the risks and resolve the issues, if any.
c.
Emergency Assistance and Projects in Conflict Areas
49.
For emergency assistance loans, the project team works with the borrower/client to prepare
the EARF, resettlement framework, and IPPF before Board circulation of the project RRP, in
accordance with the EARF, resettlement framework, and IPPF outlines detailed in Safeguard
Requirements 4. The EARF, resettlement framework, and IPPF are provided in appendixes to the
RRP. ADB's Disaster and Emergency Policy (2004) allows procedural flexibility in the application of
the safeguard requirements. The RRP justifies any deviation from the general procedures specified
in this OM section, regarding the specific circumstances of the project and the emergency loan
processing schedule.
50.
For projects in conflict areas, where the formulation of standard EIA, IEE, resettlement plan,
and/or IPP is not feasible before Board approval, the EARF, resettlement framework, and/or IPPF
may be submitted in lieu of safeguard plans for project approval. The RRP justifies any deviation
from the general procedures specified in this OM section. The EIA, IEE, resettlement plan, and/or
IPP prepared based on the approved frameworks are formulated and approved before any projectrelated physical activities start.
d.
Project Loans with Subprojects or Components Prepared after Board

Approval
51.
For project loans where subprojects or components are prepared after Board approval and
have limited anticipated environment, involuntary resettlement, and Indigenous Peoples impacts,
the EARF, resettlement framework, and IPPF may be submitted in lieu of safeguard plans for such
subprojects or components. The RRP justifies any deviation from the general procedure specified
in this OM section. The environment and social assessments and safeguard planning documents
are formulated and approved before any physical activities start.
3.
Existing Facilities
52.
For projects involving facilities and/or business activities that already exist or are under
construction before ADB's involvement, ADB requires the borrower/client to conduct an
18
Such annual reports are required by ADB. 2008. Operations Manual. Section D14/OP: Multitranche Financing Facility.
Manila (6 August).
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environment and/or social compliance audit to determine their safeguard compliance status. The
project team confirms that the audit by the borrower/client includes on-site environmental and
social assessments to identify past or present safeguards concerns related to the impacts on the
environment, involuntary resettlement and Indigenous Peoples. Where noncompliance is identified,
ADB and the borrower/client agree on a CAP, implementation schedule, and sufficient funds to
bring the project into compliance with the safeguard policy requirements. If an upgrade or
expansion of a project is not foreseen, the audit report (including the CAP, if any) constitutes the
EIA, IEE, resettlement plan, and/or IPP. The audit report is disclosed on the ADB website following
the disclosure requirements in this OM section (part C). For a project involving an upgrade or
expansion of existing facilities that have potential impacts on the environment, involuntary
resettlement, or Indigenous Peoples, the requirements for environmental and social assessments
and planning specified in this OM section (part C) apply in addition to the audit.
4.
Financial Intermediaries
53.
In the case of financial intermediaries, the term "project" is used to mean ADBs transaction
with the financial intermediary, whereas "subproject" means business activities financed by the
financial intermediary.
54.
The project team conducts safeguard due diligence to assess potential environmental and
social impacts and risks associated with a financial intermediary's existing and likely future
portfolios, as well as its commitment to and capacity for environmental and social management. If
ADBs assessment concludes that the financial intermediarys business activities have minimal or
no environmental impacts or risks, and are unlikely to generate involuntary resettlement impacts
and impacts on Indigenous Peoples, the project is treated as a category C project. As such, the
project team advises the financial intermediary that it need not apply any other specific safeguard
requirements.
55.
If a financial intermediary is likely to generate environmental and social impacts, the project
team undertakes an in-depth assessment of its current ESMS, and identifies areas where
improvements are needed. The project team examines the financial intermediarys ESMS focusing
on the financial intermediarys (i) environmental and social policies; (ii) safeguard screening,
categorization, and review procedures; (iii) current organization structure and staffing; (iv)
performance monitoring and reporting procedures; and (v) track record in environmental and social
management. If the financial intermediary does not have an ESMS, ADB requires it to establish
and maintain an ESMS commensurate with the level of potential environmental and social impacts
and risks. Depending on the size of the financial intermediary and nature of its business activities,
ADB requires the financial intermediary to appoint a suitably qualified officer to oversee
environmental and social aspects, and appoint one or more staff for day-to-day implementation of
the ESMS. The screening procedure established under the ESMS should ensure all subprojects
are screened against the prohibited investment activities list. 19 Subprojects involving business
activities included in the list are not qualified for financial intermediary support using ADB funds,
and applications involving such activities are to be rejected. The operations department ensures
that an ESMS satisfactory to ADB is adopted by the financial intermediary before ADB's first
disbursement for the financing of subprojects.
19
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56.
Where the subprojects financed by the financial intermediary using ADB funds, through
either credit-line, other loans, equity, guarantee, or other financing instrument, will likely be
classified as category A for any of their environment, involuntary resettlement, or Indigenous
Peoples impacts, the ESMS incorporates relevant provisions that such subprojects meet ADBs
requirements specified in Safeguard Requirements 13 in addition to national laws and standards.
In such subprojects, the project team requires the financial intermediary to refer those subprojects
to ADB early in its due diligence process. The operations department assists the financial
intermediary in appraising these subprojects. ADB (i) reviews the environmental and social
information collected by the financial intermediary, (ii) determines any additional information
needed, (iii) assists with determining appropriate mitigation measures, and (iv) specifies conditions
under which the subprojects may proceed. For such subprojects, ADB clears the EIA, resettlement
plan, and/or IPP before subproject approval, and the project team ensures that the following
documents are made publicly available: (i) the draft EIA report at least 120 days before the
approval of the subproject, and (ii) the draft resettlement plan and draft IPP before the approval of
the subproject.
57.
Except for financial intermediaries that have minimal or no adverse environmental and
social impacts or risks, the project team requires the financial intermediary to prepare and submit
periodic reports (at least annually) on the implementation status of its ESMS. If an annual report or
ADBs review mission finds that the ESMS is not functioning properly, the operations department
and the financial intermediary agree on a CAP immediately. The financial intermediary implements
the CAP.
58.
The RRP or the Board paper summarizes the results of the project teams due diligence,
as well as the agreed upon arrangement for the ESMS and the procedure for subproject review by
ADB, where applicable. The agreed upon requirements for establishing and maintaining the
ESMS, and the procedure for subproject review by ADB where applicable, are included in the
legal agreement between ADB and the financial intermediary.
5.
General Corporate Finance
59.
If a borrower/client with operations at multiple sites is seeking general corporate finance,
working capital, or equity financing from ADB, the project team advises and requires the
borrower/client to commission qualified and experienced external expert(s) to conduct a corporate
audit of the ESMS of the borrower/client and the companys past and current performance against
ADB requirements. 20 The audit (i) assesses the capacity of the borrower/client to manage all
environmental and social impacts and risks of its businesses and operations, particularly the issues
identified in the Safeguard Requirements 1-3; (ii) assesses the clients compliance record with the
applicable laws and regulations of the jurisdictions in which the project operates, including those
laws implementing host country obligations under international law; and (iii) identifies the
companys main stakeholder groups and current stakeholder engagement activities. The client and
ADB agree on the scope of the corporate audit on a case-by-case basis.
20
General corporate finance refers to ADB projects where the borrower/clients (corporate entities that are not financial
intermediaries) with operations at multiple sites (e.g., equipment leasing companies or holding companies with many
subsidiaries) are seeking loans and/or investment that are not earmarked for implementing specific subprojects, or
working capital or equity financing from ADB.
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60.
The operations department reviews the adequacy of the ESMS of the borrower/client to
enable compliance of future subprojects with ADBs requirements through site visits and a review
of the corporate audit report submitted by the borrower/client. If any noncompliance is identified
through ADBs due diligence and review, ADB reaches an agreement with the borrower/client on a
CAP by specifying time-bound measures to achieve safeguard compliance in accordance with
ADBs requirements within a targeted time frame. ADB requires the borrower/client to incorporate
the CAP in its corporate ESMS.
61.
The RPP or the Board paper summarizes the results of project teams due diligence and
review. The agreed upon requirements for establishing and maintaining the ESMS are included in
the legal agreement between ADB and the borrower/client.
62.
If the investment includes rehabilitation, modernization, or expansion of existing facilities,
the requirements for existing facilities, as specified in para. 52, apply.
6.
Projects with Cofinancing
63.
ADB makes efforts to collaborate with the borrower/client and cofinanciers in adopting a
single social and environmental assessment and planning process and unified safeguard
documentation, consultation, and disclosure requirements to satisfy the safeguard principles and
requirements of ADB and the cofinanciers. The agreement or MOU between ADB and the
cofinanciers explains how the responsibilities of ADB and the cofinanciers for monitoring and
supervising safeguard implementation are allocated.
E.
Strengthening and Use of Country Safeguard Systems

1.
Identifying Candidate Countries, Sectors, and Agencies
64.
The operations department discusses with the borrower, and proposes the strengthening
and use of country safeguard systems (CSS) at the national, subnational, sector, or agency level.21
The proposal to strengthen and use CSS is circulated for interdepartmental comments. The
operations department notifies the Board of Directors of the proposal. To the extent possible, the
proposal, together with its justification and arrangement for undertaking equivalence and
acceptability assessments, is presented in a reference document of the country partnership
strategy (CPS). Alternatively, the operations department prepares a freestanding proposal.
65.
The country team also consults and coordinates closely with the World Bank and other
possible development partners when preparing the proposal.
2.
Assessing Equivalence and Acceptability
66.
The operations department reaches an agreement with RSES and the Office of the General
Counsel on the respective responsibilities for CSS equivalence and acceptability assessments.
The assessment process involves ADB personnel with appropriate policy, environmental, social,
and legal expertise. The equivalence and acceptability assessments at the national, subnational,
sector, or agency level may be prepared as a reference document of the CPS or as a freestanding
21
Use of a CSS will include a limited number of developing member countries with a focus on the subnational, sector, or
agency level during the first 3 years after the SPS becomes effective.
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document. The acceptability assessment at the project level is undertaken as part of the project
preparatory work.
67.
The elements of equivalence and acceptability assessments are (i) review of the relevant
national, subnational, or sector legislation, regulations, rules, and procedures (equivalence
assessment); (ii) assessment of borrower implementation practices, track record, and institutional
capacity, through discussion and consultation with experts and other stakeholders, and field visits
(acceptability assessment); (iii) identification of areas of the proposed CSS that would need to be
strengthened to satisfy the policy objectives, scope, triggers and applicable principles set out in the
SPS, and of aspects of implementation practices and institutional capacity that need to be
improved to achieve acceptability; and (iv) specification of any actions required of the borrower to
(a) achieve and maintain equivalence; (b) achieve and maintain acceptability with respect to
relevant implementation practices, track record, and capacity; and (c) implement the action plan
according to the timetable agreed upon with ADB. ADB's decisions on and support for the
strengthening and use of CSS are based on the equivalence and acceptability assessments. ADB
may provide technical assistance for the activities to strengthen CSS.
68.
Recent analytical work and diagnostic assessments by other development partners,
updated as required, can provide valuable inputs. Joint assessments with other development
partners, particularly the World Bank, are encouraged.
3.
Disclosure and Consultation
69.
Upon completion, draft equivalence and acceptability assessments are documented and
disclosed on ADBs website for public comment. ADB organizes country consultations to solicit
comments and feedback from stakeholders, including governments and civil society organizations.
Upon completion, ADB discloses the final equivalence and acceptability assessments on ADBs
website. Acceptability assessments at the project level follow the standard safeguard document
disclosure and consultation process undertaken for project processing. Updates of equivalence
assessments, if any, are also disclosed on ADB's website upon completion.
4.
Further Documentation
70.
Based on the findings and recommendations of the equivalence and acceptability
assessments, the operations department reviews the original proposal for the strengthening and
use of CSS with the borrower, and reach an agreement on an updated proposal to use CSS in
ADB-supported projects, including the implementation of the recommended action plans to achieve
and maintain equivalence and implementation capacity. The operations department seeks RSES
review and comments on the updated proposal. The operations department submits the updated
proposal to the Board of Directors for approval, and attaches the equivalence and acceptability
assessments to the proposal. The updated proposal can be submitted as a reference document of
the CPS or as a freestanding document.
71.
For projects where CSS are to be used, the project team summarizes the plan to use CSS
when the PID is prepared and updated during project preparation. For such projects, the main text
of the RRP specifies which safeguard policy areas (environment, involuntary resettlement, or
Indigenous Peoples) apply to the project. It also contains the major findings of the equivalence and
acceptability assessments, and indicates any actions the borrower/client or ADB must take to
achieve and maintain equivalence and acceptability.
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5.
Legal Agreement
72.
For projects where CSS are applied, the legal agreement reflects, as appropriate, the key
feature of the CSS and any additional measures that the borrower would be required to undertake
during project implementation. The legal agreement sets out the remedies available to ADB if the
provisions of the agreement are not followed.
6.
Implementation and Supervision
73.
The use of CSS does not eliminate ADBs responsibilities for safeguard review before
Board approval of proposed projects. The review is based on requirements under the CSS and on
the agreed upon action plan. After the Board approves a project that uses CSS, ADB supervision
follows the same procedures as for any other investment project.
7.
Changes in Country Safeguard Systems
74.
If, during CSS application, there are changes in applicable legislation, regulation, rules, or
procedures at national, subnational, sector, or agency level, ADB assesses the effect of those
changes and discusses them with the borrower. If, in the judgement of ADB, the changes reflect a
further improvement in the CSS, and if the borrower so requests, ADB may agree to (i) revise the
legal agreement applicable to the operation to reflect these improvements, and to amend the legal
agreement as necessary; and (ii) update the equivalence and acceptability assessments.
Management documents, explains, and justifies any changes to such agreement, and submits
them for Board approval (normally on a no-objection basis). If the CSS is changed in a manner
inconsistent with the legal agreement between the borrower and ADB, ADB's contractual remedies
apply.
8.
Exclusion of Country Safeguard Systems
75.
CSS are not to be applied to ADB-supported projects that ADB deems to be highly complex
and sensitive.
F.
Departmental Responsibilities and Compliance
76.
The operations departments are responsible for safeguard policy implementation. The
operations departments undertake initial screening of potential environmental and social impacts,
and propose the environment, involuntary resettlement, and Indigenous Peoples categorization of
all ADB-financed projects in consultation with RSES. The CCO approves the final categorization.
The operations departments are responsible for (i) advising the borrower/client on the relevant
ADB safeguard policy requirements; (ii) reviewing safeguard documents submitted by the
borrower/client and assessing the adequacy of mitigation measures, as well as the capacity of the
borrower/client to manage environmental and social impacts and risks; (iii) assisting the
borrower/client in safeguard planning and incorporating the necessary capacity development
activities into the project design; and (iv) monitoring and supervision during project implementation.
77.
The CCO, assisted by RSES, is responsible for reviewing and updating ADB safeguard
policy, monitoring ADB-wide compliance with ADBs safeguard policy requirements, and advising
and assisting operations departments in safeguard policy matters. The CCO, assisted by RSES,
advises Management on safeguard policy issues and the compliance status of projects and the
OM Section F1/OP
Page 18 of 18
OPERATIONS MANUAL
portfolio as a whole. RSES is responsible for developing and updating safeguard guidelines and
handbooks; capacity development and training on safeguard policies; and supporting operations
departments' safeguard due diligence, review, or supervision. RSES also conducts safeguard
review missions for selected ongoing projects.
Basis:
This OM section is based on OM Section F1/BP and the documents cited

therein.
Compliance:
For inquiries:
Questions of interpretation of this OM section are decided by the chief

compliance officer.
4 March 2010
This supersedes OM Section F1/OP
issued on 20 January 2010
Prepared by the Regional and Sustainable Development

Department and issued by the Strategy and Policy
OM Section G1/BP
Page 1 of 1
OPERATIONS MANUAL
BANK POLICIES (BP)
ECONOMIC ANALYSIS OF PROJECTS
A. Introduction
1.
Article 14(xi) of the Agreement Establishing the Asian Development Bank (the
Charter) requires ADB to take measures necessary to ensure that the proceeds of any
loan made, guaranteed, or participated in by ADB are used with due attention to
considerations of economy and efficiency. Article 36.2 requires that all decision making
in ADB be based only on economic considerations.
B. The Policy
2.
The purpose of economic analysis of projects is to promote the identification and
selection of public investments that will lead to a sustainable improvement in the welfare
of beneficiaries, and a country as a whole. Project analysis is relevant in the context of
specific project investments as well as in investment programs. Additional economic
analysis may also be required for investment programs. The economic analysis of
projects commences at project conception, is developed during project preparation, is
monitored during project implementation, and is reviewed after project completion
through the project completion report and, if appropriate, the project performance audit
report to ensure that investment resources are used in a manner that is economic,
efficient, and sustainable.
3.
Economic analysis is carried out to assess the economic viability of a project in
the context of a countrys macroeconomic goals, performance, and outlook, and in the
context of the goals, performance, and outlook of the relevant sector. The rationale for a
project, in terms of the market or nonmarket failure that is to be addressed, needs to be
clearly stated and set in the context of the countrys national and sector development
goals. All technically feasible alternative ways of achieving a project's objectives must be
considered so that the least-cost technically feasible alternative can be identified. This
least-cost alternative will normally be selected as the preferred alternative. If not, other
economic principles must be applied to justify the preferred alternative. The costs and
benefits of this preferred alternative, defined and valued from the perspective of the
national economy relative to an appropriate situation, are then compared to assess
economic efficiency. National environmental costs and benefits should be identified and
included in the analysis as appropriate. If benefits cannot be valued, economic costs are
assessed against project objectives to minimize the resources required to achieve the
objectives. Where the outputs of a project can be quantified but not valued, economic
efficiency can be assessed in terms of cost-efficiency alone.
4.
To determine the likelihood of a project achieving its desired development
impact, the risks associated with a project are identified and their potential impact on
project viability, and on the projects financial and institutional sustainability, assessed.
OM Section G1/BP
Page 2 of 2
Consideration is given to possible fiscal impacts associated with a project. Any subsidies
associated with a project are identified and quantified.
5.
Project stakeholders are clearly identified and the distribution of costs and
benefits between stakeholders is assessed. In this context, consistency with ADBs
poverty reduction strategy is considered.
6.
Economic analysis is undertaken in coordination with institutional, financial,
environmental, social and poverty analysis and forms an integral part of investment
appraisal.
7.
The policy applies to project investment activities undertaken with the support of
project, public sector, and private sector loans. The policy also applies to program loans
with discrete, identifiable investment components.
Basis:

ADB. 1997. Guidelines for the Economic Analysis of Projects,
February. Manila.
ADB. 1996. Doc. IN226-96, Bank Criteria for Subsidies, October.
Manila.
This OM section is to be read with OM Section G1/OP.
Compliance:
For inquiries:
Questions may be directed to the Assistant Chief Economist,

Economic Analysis and Operations Support, Economics and
Research Department.
15 December 2003
Issued on 12 November 1997.
Prepared by the Economics and Research

Department and issued by the Strategy
OM Section G1/OP
Page 1 of 1
OPERATIONS MANUAL
ECONOMIC ANALYSIS OF PROJECTS
A. Introduction
1.
ADBs policy requires that all investment activities be subjected to economic
analysis in order to ensure the economic and efficient use of resources.
2.
Economic analysis comprises a quantitative and qualitative examination in
sufficient depth to determine the acceptability of an investment project in terms of
economic efficiency and sustainability. The analysis should include the elements
identified below.
(i)
Review of macroeconomic context. A project cannot be designed and

implemented in isolation from the rest of the economy. A review of the
macroeconomic context is needed to provide an understanding of the
economys overall performance and outlook, and of how specific
macroeconomic factors may affect project performance. This review,
which underpins subsequent stages of the economic analysis, is normally
undertaken during preparation of the country strategy and program (CSP)
and its update (CSPU).
(ii)
Review of sector context. Analysis and understanding of markets,

public institutions, and the policy environment provides the basis for
identifying of market and institutional failures. When subsequently
combined with sector wide demand and supply analysis, this provides the
basic rationale for a possible investment project.
(iii)
Demand analysis. A project that does not meet the consumers or users
demand for particular goods or services will not generate benefits and will
result in inefficient investment. Demand analysis provides the basis for
identifying the goods or services needed by users and for estimating the
scale of, and economic benefits from, an investment project.
(iv)
Identification of project rationale. The rationale for public intervention

in a sector can be based on the failure of (a) markets to adequately
provide what society wants, or (b) public institutions to deliver public
goods or services. Clear definition of the project rationale helps to narrow
down the possible alternative ways of meeting a development objective.
(v)
Identification of project alternatives. All alternative, mutually exclusive

ways of meeting the intended development objective should be identified,
OM Section G1/OP
Page 2 of 2
and consideration given to what will happen without the proposed project.
Alternative project designs need to be compared in terms of scale,
location, technology, and timing. Demand factors will also be important.
Least-cost analysis must be undertaken to identify the preferred
alternative. The basis for selecting the preferred alternative should be
clearly explained, particularly if it is not the least-cost alternative in
economic terms.
(vi)
(vii)
Identification and comparison of project costs and benefits. The

economic costs and benefits associated with the preferred project
alternative relative to the without-project case must be identified and
valued appropriately. In addition to costs and benefits that relate directly
to the project, external factors, such as environmental costs or benefits,
may also need to be included. Project outputs need to be separated into
those that substitute for other outputs without the project and those that
add to total supply within the economy, as these different types of output
are treated differently for purposes of valuation.
(a)
Costs and benefits must be estimated in terms of a common

economic price level and a common unit of account in order to
allow comparison. Prices can be expressed in terms of either the
domestic price level or the world price level. The unit of account
can be either the domestic currency or an international currency.
(b)
When economic costs and benefits have been valued on a

consistent basis, using a common price level and in terms of a
common unit of account, various criteria are applied to test
whether the project represents an economically efficient
investment. The basic criteria for assessing a projects economic
viability are the economic net present value (ENPV) and the
economic internal rate of return (EIRR). For a project or a
subproject to be acceptable, the EIRR should equal or exceed the
economic opportunity cost of capital (EOCC) for the borrowing
country. Given the complexity of estimating country-specific
EOCCs, a discount rate of 12% in constant economic prices is
generally used as a proxy for EOCC in the economic analysis of
ADB-financed projects. Where significant unquantifiable net
benefits are believed to be likely, the discount rate or EIRR may
be between 10% and 12%.
(c)
For projects with benefits that can be quantified but not valued, it
will not be possible to calculate ENPV or EIRR. For such projects,
economic analysis will be based on an analysis of the costeffectiveness of alternative ways of achieving the targeted level of
benefits.
Assessment of project sustainability. A project is sustainable if its net

benefits endure throughout its life at a level sufficient to meet the
economic viability criteria. Economic benefits depend on financial and
institutional sustainability, and the ability of business entities to perform
OM Section G1/OP
Page 3 of 3
financially. For revenue generating projects, financial analysis for project
participants is an important element of sustainability analysis, as it
establishes if (a) incentives are sufficient for producers to participate in
the project; and (b) funds will be sufficient for investment, operation, and
maintenance. For all projects, particularly that do not generate revenue,
the fiscal impact during implementation and operation needs to be
carefully considered. Any subsidies associated with a project must also
be identified and quantified.
(viii)
Distribution of project effects. Project beneficiary and stakeholder

groups, and the extent to which they gain from benefits or bear costs
associated with a project, should be identified. Where project effects are
intended to benefit a particular target group, the proportion of net benefits
going to that group should be assessed.
(ix)
Sensitivity and risk analysis. Future events always entail a degree of

uncertainty; thus, it is necessary to understand the variables in an
economic analysis that are subject to risk, the source of the risks, and the
probable extent of variation. Sensitivity analysis is undertaken to identify
the parameters that are uncertain and to which the ENPV and EIRR are
sensitive. Switching values, showing the change in a variable necessary
to change the project decision from acceptance to rejection, should be
presented for key variables. These can then be compared with
experience from previous projects. A quantitative risk analysis is
recommended for large projects, those with an EIRR close to 12% and
those with a high degree of associated risk. A qualitative assessment of
risk should be undertaken for all projects. Sensitivity and risk analyses
contribute to improved project design and help identify action needed to
mitigate against major sources of uncertainty.
(x)
Identification of indicators for project performance monitoring

system. Economic analysis, as undertaken before the commencement of
project implementation, is based on assumptions about expected future
values of key variables. Once implementation commences, monitoring of
actual outcomes is necessary for managing implementation and
assessing development impact. The project performance management
system should include the key variables necessary to identify a projects
impact during implementation and operation.
3.
The economic analysis of an investment project, including its underlying
assumptions, is to be incorporated into the report and recommendation of the President.
Given the page limits for this report, a supplementary appendix may be used to
document full details of the economic analysis. Cross-references to other relevant ADB
documents, such as project/program preparatory technical assistance reports and the
CSP or CSPU should be incorporated as appropriate.
4.
The project team, which is tasked with designing, preparing, and appraising an
investment project, is responsible for preparing the economic analysis, while the director
general of the regional department concerned is responsible for the quality of the
economic analysis. Management considers the economic analysis in making its
OM Section G1/OP
Page 4 of 4
decisions on each investment project. The Economic Analysis and Operations Support
Division of the Economics and Research Department provides advisory services
throughout this process. The division is responsible for reviewing the economic analysis
at appropriate stages of project processing and for providing guidance thereon.
Basis:
This OM section is based on OM Section G1/BP, OM Section

D11/OP, and the documents cited therein.
Compliance:
For inquiries:
Questions may be directed to the Assistant Chief Economist,

Economic Analysis and Operations Support, Economics and
Research Department.
15 December 2003
Issued on 12 November 1997.
Prepared by the Economics and Research

Department and issued by the Strategy
OM Section G2/BP
Page 1 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
FINANCIAL MANAGEMENT SYSTEMS, FINANCIAL ANALYSIS, AND
FINANCIAL PERFORMANCE INDICATORS
A. Introduction
1.
Charter) requires ADB to take necessary measures to ensure that the proceeds of any
loan made, guaranteed, or participated in by ADB are used only for the purposes for
which the loan was granted and with due attention to considerations of economy and
efficiency. In addition, Article 14(xiv) of the Charter requires ADB to be guided by sound
banking principles in its operations.
B. Definitions
1. Executing Agencies
2.
Executing agencies are agencies that are responsible for designing,
implementing, and/or operating a project. The term executing agency also applies to
the borrower.
3.
Executing agencies may be classified broadly as

(i)
public sector agencies, which include central government line ministries,

departments, or agencies; and provincial or state government
departments or agencies; and local governments;
(ii)
semiautonomous government agencies, public sector enterprises, or

parastatal bodies such as agriculture or industrial credit banks, fertilizer
corporations, public utilities, railways, and port authorities; or
(iii)
designated private sector agency.
4.
Executing agencies are also classified as "revenue earning" and "nonrevenue
earning" for project processing and implementation purposes in order to determine the
extent and depth of analysis required by ADB.
2. Revenue Earning
5.
The term "revenue earning" is applied to executing agencies and projects that
are implemented, and in most cases operated, by executing agencies that are
commercially oriented, or that generate substantial revenues either by consumer
charges or by forms of sector-specific local taxation or through financial intermediation
such as water supply or drainage taxes, and have authority to decide on the use of these
OM Section G2/BP
Page 2 of 3
funds. Executing agencies and projects that do not fall within the foregoing description
are termed "nonrevenue earning."
3. Financial Management Systems
6.
The term "financial management systems" covers the policies and practices
regarding financial planning, programming, accounting, monitoring and reporting,
internal auditing, checking and controlling, external auditing, funding, organization, and
personnel of a project or of an executing agency. Good financial management promotes
overall fiscal discipline and efficient allocation of resources to priority needs.
4. Financial Analysis
7.
The term "financial analysis" comprises a quantitative and qualitative
examination in sufficient depth to determine the reliability of the financial data pertaining
to a project, a sector, and an executing agency.
5. Financial Performance Indicators
8.
Financial performance indicators refer to financial ratios used to assess and
monitor the project's financial sustainability, the financial viability of the executing
agency, and the project's impact on the borrower's fiscal balance.
C. The Policy
9.
As an integral part of project preparation, ADB requires the use of financial
analysis and an assessment of the financial policies and the capacity of the financial
management systems practiced or proposed by the borrower or executing agency to
support project implementation and operation. The executing agency must be capable of
providing correct and timely information on the progress of project implementation and,
where appropriate, on its operation.
10.
Executing agencies are to maintain a financial management system that ensures
accountability, efficiency, economy, and solvency.
11.
For revenue-earning projects, ADB requires the preparation and presentation of
financial statements and projections for the project and financial performance indicators
of the executing agency (especially public sector enterprises and utilities), with an
analysis thereof and the determination of appropriate financial performance indicators.
12.
In the case of nonrevenue-earning executing agencies, ADB requires sound
financial policies, adequate accounting records, proper internal control systems, timely
reporting to management, and sound and timely auditing practices. The executing
agency is to ensure the sustainability of the project within its implementation period and
thereafter.
13.
Financial analysis is to be undertaken so that the financial viability of the project
and, in appropriate cases, of the executing agency, before, during, and after the
investment in the project is established to the satisfaction of ADB.
OM Section G2/BP
Page 3 of 3
14.
Financial performance indicators to be recommended for use in financial
covenants in loan agreements are to be formulated on the basis of financial policies
pertaining to the sector, the project, and the executing agency, and ADBs requirements
for financial viability for a revenue-earning project and its executing agency. These
indicators, including the manner in which they are calculated, are to be discussed during
project preparation with appropriate levels of the borrower's administration, including the
executing agency. The agreement reached is to be reflected in the memorandum of
understanding and supported by an appendix showing financial statement projections
that demonstrate that compliance is practicable.
15.
The policy applies to investment projects and project executing and implementing
agencies. Consequently, the policy relates mainly to identifiable investment activities
that have been undertaken with support from project, sector, and private sector loans.
This also applies where program loans include discrete, identifiable investment
components. The policy also applies to private sector operations and is likewise relevant
to project preparatory technical assistance.
Basis:

ADB. 2001. Guidelines for the Financial Governance and
Management of Investment Projects Financed by the Asian
Development Bank, November. Manila.
This OM section is to be read with OM Section G2/OP.
Compliance:
For inquiries:
Questions may be directed to the Director, Governance and Regional

Cooperation Division, Regional and Sustainable Development
Department.
29 October 2003


OM Section G2/OP
Page 1 of 3
OPERATIONS MANUAL
FINANCIAL MANAGEMENT SYSTEMS, FINANCIAL ANALYSIS, AND
FINANCIAL PERFORMANCE INDICATORS
A. Introduction
1.
ADB's policy requires executing agencies to maintain a financial management
system that ensures accountability, efficiency, economy, and solvency. The scope of
assessment of the financial management systems, the extent of financial analysis
required, and the formulation of financial performance indicators are detailed below. The
procedures are applied to ensure that ADB is provided with correct and timely
information to assure it of the financial viability of its investments and of the developing
member countrys executing agencies, and that the expenditures incurred are for the
purposes stated in the report and recommendation of the President (RRP), loan
agreement, and project agreement.
2.
The assessment of financial management systems; the financial analysis of
projects and the executing agencies; and the financial projections, including
assumptions used in the projections, are to be incorporated into the RRP.
1. Financial Management Systems
3.
Financial management systems are reviewed by the project team during project
preparation and reported to the management review meeting (MRM). Based on further
examination after MRM, or as required, the RRP describes1 clearly the financial
management system for the project and the executing agency. The RRP makes specific
statements as to the adequacy of the financial management systems concerned. If
inadequacies or gaps are identified, then all necessary remedial measures, their timing,
and the likely impact on the project and executing agency until completion are to be
specified in the RRP and, if appropriate, in the loan and project agreements.
4.
The standards of financial management assessment employed by ADB in
reviews of systems are to be sufficient to satisfy ADB of the capability and capacity of an
executing agency to produce timely and reliable financial data and reports, and to
achieve standards of performance that will ensure
(i)
achievement of the financial benefits estimated to be generated by the

project, including the financial internal rates of return, where specified in
the RRP; and
If the financial management system is fully satisfactory, the description can be relatively brief but is to state
explicitly the grounds for satisfaction.
OM Section G2/OP
Page 2 of 3
(ii)
where applicable, achievement of the financial policy objectives

represented by the financial performance indicators in the financial
covenants in the loan and project agreements.
5.
Where executing agencies are revenue earning, ADB endeavors to ascertain
their solvency, liquidity, and profitability.
2. Financial Analysis
6.
Financial analysis comprises a quantitative and qualitative examination in
sufficient depth to determine the reliability of the financial data pertaining to a project, a
sector, and an executing agency, and to determine the acceptability to ADB of the
following elements:
(i)
Sector analysis:
(a) assessment of the existing structure, policy, and regulation of the
sector against its capacity to support cost-effective service delivery,
especially to poor people, and to enhance economic growth;
(b) assessment of financial performance against appropriate benchmarks
to identify scope for improvement; and
(c) identification of policy and regulatory changes, notably tariff and
competition policy, aimed at improving financial sustainability;
(ii)
Analysis of the executing agency:

(a) assessment of the adequacy of the investment cost and the financing
plan for the project, including its coverage of recurring costs
(operations and maintenance [O & M] expenses);
(b) evaluation of recent historical, current, and expected future
performance of the executing agency: key assumptions and financial
statements, with an emphasis on cash flows, financial ratios and debt
service capacity; accounting and financial policies; and the viability of
the executing agency, including actual and proposed cost recovery
policies (where appropriate, taking explicit account of the form and
amount of subsidies received for financing its operations);
(c) assessment of the executing agency's ability to fund recurring costs
(including O & M, and capital expenditures), using all sources of
revenue including user charges and subsidies;
(d) assessment of project implementation and operational practices of
the executing agency of a nonrevenue earning project;
(e) sensitivity analysis on key risks affecting the achievement of the

project's development objectives and assessment of the financial
policies and the actual and forecast efficiency and viability of the
OM Section G2/OP
Page 3 of 3
executing agency's financial operations as well as the financial
performance indicators adopted as covenants for project monitoring;
and
(f) assessment of the executing agencys solvency, liquidity, and
profitability during the period of ADBs loan;
(iii)
Analysis of the project:

(a) discounted cash flow analysis demonstrating that the project's
unleveraged cash flow has an acceptable financial internal rate of
return, and a positive net present value, using a discount rate that
reflects the financial cost of capital;
(b) assessment of project cash flows to ensure adequate liquidity,
solvency, and profitability;
(c) identification of the scope for requiring subsidies to ensure financial
viability at the project level, and ensuring that arrangements are in
place to fully finance the project's construction, and O & M cost;
(d) recommendations and agreement with the borrower on a program to
improve the project's financial sustainability; and
(e) sensitivity analysis on key risks affecting the financial performance of
the project, and measures for mitigation of risks thereof, if possible.
Basis:
This OM section is based on OM Section G2/BP and the documents

cited therein.
Compliance:
For inquiries:
Questions may be directed to the Director, Governance and Regional

Cooperation Division, Regional and Sustainable Development
Department.
29 October 2003


OPERATIONS MANUAL
BANK POLICIES (BP)
OM Section H1/BP
Page 1 of 2
FINANCING OF INTEREST AND OTHER CHARGES DURING CONSTRUCTION
A.
Introduction
1.
Subject to the policy below, interest and other charges during construction (IDC) are
expenditures eligible for sovereign loan and sovereign guaranteed loan operations.1
B.
Definitions
2.
The term interest and other charges during construction means the interest, front-end
fees, commitment charges and premium on cap and collar, if any, on ADB loans or loans from
cofinanciers to an ADB-financed project. The term construction period refers to the period of
project implementation; it is also the period before major benefits of the project begin to accrue.
C.
The Policy
3.
At a borrowers request, ADB may finance IDC, and the ADB loan will include an amount
corresponding to the interest and other charges payable by the borrower to ADB and
cofinanciers during the construction of the project.
D.
Scope of the Policy
4.
Project loans, sector loans, supplementary loans, the investment component of sector
development program loans, and loans to development finance institutions are eligible for IDC
financing. IDC financing is not available for policy-based lending that does not involve project
components or project construction periods.
Coverage
5.
IDC is payable by the borrower or project entity on ADB loans as well as on loans from
cofinanciers, both official and commercial, and from local sources. All IDC is included in the
estimated total cost of the project. Separate categories for IDC on the ADB loan and the
cofinanciers loan should be provided in the loan agreement.
For private sector operations, see OM Section D10 (Private Sector Operations).
OPERATIONS MANUAL
BANK POLICIES (BP)
OM Section H1/BP
Page 2 of 2
Basis:

Development Bank Financing: A New Approach. 4 August. Manila (Doc.
R193-05).
This OM section is to be read with OM Section H3.
Compliance:
For inquiries:
Questions may be directed to the director, Central Operations Services 1,

Central Operations Services Office.
18 July 2006
This supersedes OM Section H1/BP
Prepared by the Central Operations Services Office

OPERATIONS MANUAL
OM Section H1/OP
Page 1 of 1
FINANCING OF INTEREST AND OTHER CHARGES DURING CONSTRUCTION
18 July 2006
This supersedes OM Section H1/OP

OPERATIONS MANUAL
BANK POLICIES (BP)
OM Section H4/BP
Page 1 of 2
RETROACTIVE FINANCING
A.
Introduction
1.
As a general rule, ADB will finance only those eligible expenditures1 that are incurred
after the related loan agreement, grant agreement, or technical assistance (TA) letter
agreement becomes effective. By way of exception, retroactive financing may be considered by
ADB for eligible expenditures relating to sovereign loans, sovereign guaranteed loans, public
sector grants, and TA operations.2
B.
Definition
2.
The term retroactive financing refers to ADBs financing of project expenditures
incurred and paid for by the borrower or recipient of grant financing before the related loan,
grant, or TA letter agreement becomes effective.3
C.
The Policy
3.
Retroactive financing is permitted only if (i) it is specifically agreed, by ADB and the
borrower or recipient of grant financing, in the loan agreement, grant agreement, or TA letter
agreement, and only pursuant to the terms of the relevant agreement; (ii) the goods, works,
services, and consultants for which it is requested are procured in accordance with ADBs
Procurement Guidelines or Guidelines on the Use of Consultants by Asian Development Bank
and Its Borrowers or, in the case of eligible expenditures not covered4 by ADBs Procurement
Guidelines or Guidelines on the Use of Consultants by Asian Development Bank and Its
Borrowers, under arrangements acceptable to ADB; and (iii) the amount to be retroactively
financed does not exceed 20% of the loan, grant, or TA amount.
D.
Scope of the Policy
4.
The expenditures must have been incurred before effectiveness of the relevant loan,
grant, or TA letter agreement but, generally, no earlier than 12 months before the signing date
of such agreement. A period starting at an earlier date will only be allowed on a case-by-case
basis, if properly justified and documented in the report and recommendation of the President.
1
2
3
4
See OM Section J3 (Procurement), OM Section J2 (Consultants), and OM Section H3 (Cost Sharing and Eligibility
of Expenditures for ADB Financing).
For private sector operations, see OM Section D10 (Private Sector Operations).
See OM Sections J5 (Effectiveness of the Loan Agreement) and J6 (Loan Disbursement).
Such as acquisition of land and rights-of-way, resettlement expenses, lease financing costs.
OPERATIONS MANUAL
BANK POLICIES (BP)
OM Section H4/BP
Page 2 of 2
In either instance, detailed assessments (due diligence) on each retroactive financing proposal
must demonstrate that (a) the expenditures incurred are genuine, reasonable, and material to
getting the project off the ground; and (b) they were incurred for proper reasons, in a
transparent manner over a reasonable period of time. 5
5.
For the application of retroactive financing under program lending, disaster and
emergency assistance and supplementary loans, refer to OM Sections D4 (Program Lending),
D7 (Disaster and Emergency Assistance) and H5 (Supplementary Financing).
Basis:
This OM section is based on the following:

ADB. 1977. Technical Assistance Operations. 20 May. Manila (Doc. R51-77).
ADB. 1983. Streamlining of Loan Administration. 3 March. Manila (Doc. R3083).
ADB. 1990. Streamlining of Loan Administration Procedures. 10 July. Manila
(Doc. R89-90).
ADB. 1991. Streamlining of Loan Administration Procedures and Reporting
Requirements. 26 February. Manila (Doc. R34-91).
Development Bank Financing: A New Approach. 4 August. Manila (Doc.
R193-05).
Compliance:
For inquiries:

Land acquisition is one case where a longer retroactive financing period may be appropriate. In some instances,
land has to be purchased up to 3 years in advance. Other cases include project support facilities (e.g., access
roads, water, gas, electricity, and telecommunication connections) that may have to be put in place for the
purposes of the project (or an investment program involving the project) before the approval of the investment
project.
21 July 2006

OPERATIONS MANUAL
OM Section H4/OP
Page 1 of 1
RETROACTIVE FINANCING
The operational procedures for this OM section are contained in Project Administration
Instructions 3.01, as well as documents cited therein.
Basis:
This OM section is based on OM Section H4/BP and the documents cited

therein.
Compliance:
For inquiries:

21 July 2006

OM Section H6/BP
Page 1 of 2
OPERATIONS MANUAL
BANK POLICIES (BP)
USE OF SURPLUS LOAN PROCEEDS
A. Introduction
1.
During implementation of a project, surplus loan proceeds may accrue in a
borrowers loan account. Normally, these funds are cancelled from the loan. However,
where there is adequate justification, such surplus loan proceeds may be used to
procure additional goods and services.
B. Definition
2.
Surplus loan proceeds comprise those funds that are available or are expected
to be available in the borrowers loan account after arrangements for procurement of all
goods, works, services, and other expenditures, including contingencies, to be financed
from the loan have been finalized.
C. The Policy
3.
Surplus loan funds, if any, should, in principle, be cancelled as soon as they are
identified during implementation and upon completion of the project. At the request of
the borrower concerned, however, ADB may agree to the use of surplus loan proceeds
for purposes that are in accordance with the broad objectives of the project. In particular
circumstances surplus loan proceeds may be used for purposes outside the broad
objectives of the project, and in exceptional circumstances surplus loan funds may be
used to finance expenditures on a different project.
4.
Surplus loan funds may be utilized for financing the additional project costs
resulting from a change in project scope, and occasionally surplus loan funds may be
utilized for purposes other than those originally intended, such as for items or
components in other ongoing ADB-financed projects or new projects. Surplus loan funds
may be utilized to finance the imports of urgently needed commodities such as fuel in
other ongoing ADB-financed projects or the local currency costs of such projects.
5.
In exceptional circumstances, surplus loan funds may be utilized for emergency
rehabilitation of damaged project facilities after disasters1 or for financing goods and
services of another ongoing ADB-financed project or a new project. When local cost
financing is involved, the use of surplus loan funds is subject to the policy for local cost
financing.2
1
2
See OM Section D7 (Emergency Assistance).

OM Section H6/BP
Page 2 of 2
Basis:

ADB. 1992. Doc. R212-92, Streamlining Board Documents on Project
Loan and Technical Assistance, 22 December. Manila.
ADB. 1983. Doc. R115-83, Revision 1, Final, Review of ADBs Policy
on Supplementary Financing of Projects, 29 November. Manila.
ADB. 1983. Doc. R30-83, Streamlining of Loan Administration, 3
March. Manila.
This OM section is to be read with OM Section H6/OP.
Compliance:
For inquiries:
Questions may be directed to the Director, Project Coordination and

Procurement Division, Central Operations Services Office.
29 October 2003
Prepared by the Central Operations

Services Office and issued by the Strategy
and Policy Department with the approval
of the President.
OM Section H6/OP
Page 1 of 1
OPERATIONS MANUAL
USE OF SURPLUS LOAN PROCEEDS
Instructions (PAI) No. 5.06 and other procedures and policies cited therein. PAIs 5.04
and 5.05 describe the required approval authority where surplus loan proceeds are to be
used on the project to which account they accrue (reallocation of loan proceeds and
change in scope).
Basis:
This OM section is based on OM Section H6/BP and the documents

cited therein.
Compliance:
For inquiries:
Questions may be directed to the Director, Project Coordination and

Procurement Division, Central Operations Services Office.
29 October 2003
Prepared by the Central Operations

Services Office and issued by the Strategy
and Policy Department with the approval
of the President.
OM Section H2/BP
Page 1 of 2
OPERATIONS MANUAL
BANK POLICIES (BP)
FINANCING INDIRECT FOREIGN EXCHANGE COST OF PROJECTS
A.
Introduction
1.
Article 13(i) of the Agreement Establishing the Asian Development Bank (the Charter)
stipulates that, in making direct loans or participating in them, the Asian Development Bank
(ADB) may provide financing that is necessary to meet the foreign exchange costs of a project.
B.
Definition
2.
The term indirect foreign exchange cost means the cost of the imported components of
goods, works, and services purchased locally.1 This may occur even when a developing
member country exports and imports the same or similar resource but is a net importer of the
resource.
C.
The Policy
3.
ADB finances the indirect foreign exchange cost of items procured in local currency for
ADB-financed projects with foreign exchange costs, including the indirect foreign exchange
costs of subprojects financed under ADB loans to development finance institutions and financial
intermediaries.2
D.
Scope of the Policy
4.
ADB finances the indirect foreign exchange costs incurred in the procurement of (i)
imported goods from a domestic supplier, (ii) locally manufactured goods that contain imported
components, and (iii) works that include components under (i) and (ii) above.
Some examples are the cost of petroleum products used on a construction site and purchased locally, the cost of
imported iron ore in locally manufactured and processed steel, and the depreciation cost of imported machinery in
manufacturing cement produced locally.
This OM section applies only to outstanding loans that were approved before 15 March 2006.
OM Section H2/BP
Page 2 of 2
OPERATIONS MANUAL
BANK POLICIES (BP)
Basis:

ADB. 1969. R55-69, Use of Special Fund Resources to Finance Foreign
Exchange Component of Local Currency Expenditures, 17 September. Manila.
ADB. 2005. R193-05, Cost Sharing and Eligibility of Expenditures for Asian
Development Bank Financing: A New Approach, 4 August. Manila.
ADB. 2006. Procurement Guidelines, April. Manila.

For inquiries: Questions may be directed to the Director, Central Operations Service Division 1,
22 October 2008
Prepared by the
Central Operations Services Office, updated and
OM Section H2/OP
Page 1 of 2
OPERATIONS MANUAL
FINANCING INDIRECT FOREIGN EXCHANGE COST OF PROJECTS
A.
Introduction
1.
The Asian Development Bank (ADB) finances the indirect foreign exchange cost in the
case of imported goods purchased from a local supplier, procurement of locally manufactured
goods, and procurement of works, subject to applicable cost-sharing limits.
B.

1.
Procurement of Imported Goods
2.
When imported goods are purchased from a local supplier, the indirect foreign exchange
cost is the landed cost in the developing member country. In some cases, this cost is
identifiable. In cases when the landed cost is unclear, the indirect foreign exchange cost is
assessed as a percentage of the contract price agreed upon by the borrower and ADB, based
on identifiable landed costs of similar items.
2.
Procurement of Locally Manufactured Goods
3.
When locally manufactured goods are procured through international competitive bidding
or international shopping procedures in accordance with ADBs Procurement Guidelines (2006,
as amended from time to time), ADB finances the ex-factory price. This price includes both
direct and indirect foreign exchange costs, as well as any local currency costs that ADB has
agreed to finance under local cost-financing and cost-sharing arrangements effective before 15
March 2006, but excluding sales, business, and other taxes.
4.
When locally manufactured goods are procured through local competitive bidding
procedures that have been approved by ADB, ADB finances the estimated direct and indirect
foreign exchange cost component. This component of the cost is expressed as a percentage of
the total price of the goods for the purpose of disbursements from the loan account.
3.
Procurement of Works1
5.
Works contracts carried out by both foreign and local contractors usually include (i) the
direct foreign exchange cost of the imported services, materials, and equipment from outside of
the developing member country; (ii) local currency costs of materials and equipment that have a
significant import content; and (iii) local currency costs of items without an import content. Direct
and indirect foreign exchange costs associated with items (i) and (ii) are eligible for ADB
1
The term works includes all types of workscivil, mechanical, electrical, or othersas well as the supply of
construction materials and equipment, and the provision of related services (other than consulting services) as part
of the contract for such works.
OM Section H2/OP
Page 2 of 2
OPERATIONS MANUAL
financing. The depreciation of the imported equipment used on a project, included in item (ii), is
considered an indirect foreign exchange cost eligible for ADB financing.
6.
A contract for works that is awarded through international competitive bidding or
international shopping procedures in accordance with ADBs Procurement Guidelines is
financed by ADB to the extent indicated in para. 3 regardless of whether the contractor is
classified as local or foreign.
7.
When a works contract is awarded under local competitive bidding procedures that have
been approved by ADB, ADB finances the estimated direct and indirect foreign exchange cost
of the contract as well as local cost that ADB has agreed to finance under local cost financing
and cost-sharing arrangements effective before 15 March 2006.
Basis:

therein.

For inquiries: Questions may be directed to the Director, Central Operations Service Division 1,
22 October 2008
Prepared by the
Central Operations Services Office, updated and
OM Section H3/BP
Page 1 of 2
OPERATIONS MANUAL
BANK POLICIES (BP)
These policies were prepared for the use of ADB staff and are not necessarily a complete
COST SHARING AND ELIGIBILITY OF EXPENDITURES FOR ADB FINANCING
A.
Introduction
1.
This section sets out the Asian Development Bank (ADB) policy on cost sharing with
respect to ordinary capital resources and Asian Development Fund (ADF) public sector loans
and grants (other than policy-based lending, 1 and limited or non-recourse financing to subsovereign or nonsovereign public sector entities), and technical assistance (TA) loans and
grants. It also sets out ADBs policy on the expanded list of eligible expenditures.2
B.
Definitions
2.
The terms
C.
(i)
ADBs share in the project cost means that portion of a projects cost that ADB
will finance.
(ii)
country cost-sharing ceilings are financing parameters that indicate the

maximum share of aggregate costs ADB will finance with respect to the portfolio
of projects in a developing member country (DMC), over the period of the
prevailing country partnership strategy (CPS) for that DMC.
The Policy
3.
ADBs share in the project cost. ADBs share in the cost of a loan-financed project will
always be less than the total of the project cost. It will be based on specific sector, client, and
project considerations, and will adhere to sound banking principles taking into account a
projects cost recovery profile (i.e., ability to pay), sustainability configurations (i.e., adequate
budget support), and currency mismatch risks.3 ADBs share in the project cost may exceed or
fall below the country cost-sharing ceiling, provided ADBs share in the aggregate cost of the
portfolio of projects in a DMC does not exceed the country cost-sharing ceiling over the CPS
period.
4.
Country cost-sharing ceiling. Country cost-sharing ceilings for loans, ADF grants, and
TA loans and grants will be set for each DMC in the course of CPS preparation. Loans including
ADF grants will have one ceiling and TA and other grants will have a separate ceiling. The
ceilings will be reviewed, and then may either be reset or confirmed, at subsequent CPS
preparation processes.
1
2
3
See OM Section D4/BP (Policy-Based Lending).

This OM Section is applicable to projects approved on or after 15 March 2006.
See OM Section G2 (Financial Management Systems, Financial Analysis, and Financial Performance Indicators).
OM Section H3/BP
Issued 3 January 2012
Page 2 of 2
OPERATIONS MANUAL
BANK POLICIES (BP)
5.
Expanded list of eligible expenditures. In addition to other reasonable project-related
expenditures, the following expenditures are eligible for ADB financing:4 acquisition of land and
rights-of-way, late payment charges imposed by suppliers and contractors, bank charges, food
expenditures, interest during construction on non-ADB loans, secondhand goods, lease
financing costs, taxes and duties, and local transport and insurance costs related to project
expenditures.
6.
Guiding principles. In the implementation of the policy, the following guidelines will be
observed: (i) expenditures covered under loan proceeds should promote development, and thus
underpin the poverty reduction agenda; (ii) operations funded in the new and more flexible
manner under this policy should not unduly burden the DMCs fiscal, debt, and macroeconomic
sustainability; and (iii) effective fiduciary and other oversight arrangements should be in place at
all stages of the business cycleat the country, executing agency, and project level.
Reinforcement of these principles will be required through government commitment to, and
ownership of, their development programs and projects financed by ADB.
Basis:
This section is based on:

Development Bank Financing: A New Approach. Manila.
ADB. 2011. Cost Sharing and Expenditure Eligibility: Policy Implementation
Review. Manila.
This OM Section is to be read with OM Section H3/OP.
Compliance:
For inquiries:
Questions may be directed to the Strategy and Policy Department.
Other policies govern the extent to which particular expenditures may be financed. Thus, under OM Section D7/BP
(Disaster and Emergency Assistance), ADBs mandate does not allow it to engage in peacemaking, peacekeeping,
or humanitarian relief.
3 January 2012

Development Department, updated and
OM Section H3/OP
Page 1 of 5
OPERATIONS MANUAL
These procedures were prepared for the use of ADB staff and are not necessarily a complete
COST SHARING AND ELIGIBILITY OF EXPENDITURES FOR ADB FINANCING
A.
Introduction
1.
The procedures for applying the Asian Development Bank (ADB) policy on cost sharing
and expenditure eligibility are described below.
B.
Definitions
2.
The terms
C.
(i)
financing plan means the plan that identifies the different sources1 of financing
for the project; if appropriate in relevant cases, it also describes the different
loan/grant currencies and lending terms (i.e., short-term, medium-term, and longterm maturities).
(ii)
project investment plan means the summary of cost estimates of the project.
(iii)
"due diligence" means (a) the process of investigating a potential investment; (b)
exercising that measure of prudence, activity, or assiduity as is properly expected
from, and ordinarily exercised by, a reasonable and prudent person under the
particular circumstances; it is not measured by any absolute standard, but
depends on the relative facts of the special case; (c) the conscientiousness with
which proper attention is paid to a task; and (d) giving the degree of care
required in a given situation to ensure that one is fully aware of the assumptions
and risks involved in an investment on which one is being asked to decide.

1.
Setting the Country Cost-Sharing Ceilings
3.
Regional departments are responsible for processing and proposing, for the approval of
Management and the information of the Board, the cost-sharing arrangements applied to
individual developing member countries (DMCs). The country cost-sharing ceiling for a DMC will
be established in the context of the DMCs overall development program, and the DMCs
funding capabilities over the short to medium term. Specifically, ADB will take into account the
following:
This includes, where applicable, (i) the DMC, (ii) other multilateral and bilateral agencies, (iii) commercial banks,
(iv) private equity groups, (v) capital markets, and (vi) ADB.
OM Section H3/OP
Page 2 of 5
OPERATIONS MANUAL
(i)
the level and quality of the DMCs public expenditure program and its balance of
payments;
(ii)
the DMCs public finance strategy and preferences (e.g., the DMCs strategy for
financing of sub-national governments, financing of recurrent costs by user
charges or other non-debt sources, partial financing by users and/or beneficiaries
or the private sector in some sectors; preferences for different levels of ADB
financing across sectors or types of projects);
(iii)
the quality of budget management (i.e., the DMCs mechanisms for budget
preparation, execution,2 and monitoring);
(iv)
the performance track record of ongoing projects;
(v)
the proportion of the DMCs overall development program that it finances from its
own resources and the proportion financed by development partners, including
ADB (both from a historical perspective and for the period of the latest country
partnership strategy [CPS]);
(vi)
the degree to which ADB-financed projects align with the DMCs overall
development plans; and
(vii)
the extent to which ADB-financed projects are integrated into the DMCs budget
and budget processes.
4.
When processing proposals for the country cost-sharing ceiling, the regional
departments will work closely with the DMC and other development partners, with the objective
of adopting similar criteria and methodologies and avoiding duplicating assessments. Joint
assessments may be undertaken to ensure consistency, accelerate harmonization, and reduce
costs for DMCs.
5.
Country cost-sharing ceilings will generally be set for each DMC in the course of CPS
preparation. For DMCs where the CPS was endorsed before the date of this section, or where
CPS preparation is already in an advanced stage of processing as of the date hereof, the
country cost-sharing ceilings may be established as a stand-alone exercise before the next CPS
preparation process. Until new country cost-sharing ceilings under this section are established
for a DMC, the cost-sharing limits applicable to that DMC as of 25 August 2005 will constitute
the country cost-sharing ceiling.
Budget execution refers to the process of implementing an approved budget, including aspects such as budget
releases and funds flow; treasury cash management; procurement; and internal and management controls,
including on payroll and assets, accounting and reporting, and auditing.
OM Section H3/OP
Page 3 of 5
OPERATIONS MANUAL
2.
Setting ADBs Share in the Project Cost
6.
Regional departments will also be responsible for applying the new cost sharing and
expenditure eligibility policy to projects planned and implemented by their divisions and offices
over the course of the CPS. In determining ADBs share in the project cost, the regional
department will take into account, among other things, (i) the country cost-sharing ceiling and
any other relevant financing parameter3 that may be adopted by the regional department for the
CPS period; (ii) information gathered in the course of due diligence reviews, covering, as
appropriate, technical, commercial (revenue streams, if any, and revenue assumptions),
financial (financial model and pro forma financial statements, as appropriate), legal, capacity,
governance and fiduciary, regulatory, social, environmental, and other safeguards; (iii) the cost
recovery profile and sustainability capacity of the project; (iv) sector characteristics; (v) specific
client characteristics, including its cofinancing capacity and track record with the type of project
and/or activity areas; and (vi) the developmental nature of the project and its impact on the
sector, industry, and economy.
3.
Determining Eligibility of Certain Project Expenditures for ADB Financing
7.
Acquisition of land and rights-of-way. ADB may finance the acquisition of land and
rights-of-way. The amount eligible for financing will be determined in the course of project
preparation and processing, based on the magnitude of the estimated costs, the DMCs budget
conditions,4 and specific assessments undertaken as part of the project due diligence. These
assessments will focus on (i) confirming the expected productive nature of the acquisition; (ii)
the suitability of land market conditions,5 including the definition of strategies to deal with any
foreseen distortions; (iii) the adequacy of the administrative arrangements to ensure transparent
and efficient channeling of funds; (iv) the definition of the risk profile of the transaction and the
type of risk mitigation measures required; and (v) the soundness of the monitoring and
evaluation arrangements for the purchase and payment of the land and right-of-way.6 When the
acquisition of land and rights-of-way involves involuntary resettlement and/or if the acquisition
affects indigenous peoples, ADB may finance the cost of acquisition provided that all applicable
requirements under ADBs Safeguard Policy Statement are complied with, and the acquisition is
undertaken and implemented in compliance with the ADB-approved resettlement planning
documents and/or indigenous peoples planning documents.7
For example, cost-sharing ceilings on a sector basis, and financing parameters with respect to taxes and duties,
recurrent costs, and land and right-of-way acquisition.
Factors affecting budget conditions include such things as the expected timing of expenditure, and the ability of the
DMC to provide the required financing on time.
Factors affecting the suitability of market conditions would include the rules and arrangements on land titling,
registration and publication of interests in land and other real property, registration and publication of transfers of
land and interests therein, enforcement procedures, the availability of market prices, and other transactional or
administrative costs associated with land and land matters.
The valuations by external independent professional valuation experts (or if there are no professional valuation
experts, other professionals with relevant expertise acceptable to ADB and the borrower), made either as part of
the formal project due diligence process or separately, will be considered in determining the cost of acquisition.
The resettlement planning documents include the (i) resettlement plan, (ii) resettlement framework, and (iii)
updated resettlement plan. The indigenous peoples documents include the (i) indigenous peoples plan, (ii)
OM Section H3/OP
Page 4 of 5
OPERATIONS MANUAL
8.
Taxes and duties related to project expenditures. During the CPS preparation
process, a reasonable threshold will be identified for the financing of taxes and duties related to
project expenditures. This threshold will be based on assessments of the transparency,
competitive neutrality, and sustainability of the DMCs fiscal and tax regime. In making the
assessments, comparisons may be made with regional and international emerging market
benchmarks.
9.
The following principles will be used to determine the amount of taxes and duties to be
financed in a project: (i) the amount will be within the reasonable threshold identified during the
CPS preparation process, (ii) the amount will not represent an excessive share of the project
investment plan, (iii) the taxes and duties apply only to ADB-financed expenditures, and (iv) the
financing of the taxes and duties is material and relevant to the success of the project.
10.
Resettlement expenses, recurrent costs, severance pay, local transport, and
insurance costs; late payment charges imposed by suppliers and contractors; bank
charges; food expenditures; and interest during construction on ADB and non-ADB
loans. These expenditures qualify for ADB financing. However, resettlement expenditures are
eligible for ADB financing only if they are incurred in compliance with all applicable requirements
under ADBs Safeguard Policy Statement and the ADB-approved resettlement planning
documents and/or indigenous peoples planning documents.
11.
Secondhand goods. Expenditures for the acquisition of secondhand goods may be
financed if they meet the basic criteria of economy, efficiency, and appropriateness, e.g., when
there are sufficient goods from enough sources to enable competitive bidding; and when the
procurement of secondhand goods provides better economies of scale or when, in comparison,
the acquisition of new goods would lead to excessive costs to the borrower.
12.
Lease financing. The cost of leasing assets may be financed if (i) it is shown to be less
costly than available alternatives, considering the value of the asset, the comparative cost of a
straight purchase, and the net present value of the lease contract (whether a capital lease8 or
an operating lease9); and (ii) special accounting and financial management and reporting
arrangements are in place to ensure sufficient fiduciary oversight during project implementation.
indigenous peoples planning framework, and (iii) updated indigenous peoples plan. See OM Section F1 (Safeguard
Policy Statement).
Capital leasing is used to finance an asset for a major part of its useful life. During the term of the lease, although
the lessor continues to be the legal owner, substantially all the benefits and risks inherent in the ownership of the
asset are transferred to the lessee. At the end of the lease term, the lessee typically obtains full ownership of the
asset.
Capital leasing is used to finance an asset for a major part of its useful life. During the term of the lease, although
the lessor continues to be the legal owner, substantially all the benefits and risks inherent in the ownership of the
asset are transferred to the lessee. At the end of the lease term, the lessee typically obtains full ownership of the
asset.
Operating leasing is similar to renting of assets and is typically for a shorter period than the assets useful life. The
lessor typically retains ownership of the asset during and after the end of the term of the lease. At the end of the
lease term, the lessee typically returns the assets to the lessor without further obligation.
OM Section H3/OP
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OPERATIONS MANUAL
For purposes of project sustainability, the necessity for and ability of the lessee to acquire title to
the asset should be considered and appropriately addressed.
13.
The eligibility of these items must be assessed, documented, and justified in the report
and recommendation of the President.
D.
Foreign Exchange and Local Currency Cost Estimates
14.
Project investment plans presented in the report and recommendation of the President
will show a summary of the project cost estimates priced in a single currency, and will not
distinguish between direct or indirect foreign exchange costs, and local currency costs.
E.
Fiduciary Oversight
15.
To give due attention to fiduciary oversight, country systems, including financial
management systems, fiduciary controls, and audit capacity, will be assessed up front. They will
be used to help establish the country cost-sharing ceiling.
16.
In addition, due-diligence reviews will be undertaken in the preparation of projects and
will be reflected in the project design, particularly in the design of fiduciary, monitoring, and
evaluation mechanisms. Among other things, the reviews will be used to assess in detail the
financial management systems, fiduciary controls, auditing arrangements, and procurement
capacities of the project executing and implementing agencies. This will include the agencies
capacity to provide audited financial statements and project accounts in a timely manner.
17.
During project execution, regular monitoring and review of these matters, including the
appropriateness of expenditures, will be undertaken by ADB staff and external auditors. The
DMC and the executing agencies will ensure that expenditures financed and to be financed by
ADB will be strictly for the purposes of the project.
Basis:
This section is based on OM Section H3/BP and the documents cited therein.
This OM Section is to be read with OM Section H3/BP.

For inquiries: Questions may be directed to the Strategy and Policy Department.
3 January 2012

Development Department, updated and
OM Section H5/BP
Page 1 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
_________________________________________________________________________________
_________________________________________________________
ADDITIONAL FINANCING
A.
Introduction
1.
The Asian Development Bank (ADB) may provide additional financing to an ongoing
project. The objectives of additional financing are to enlarge the range of ADB's financing
instruments, reduce incremental transaction costs, improve responsiveness and services to
developing member countries (DMCs), and enhance development effectiveness.
B.
Application
2.
All forms of public and private sector projects can receive additional financing,1 e.g.,
stand-alone investment projects, project components of sector lending, investment components
of sector development programs, equity investments, guarantees, multitranche financing
facilities, disaster and emergency assistance, and technical assistance loans. Additional
financing does not apply to program lending.
3.
Additional financing
(i)
may be provided either in the form of new financial assistance or by reallocating
unutilized loan proceeds from ongoing loans,2
(ii)
will require different types of due diligence depending on the nature of the
project, and
(iii)
will have terms and conditions that are determined independently of those of the
original loan. 3
C.
Eligibility Criteria
4.
ADB may provide additional financing beyond the amount specified in the original
financial assistance agreement for investment operations. Additional financing will only support
projects that
(i)
remain technically feasible, economically viable, and financially sound;
(ii)
are accorded high priority by the government;
(iii)
are consistent with the projects development objectives,4 and
(iv)
are consistent with the current country partnership strategy (CPS).
1
2
ADB. 2010. Nonsovereign Operations. Operations Manual. OM D10. Manila.

ADB. 2003. Use of Surplus Loan Proceeds. Operations Manual. OM H6. Manila. Also see the relevant project
administration instructions for guidance on procedures for reallocating surplus loan proceeds.
The terms original loan, original project, or original operation in this OM section, including both bank policies
and operatioal procedures, refer to the original loan(s), grant(s), other financing sources, or the proceeding
additional financing project(s).
This includes either the original objectives or revised objectives as part of operation restructuring to align with the
current country partnership strategy; or to improve project design and implementation. A projects development
objectives are reflected in the projects outcome statement.
OM Section H5/BP
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OPERATIONS MANUAL
BANK POLICIES (BP)
_________________________________________________________________________________
5.
The additional financing should be approved by the Board on or before the loan closing
date of the original loan.
D.
Scope _________________________________________________________
6.
Additional financing can be used to (i) scale up projects that are performing well, (ii)
finance changes in project scope, (iii) meet cost overruns and financing gaps, or (iv) finance a
combination of these.
7.
Scaling up projects that are performing well. Additional financing can be used to
expand a projects outcome or outputs.
8.
Change in scope. Additional financing can be used to support changes in project scope
that lead to financing requirements exceeding the original financial allocation. These can be
divided broadly into two categories: (i) modification of projects that are performing well, and (ii)
restructuring of projects that are not performing well.
9.
Meeting cost overruns and financing gaps. Cost overruns refer to the project
expenditures incurred or expected to be incurred by the borrower 5 above the projects cost
estimate as originally approved by the ADB Board of Directors. Financing gaps refer to the
shortfalls or expected shortfalls caused by changes in financing arrangements between
financiers.
E.
Operational Restriction
10.
Projects facing cost overruns and financing gaps that are provided with additional
financing should be completed within three years of the current closing date of the original
operation.
F.
11.
G.
Priority for Additional Financing

In considering additional financing, ADB gives priority to projects that:
(i)
are performing well;
(ii)
have a high degree of project readiness in such areas as design, implementation
capacity, and safeguards; or
(iii)
have innovative features in design and/or implementation.
Financing
12.
The source of additional financing may include all financing sources of ADB, such as
ordinary capital resources (OCR), Asian Development Fund (ADF) loans, ADF grants, other
grants; ADB-administered cofinancing; and other sources. The specific source of additional
financing depends on the eligibility status of the DMC concerned in accordance with the lending
The term borrowers in this OM refers to a generally term which also includes grant recipients.
OM Section H5/BP
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OPERATIONS MANUAL
BANK POLICIES (BP)
_________________________________________________________________________________
arrangements prevailing when the additional financing is processed.6 If financed from OCR, the
interest and commitment charge on an additional financing loan will be the same as those for a
new OCR loan7 at the time of approval of the additional loan. Eligibility for additional financing
from ADF grant_________________________________________________________
resources is guided by the ADF grant framework, and the ADF additional
financing loan will carry the standard interest charge.8 The pricing, e.g., a guarantee fee and
interest rate, of guarantees and nonsovereign additional financing loans are determined
according to established rules and procedures as applicable.9
13.
Additional financing may include interest and other charges on the financial assistance
during construction10 where applicable, if ADB considers such financing appropriate.
H.
Additional Financing and Change in Project Scope
14.
Additional financing can be provided to support changes in project scope that lead to the
financing requirement exceeding the original allocation. When additional financing is required to
fund a change in project scope, the policy and procedures for additional financing must be
followed, and not the project administration instructions on change in scope of loan and/or grant
funded projects. Change in the scope and implementation arrangements that do not need
additional financing will be processed in accordance with the applicable project administration
instructions.
I.
Compliance with ADB policies
15.
Unless modified in this OM section and/or the related policy papers, the preparation,
processing, and implementation of additional financing projects will be governed by the
applicable ADB policies and operational procedures prevailing at that time.
Basis:

ADB. 2010. Additional Financing: Enhancing Development Effectiveness (Doc.
R255-10). 15 December. Manila.
ADB. 2005. A Review of the Policy on Supplementary Financing: Addressing
Challenges and Broader Needs (Doc. R303-05). 7 November. Manila.
ADB. 1988. Review of Policy on Supplementary Financing of Cost Overruns of
Bank-Financed Projects (Doc. R17-88). 28 January. Manila.
ADB. 2010. Classification and Graduation of Developing Member Countries. Operations Manual. OM A1. Manila;
ADB. 2008. Performance-Based Allocation of ADF Resources. Operations Manual. OM A3. Manila; and ADB.
2007. Credit Enhancement Operations. Operations Manual. OM D9. Manila.
7
ADB. 2008. Lending Policies or Sovereign and Sovereign-Guaranteed Borrowers (Ordinary Capital Resources).
Operations Manual. OM D1. Manila.
8
ADB. 2007. Lending and Grant Policies (Asian Development Fund). Operations Manual. OM D2. Manila.
9
ADB. 2007. Credit Enhancement Operations. Operations Manual. OM D9. Manila; and ADB. 2010. Nonsovereign
Operations. Operations Manual. OM D10. Manila.
10
ADB. 2006. Financing of Interest and Other Charges During Construction. Operations Manual. OM H1. Manila.
OM Section H5/BP
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BANK POLICIES (BP)
_________________________________________________________________________________
ADB. 1983. Review of Policy on Supplementary Financing of Cost Overrun on
Projects (Doc. R115-83, Revision 1, Final). 29 November. Manila.
ADB.
1973. Cost Overruns of Bank-Financed Projects and Supplementary
_________________________________________________________
Loans. Manila.
For inquiries: Questions may be directed to the Director, Strategy, Policy and Interagency
24 February 2011

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treatment of the_________________________________________________________
subject.
ADDITIONAL FINANCING
A.
Introduction
1.
This section describes the procedures for processing and implementing additional
financing for Asian Development Bank (ADB) projects. Additional financing will follow a twotracked business process: (i) a simple business process for projects that are performing well,
and (ii) a strict business process for projects that are not performing well. The business process
described in this section applies to sovereign operations. Additional financing for nonsovereign
operations will be treated as new nonsovereign transactions, subject to the process described in
the Operations Manual section D10.1
2.
The additional financing procedures for sovereign operations are aligned with the
business processes for sovereign operations. Future changes in the business processes for
sovereign operations may necessitate adjustments to the additional financing business
procedures.
B.
Business Process for Projects Performing Well

1.
Definition of Projects Performing Well
3.
For the purposes of this OM section, a project is performing well if it meets the following
standards:
(i)
Delivery of expected outputs. This will be measured against the output
indicators set in the projects design and monitoring framework (DMF). While the
focus should be on outputs, discussing whether the project is on track to meet its
outcome is encouraged, especially for projects that are at an advanced stage of
implementation;
(ii)
Satisfactory implementation progress. The examination of the implementation
progress will pay particular attention to the contract awards and disbursements.
Cumulative contract awards and disbursements S-curves may be used to gauge
the progress against the time passed;
(iii)
Satisfactory compliance with safeguard policy requirements. The project
should comply with the applicable safeguards policy or policies in its design and
implementation;
(iv)
Successful management of risks. The project should have managed or
mitigated the risks identified during processing and implementation. As such, the
successful implementation of the project is not threatened by major risks; and
(v)
On track rating. The project should be rated on track in the project performance
rating (PPR).2
1
2
ADB. 2010. Nonsovereign Operations. Operations Manual. OM D10. Manila.

The PPR rating system has been changed after the approval of the additional financing policy. The requirement in
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4.
While projects may experience problems, these should have been addressed and the
project should _________________________________________________________
be performing well for at least 12 months before the cross-departmental
circulation of the report and recommendation of the President (RRP).
2.
5.
A simple business process will be applied for scaling up, modifying, or meeting cost
overruns and financing gaps; or a combination of these aspects for projects that are performing
well.
a.
Scaling Up Projects That Are Performing Well
6.
Scaling up of projects that are performing well may be needed, for example, to cover
additional geographical areas, increase project beneficiaries, replicate outside the original
locations, or meet greater than anticipated demand and absorptive capacity of existing
beneficiaries.
b.
Modifying Operations That Are Performing Well
7.
Additional financing can be used to support changes in project scope that lead to
financing requirements exceeding the original financial allocation. Modification of a project that
is performing well may be needed, for example, to accommodate changing circumstances,
reflect project implementation conditions, incorporate experience gained and lessons learned, or
respond to innovations. All changes in project scope should be consistent with government
priorities, the development objectives3 of the project, and the country partnership strategy
(CPS).
c.
Meeting Cost Overruns and Financing Gaps
8.
The major reasons for cost overruns when a projects scope and size are unchanged
include the following:
(i)
specific input price increases or overall inflation,
(ii)
exchange rate fluctuations,
(iii)
increases in taxes and/or duties,
(iv)
underestimated costs, and
(v)
delays and other implementation issues.
the additional financing policy is a rating of highly satisfactory or satisfactory in the PPR. The additional financing
policy anticipated this change and provided scope to make the operations manual consistent with the revised
project administration instructions (footnote 23, p.11). Information in the PPR should be kept up to date to enable
timely assessments.
This includes either the original objectives or revised objectives as part of operation restructuring to align with the
current country partnership strategy; or to improve project design and implementation. The same applies to other
similar references of project objectives in this OM section. A projects development objectives are reflected in the
projects outcome statement.
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9.
Other related reasons may include (i) unanticipated legal or regulatory changes that
affect the development
and operation of the project; (ii) changing risks and compliance
_________________________________________________________
requirements that may necessitate additional insurance or guarantees for the project; (iii)
changing market conditions that lead to higher interest rates and volatility in other credit
indexes, which increase the overall cost of the project during operation and construction (e.g.,
because of capitalization of interest); and (iv) force majeure, such as natural disasters, war, and
strike.
10.
Factors that are beyond the control of the project are designated as exogenous reasons.
Factors that relate to underestimated costs, and delays and other implementation problems, are
termed implementation issues. A combination of exogenous and design and implementation
issues is considered as mixed reasons.
11.
Financing gaps can be caused by changes in the contributions from the original
financing parties, such as governments, sponsors, and cofinanciers.
12.
Regardless of the reasons for the financing gap, additional financing can be provided
only to projects that remain technically feasible, economically viable,4 and financially sound, are
accorded high priority by the government, and are consistent with the projects development
objectives and the current CPS.
13.
When a project is performing well and cost overruns are caused by exogenous reasons,
the project needs to demonstrate three things when applying for additional financing:
(i)
it is performing well based on the criteria described in paragraph 3;
(ii)
the reasons for cost overruns are beyond the control of the project; and
(iii)
these reasons were difficult to forecast during project preparation and why these
were difficult to foresee.
14.
When a project is performing well but cost overruns are caused by implementation
issues or mixed reasons, the project needs to fulfill the following conditions when requesting
additional financing:
(i)
the design and implementation problems have been fully and satisfactorily
addressed; and
(ii)
the project is performing well based on the criteria described in paragraph 3 for at
least 12 months before the cross-departmental review of the RRP for additional
financing.
15.
Additional financing can be provided using the procedures for operations that are
performing well upon demonstration that these two conditions have been met.
16.
The techniques of financial and economic analysis are contained in ADB. 2003. Key Areas of Economic Analysis of
Projects. Manila; and ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila.
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operation. This restriction applies to additional financing that is purely for meeting cost overruns
and/or financing_________________________________________________________
gaps.
d.
Combination of Reasons
17.
The simple business process will be applied to process additional financing projects to
deal with a combination of the reasons for projects that are performing well. The combination of
reasons includes scaling up, modification, and cost overruns or financing gaps.
3.
Business Processes
a.
Identification
18.
The operations department will identify the need for additional financing for an ongoing
project at the request of, or in consultation with, the DMC. The need may be identified at any
point during project implementation, but should be as early as possible to facilitate planning.
Midterm reviews provide a good opportunity to examine whether additional financing is needed.5
Additional financing should be integrated with the CPS6 and country operations business plan
(COBP) to the extent possible. The inclusion in the COBP will demonstrate the governments
request for additional financing. Another alternative is for the government to use an aide
memoire or memorandum of understanding to request additional financing. The government can
also send a letter to the operations department requesting additional financing. The relevant
director general is responsible for forming the project team and allocating its budget.
19.
The project team carries out initial assessments of the suitability of the project for
additional financing against the criteria set out in this Section B. These will include (i) the
reasons for additional financing; (ii) the consistency between the additional financing and the
project development objectives, government priorities, and the CPS; (iii) procedural or other
time and cost savings compared to new projects; and (iv) the financial and economic
justifications for the additional financing. The team also assesses the implications of the
proposed changes for compliance with the applicable safeguard policies and/or procedures, and
whether any impacts can be addressed within the ongoing or additional financing projects.
20.
In cases of cost overruns and financing gaps, the team also assesses whether (i) the
project can meet its development objectives without additional financing, (ii) possible risks have
been addressed, and (iii) the project, if provided with additional financing, can be completed
within 3 years of the current loan closing date.
21.
The initial examinations will help to determine whether additional financing is a suitable
instrument before significant resources are used to process the additional financing project.
The results of a midterm review assessment of the likelihood of achieving the projects outcome should be drawn
on to support the application for additional financing.
ADB. 2010. Country Partnership Strategy. Operations Manual. OM A2. Manila.
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b.
Concept Clearance
_________________________________________________________
22.
For a project that is performing well, the inclusion of proposed additional financing in the
COBP will serve as the concept clearance. The vice-president will approve a concept paper if
the additional financing is not included in the COBP. Similarly, a concept paper is required if the
additional financing requires project preparatory technical assistance. The concept paper
(i)
summarizes the projects implementation record and results,
(ii)
identifies the reasons for the proposed additional financing project, and
(iii)
describes the proposed additional financing project.
23.
The concept paper requirement is described in the concept paper template under the
streamlined business process.
24.
The departmental meeting, and the cross-departmental review and sector-focused
review of the concept paper are not mandatory. In all other respects, standard business
procedures for concept clearance of stand-alone projects apply.
c.
Project Preparation and Readiness
25.
A reconnaissance mission may not be required as additional financing projects should
be identified as a part of the project review and supervision processes. Fielding of a fact-finding
mission is not required for projects that are performing well if the government has confirmed
processing of the additional financing project. A fact-finding mission can be combined with a
review mission to improve efficiency if such a mission is required.
26.
The preparation of an additional financing project should take advantage of the
established capacity and work done. It can use the original loans, grants, and/or cofinancing to
finance feasibility studies, detailed designs, capacity expansion, safeguard requirements,
consulting services, procurement, and/or other necessary aspects to achieve a high degree of
project readiness.7 Necessary approval for the utilization of such finance for these activities
should be obtained if they were not included in the original project.
27.
Proposed additional financing projects with a high degree of project readiness in areas
such as design, safeguards, implementation capacity, procurements, and consulting services
will be given priority.
d.
Due diligence
28.
Due diligence for additional financing projects depends on the nature of the project and
the purpose of the additional financing.
Project preparatory technical assistance may also be used. For definition and measurement of project readiness,
please refer to ADB. 2010. Report of the Project Implementation Working Group. Manila (December). Manila.
http://lnadbg1.asiandevbank.org/oer0012p.nsf/0/12467000C769C83948257815001F263C/$file/11Jan-Goodproject-implementation-practice.pdf.
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29.
Scaling up and/or modifying projects that are performing well. When additional
financing is required
to scale up or modify a project, due diligence will involve technical,
_________________________________________________________
economic, financial, governance, social and poverty, and safeguards aspects for the added or
changed components. The due diligence should make use of the work done under the existing
loans by retaining, revising, and updating the assessments, frameworks, plans, and so on as
appropriate. Due diligence may also involve new assessments and related work, for example in
cases where a project is extended or replicated beyond its original geographical areas.
Safeguards due diligence requirements for project expansion and modification should be carried
out in compliance with the ADBs Safeguard Policy Statement (2009) and the related OM
section.8
30.
Cost overruns within the existing scale and scope. When additional financing is
provided to bridge cost overruns within the existing project scale and scope, only financial and
economic analyses are required to confirm the projects economic viability and financial
sustainability.
31.
Financing gaps. When additional financing is provided only to cover a shortfall resulting
from a change in financing arrangements, only a financial analysis is needed to confirm the
project's financial sustainability in light of the changed terms and conditions of financing.
e.
Project Classification
32.
Scaling up and/or modifying projects that are performing well. Sectors, thematic
areas, and safeguards should generally be the same as those in the original loans, grants, or
cofinancing. However, additional financing can refine these and differences may be introduced
by changing, raising, or lowering the classifications. Additional financing should encourage
innovations through its ability to change project scope and pilot innovative operations.
33.
Cost overruns and financing gaps without changing project scale or scope.
Sectors, thematic areas, and safeguards should be the same as those in the original loans,
grants, or cofinancing.
f.
Documentation
34.
The project team prepares a concise RRP for an additional financing project. The RRP
should
(i)
describe the performance of the project, including summarizing the projects
(a)
implementation results against expected project outputsa discussion of
whether the project is on track to meet its outcome is encouraged,
especially for projects at an advanced stage of implementation;
(b)
implementation progress, particularly cumulative contract awards and
disbursements;
(c)
safeguard compliance;
(d)
management of risks; and
8
ADB. 2010. Safeguard Policy Statement. Operations Manual. OM F1. Manila.
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(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(e)
PPR rating;
identify
the reasons for additional financing: a financing gap or cost overrun,
_________________________________________________________
scaling up, and/or changes in scope;
confirm that the eligibility criteria for additional financing by ADB have been met;
describe the suitability of using the additional financing modality;
describe the changed, additional, or expanded outputs; summarize the expected
outcome; and/or describe cost overruns and financing gaps; and describe
implementation arrangements;
describe or update the cost estimates and financing plan;
specify the financial terms and conditions for the additional financing;
describe the due diligence;
summarize risks and mitigating measures; and
update or develop the linked documents as appropriate.
35.
Linked documents for additional financing projects depend on the nature of additional
financing and modality of the project. The linked documents can be developed by retaining and
updating the documents developed under the original or preceding additional financing projects,
or developing new documents. For example, a new PAM does not have to be developed as the
existing one can be updated. The RRP template reflects the RRP and linked document
requirements for additional financing.
g.
Review and Negotiation
36.
As with new projects, the draft RRP for additional financing will undergo crossdepartmental and sector-focused reviews. A staff review meeting chaired by the director general
will be required for all additional financing projects. Other steps will be the same as those under
the streamlined business processes.
37.
Negotiations of the finance documents (e.g., the loan agreement, grant agreement,
financing agreement, project agreement, guarantee agreement, and other documents, as
applicable) may be undertaken through a formal meeting with the borrower or through electronic
communication (e.g., videoconferencing, or transmitting signed and scanned documents via email or facsimile machine). Other aspects of the negotiation will follow the streamlined business
processes.
h.
Approval
38.
Additional financing projects will be submitted to the Board of Directors for approval
following standard ADB rules and procedures. Proposals may be submitted for Board
consideration under summary procedure if they meet the eligibility criteria.9
ADB. 2010. Processing Sovereign and Sovereign-Guaranteed Loan Proposals. Operations Manual. OM D11/BP.
Manila.
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C.
Business Process for Projects That Are Not Performing Well

_________________________________________________________
1.
Definition of Projects That Are Not Performing Well
39.
A project that is not performing well is encountering one or more of the following
problems:
(i)
Expected outputs are not being delivered. This will be measured against the
output indicators set out in the project DMF.
(ii)
Implementation progress is unsatisfactory. For example, contract awards and
disbursements are significantly behind schedule. Cumulative contract award and
disbursement S-curves can be used to gauge whether the progress is
satisfactory against the time passed.
(iii)
Compliance with safeguard policy requirements is unsatisfactory. The project
suffers from significant safeguard problems.
(iv)
Management of risks is unsuccessful. Significant risks threaten the successful
delivery of outputs and meeting timelines.
(v)
The project is suffering from other significant implementation problems that are
impeding the delivery of the required quality and/or quantity of outputs.
(vi)
The PPR rated the project as having potential or actual problems.
2.
40.
A strict business process will be applied to additional financing for projects that are not
performing well. The major areas of application include restructuring projects that are not
performing well, meeting cost overruns and financing gaps for projects that are not performing
well, or a combination of these.
a.
Restructuring Projects That Are Not Performing Well
41.
Additional financing can support the restructuring of a project that is not performing well.
The restructuring may entail a change in project scope and implementation arrangements to
address the problems. Additional financing can be used to support changes that lead to
financing requirements exceeding the original financial allocation. Project restructuring should
be consistent with government priorities, the development objectives of the project, and the
CPS.
b.
Meeting Cost Overruns and Financing Gaps
42.
Major reasons for cost overruns are described in paragraphs 8-10, and for financing
gaps are reflected in paragraph 11 of this section of Operational Procedures. There is not a
direct correlation between cost overruns and the performance of a project. A project may not be
performing well even if the cost overruns are caused be exogenous reasons.
43.
When a project faces cost overruns and financing gaps and is not performing well, ADB
and the borrower evaluate options, including scaling down, full cancellation, or restructuring the
project. Additional financing can be considered where the benefits of restructuring and
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completing the project outweigh those of other options. For example, original investment could
become a deadweight
loss for lumpy investment if these remain uncompleted. Examples of
_________________________________________________________
incomplete lumpy investments include a missing roof of a school building, an incomplete bridge
on a highway, and the last few miles of an uncompleted transmission or distribution network.
The table below outlines the different business processes for projects incurring cost overruns.
Business Processes for Additional Financing for Cost Overruns
Project Performance
Performing well
Exogenous
Factors
Simple process
Not performing well
Strict process
Design and
Implementation
Issues
Simple process if
the design and
implementation
problems were
addressed at
least 12 months
before crossdepartmental
circulation of the
RRP
Mixed Reasons
Simple process if
the design and
implementation
problems were
addressed at
least 12 months
before crossdepartmental
circulation of the
RRP
Strict process
Strict process
RRP= report and recommendation of the President.

44.
operation. This restriction applies to additional financing that is purely for meeting cost overruns
and/or financing gaps.
c.
Combination of Reasons
45.
Projects that are not performing well and require additional financing because of a
combination of reasons will undergo a strict business process.
3.
Business Processes
a.
Identification
46.
The operations department will identify the need for additional financing for an ongoing
project that is not performing well at the request of, or in consultation with, the borrower. This
process is similar to that described in section B. However, when considering additional financing
for projects that are not performing well, the risks that have undermined project performance
need to be addressed.
47.
The project team makes initial assessments of the suitability of additional financing,
including (i) the reasons for cost overruns and financing gaps; (ii) the reasons and scope for the
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restructuring; (iii) the consistency between the additional financing project and the projects
objectives, the _________________________________________________________
CPS, and government priorities; (iv) whether there are good financial and
economic justifications for the additional financing; and (v) whether the proposed changes raise
the safeguard categories and, if so, whether these can be addressed within the context of the
ongoing or additional financing projects.
48.
In cases of cost overruns and financing gaps, the team also assesses the ability of the
project to meet the projects objectives without additional financing, whether possible risks have
been addressed, and whether the project can be completed within 3 years of the current loan
closing date.
b.
Concept Clearance
49.
Based on available information and subject to due diligence, the purpose of the concept
review for additional financing for a project that is not performing well is to ensure that the
proposed additional financing is an optimal solution before significant resources have been
assigned or expended. Staff will prepare a concept paper that will clearly indicate that this
project is not performing well and describe the rationale for requesting additional financing. The
concept paper will compare the options for implementing the project using the original financing,
partial cancellation, full cancellation, and providing additional financing. The concept paper
(i)
summarizes the projects implementation record and results;
(ii)
identifies the reasons for the proposed additional financing project;
(iii)
describes the proposed additional financing project;
(iv)
demonstrates that the project remains technically feasible, economically viable,10
and financially sound; is accorded high priority by the government; and is
consistent with the projects development objectives and the current CPS;
(v)
assesses whether the net benefits of providing additional financing to restructure
and/or complete the project outweigh those of other options; and
(vi)
demonstrates that the risks that have contributed to the projects poor
performance have been addressed.
50.
The concept paper template provides details on the concept paper requirements.
51.
Except as expressly stated otherwise in this OM Section, the processing of additional
financing for projects that are not performing well will be the same as for projects that are
performing well.
52.
The risk category will be either low risk or complex. In determining the risk category,
particular attention will be paid to whether the problems that have undermined project
implementation have been or will be eliminated or significantly reduced. The risk categorization
covers the additional financing.
10
The techniques of financial and economic analysis are contained in ADB. 2003. Key Areas of Economic Analysis of
Projects. Manila; and ADB. 1997. Guidelines for the Economic Analysis of Projects. Manila.
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c._________________________________________________________
Project Preparation and Project Readiness
53.
A reconnaissance mission may not be required as the additional financing projects
should be identified as a part of the project review and supervision processes. A fact-finding
mission is required to prepare additional financing for a project that is not performing well. The
fact-finding mission can be combined with a review mission to improve efficiency. The other
aspects are the same as the process described in paragraphs 25-27.
d.
Due Diligence
54.
Due diligence requirements for additional financing for projects that are not performing
well will be the same as those described in section B. However, due diligence for these projects
will assess in particular whether the factors hindering project performance have been addressed
and the risk for continued poor performance has been minimized.
e.
Other Aspects
55.
Project classification, documentation, review, negotiation, and approval will be the same
as described in section B. The documentation requirement is reflected in the RRP template
under the streamlined business processes.
D.
Linking with Related Policies and Procedures

1.
Links with Emergency Assistance
56.
Additional financing and emergency assistance are linked in two ways. First, additional
financing can be provided to ongoing emergency assistance projects. Processing in this case
will follow the emergency assistance policy and procedures.11 Second, additional financing may
also be provided to ongoing nonemergency projects as emergency assistance in the wake of an
emergency. Two options are available in this latter case:
(i)
Only the additional financing portion of the project will constitute the emergency
assistance, and the ongoing project will remain as nonemergency assistance.
The processing and the financing terms of the additional financing will follow the
emergency assistance policy and procedures.12
(ii)
In addition to providing the emergency additional financing through the ongoing
nonemergency project, the ongoing original project will be fully or partially
converted into emergency assistance. The approach on how to apply the
11
ADB. 2004. Disaster and Emergency Assistance Policy. Manila; and ADB. 2004. Disaster and Emergency
Assistance. Operations Manual. OM D7. Manila.
12
The additional financing will also apply to emergency assistance projects funded by the Asia Pacific Disaster
Response Fund. The procedures will follow the fund procedures. See ADB. 2009. Establishment of the Asia Pacific
Disaster Response Fund. Manila; and ADB. 2009. Asia Pacific Disaster Response Fund. Implementation
Guidelines. Manila.
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financing terms on the undisbursed amount of the original loan will be determined
in_________________________________________________________
consultation with the Controllers Department.13
57.
The due diligence required for providing the emergency assistance through linking
additional financing with ongoing nonemergency assistance will focus on the suitability of using
the ongoing project as an anchor for the emergency assistance, and the capacity of the project
to deliver the emergency assistance. Other due diligence aspects, and an assessment of
whether the project is performing well, are not mandatory.
58.
The operations department will propose to the Board for consideration and approval the
specific links between the emergency assistance and the ongoing project. The project
documents will specify, and the Board will be asked to approve, the financing terms and
conditions for the additional financing, as well as the part of the ongoing project that is to be
converted into emergency assistance.
2.
Additional Financing with ADB-Administered Cofinancing
59.
ADB-administered cofinancing can be used as a source of additional financing. As the
cofinancing for additional financing may be provided to a project that is new, the requirement
that a project has a track record of good performance may not apply. Different processing steps
and approving authorities will be applied to additional financing funded by ADB administered
cofinancing depending on the relative sizes of the financing. Management may approve
cofinancing up to an amount equal to 15% of the original loan, grant, and/or ADB-administered
cofinancing amount. The Board approves an amount exceeding 15% of the original loan, grant,
and/or ADB-administered cofinancing amount.
60.
The steps for processing additional financing from ADB administered cofinancing
exceeding 15% of the total original loan, grant, and/or ADB-administered cofinancing amount
are as follows:
(i)
The operations department, in consultation with the Office of Cofinancing
Operations, prepares a Board paper;
(ii)
The operations department circulates the draft Board paper through crossdepartmental and sector-focused reviews;
(iii)
The director general of the operations department submits the revised Board
paper to the vice-president;
(iv)
The vice-president approves the paper and submits it to the President;
(v)
The President submits the paper to the Board with the recommendation; and
(vi)
The Board approves the paper on a no-objection basis.
61.
The steps for processing additional financing from ADB administered cofinancing up to
15% of the total original loan, grant, and/or ADB-administered cofinancing amount are as
follows:
13
The disbursed amount will not be affected for the ongoing original project. Only the undisbursed amount can be
converted into emergency assistance.
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(i)
(ii)
(iii)
(iv)
(v)
62.
The operations department, in consultation with the Office of Cofinancing

Operations,
prepares a memorandum;
_________________________________________________________
The operations department circulates the memorandum through crossdepartmental and sector-focused reviews;
The director general submits the revised memorandum to the vice-president;
The vice-president approves the memorandum and submits it to the President;
and
The President approves the memorandum.
The Board paper or memorandum to the President will

(i)
describe the background of the project, including implementation status;
(ii)
describe the rationale for additional financing;
(iii)
describe the cofinancing modality, and specify the financial terms and conditions;
(iv)
describe the changed, additional, or expanded activities; summarize the
expected outputs and outcome; and confirm their consistency with the projects
development objectives, government priorities, and the current CPS;
(v)
confirm that due diligence has been undertaken for the additional financing;
(vi)
revise the project's cost estimates, financing plan, contract awards, and
disbursement projection S-curves; and the procurement plan; and
(vii)
revise the DMF.
63.
The revised cost estimate, financing plan, contract awards, and disbursement projection
S-curves; procurement plan, as well as the DMF, can be appended to the Board paper or
memorandum. The project team should also update the PAM, although this may not be required
as a part of the submission to Management or the Board.
3.
Changes in Scope
64.
Additional financing can be used to support changes in project scope14 that lead to
financing requirements exceeding the original financial allocation. When additional financing is
combined with a change in project scope or implementation arrangements, the additional
financing policy and procedures for additional financing must be followed, and not the project
administration instructions on change in scope of loan and/or grant funded projects. Changes in
scope and implementation arrangements within the existing financing amounts will follow
relevant project administration instructions.
E.
Multitranche Financing Facilities
65.
Additional financing can be provided for multitranche financing facilities (MFFs). The
need for additional financing for an MFF will arise when the funding requirements from ADB
exceed the original allocation to the overall MFF. Board approval will be required for additional
financing beyond the overall allocation of an MFF, following the process described in this OM
section.
14
The additional financing policy distinguishes scaling up" and "change in project scope, while both of these are
referred to as change in project scope under the project administration instructions.
OM Section H5/OP
Page 14 of 15
OPERATIONS MANUAL
___________________________________________________________________________________
66.
When additional funding is provided for individual tranches within the overall allocation of
an MFF approved
by the Board, a concept paper is not required and the approval process will
_________________________________________________________
depend on whether or not the additional financing will change the outcome and the target values
of outcome indicators of the MFF.
(i) If the additional financing for a tranche will not change the outcome and the target values
of the outcome indicators of the MFF, the President will approve the additional financing
for the tranche. The documentation needed is a memorandum rather than an RRP.
However, the substance of the memorandum will be largely the same as for a regular
additional financing project to reflect the due diligence and documentation requirements
in this OM section.
(ii) If the additional financing for the tranche will alter the outcome and the target values of
outcome indicators of the MFF, Board approval is required and the process for additional
financing with a change in project scope will be followed.
F.
Financing Terms and Conditions
67.
The terms and conditions of additional financing will be independent of those of the original
loan(s). The repayment schedules of the additional financing loan(s) and the original loan(s) do not
have to be synchronized. The borrower, in coordination with the ADB, will decide whether to
synchronize the repayment schedules.
68.
Retroactive financing may be included in the additional financing. Retroactive financing
should comply with the time and amount limits specified in OM Section H4 on retroactive
financing. The RRP for the additional financing project describes the project components and
financing ceilings being recommended for retroactive financing. Using retroactive financing is
encouraged to improve project readiness.
G.
Implementation
69.
Implementation of additional financing projects will use existing, updated, and/or
changed procurement, consulting services, disbursement, safeguards, and other
implementation arrangements, as appropriate, to promote economy, efficiency, and client
responsiveness. For example, depending on the specifics of the project and the capacity of the
administrator of the imprest account, it may be possible for the additional financing to use the
same imprest account when the source of financing is the same as the original financing, if this
helps to reduce transaction costs. Similarly, procurement and consulting services contracts
may be varied and/or extended following applicable project administration instructions, if
appropriate, to accommodate supply, construction, or consulting activities un der additional
financing projects if such an approach increases economy and efficiency. The closing dates
for the original and additional financing projects may be synchronized if this helps improve
efficiency. Upon completion of the project, a single project completion report will be prepared,
covering the original and additional financing parts of the project. For additional financing, a new
loan number should be assigned to the additional financing, unless the funding source and
terms of the additional financing are the same as the original financing.
OM Section H5/OP
Page 15 of 15
OPERATIONS MANUAL
___________________________________________________________________________________
70.
Efficient processing and implementation of additional financing also requires the
simplification of _________________________________________________________
the borrowers processing procedures and harmonization with ADB. The project
team should explore the scope for such simplification and harmonization in consultation with the
borrowers.
H.
Effectiveness
71.
On 15 December 2010, the Board of Directors approved the paper Additional Financing:
Enhancing Development Effectiveness,15 which will supersede the 2005 Review of the Policy on
Supplementary Financing: Addressing Challenges and Broader Needs. The additional financing
policy becomes effective on 15 February 2011. Projects that have completed the Management
Review Meeting or Staff Review Meeting at the time of the effective date will be subject to the
application of ADBs 2005 supplementary financing policy.
72.
This OM section is effective immediately upon the effectiveness of the additional
financing policy. All additional financing projects that begin processing after the issuance of this
OM section shall comply with this OM section.
Basis:

therein.

For inquiries: Questions may be directed to the Director, Strategy, Policy and Interagency
24 February 2011
15

and the Office of the General Counsel and issued
by the Strategy and Policy Department
ADB. 2010. Additional Financing: Enhancing Development Effectiveness. Manila.
OM Section H7/BP
Page 1 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
FOREIGN EXCHANGE RISK
A.
Introduction
1.
provides that ADB may provide financing by (i) lending in a currency other than the local
currency of the member country to meet the foreign exchange costs of a project in that member
country, or (ii) lend in local currency to meet local expenditures where it can do so without
selling its holdings in gold or convertible currency. Article 15 of the Charter further stipulates that
ADB cannot accept foreign exchange risk in its lending operations.
B.
Scope of the Policy
2.
This OM section deals with the question of attributing the foreign exchange risk
associated with ADBs lending operations.
C.
Policy on Lending Operations

1.
General Principles
a.
Ordinary Capital Resources
3.
ADB manages the exchange risk in its operations by matching the currency or
currencies loaned with those of the borrowings used to fund loans on an after-swap basis. As a
result, ADB does not accept foreign exchange risk in its ordinary capital resource (OCR) lending
operations.
4.
OCR borrowers can choose between two loan products: (i) the London interbank offered
rate (LIBOR)-based loan (LBL) product, and (ii) the local currency loan (LCL) product (available
only in selected markets). For the LBL product, borrowers may choose to denominate their
loans in euro, Japanese yen, United States (US) dollars, or other major currencies in which ADB
can efficiently intermediate. For the LCL product, the ADB Treasury Department will be able to
advise borrowers on the details of the product for each specific market.
5.
Under the LBL product, during the life of the loan borrowers are also given the option to
convert the currency or currencies the loan is denominated in to another major currency or, in
selected cases, to a local currency, subject to ADB being able to enter into appropriate hedging
transactions.
OM Section H7/BP
Page 2 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
b.
Asian Development Fund
6.
Loans from the Asian Development Fund (ADF) are denominated in special drawing
rights (SDRs).1 Before the introduction of the full-fledged SDR currency policy for the ADF in
2005, 2 ADF loans were effectively denominated in currencies that were actually used for
disbursements, i.e., the loans were disbursed out of various donor currencies held by ADB and
were repayable in the same currencies and in the same amount of currencies as originally used.
The borrowers assumed the foreign exchange risk between their repayment currencies and the
currencies used for disbursing their ADF loans.
7.
The SDR currency management policy approved in 2005 allowed currency conversions
and authorized ADB to value disbursements, repayments and charges under all ADF loans in
SDR. This change (i) made the currency practices of ADF loans consistent and the future
repayments of loans more predictable for developing member countries (DMCs), (ii) reduced the
foreign exchange transaction cost for DMCs, and (iii) lowered foreign exchange volatility. The
first phaseoffering the full-fledged SDR approach in new loansbegan in 2006. The second
phaseextending an option to DMCs to convert their existing liabilities in various currencies
into full-fledged SDR loanshas been implemented since 1 January 2008. With this conversion
into SDR, ADF reflows will be aligned with the loan commitment currency, thereby reducing the
currency mismatch between multiple reflow currencies and the commitment currency (SDR).
8.
Following the approval of the currency policy in 2005, the currency in the liquidity pool
used for disbursements of full-fledged SDR loans (either newly approved or converted) is one of
SDR component currencies, which is determined by ADB based on transactional and
administrative efficiency. The disbursements are recorded and repayments recalled in SDR
equivalent. For legacy loans (recorded in multiple currencies), SDR currencies are used for
disbursements, while all multicurrencies will be recalled for loan service payments. However, in
both circumstances, borrowers can choose repayment currencies from the four SDR currencies
based on the valuation currencies either in SDR or multiple currencies. In addition, the borrower
may subsequently change the repayment currency during the life of the loan.
9.
Currency risk remains one of the ADFs main financial risks because of the currency
imbalances between resources received in donor national currencies and loan commitments
denominated in SDRs. This results in both commitment risk and disbursement risk. Commitment
risk occurs because of the fluctuation of the SDR value of ADF financial resources denominated
in national currencies between the time of the replenishment agreement and the time of the
development commitment. The commitment risk from donor contributions will be managed
through periodic updates and adjustments to the financial resources available for commitment
authority. Any shortfall in the commitment authority amount during the last quarter of a
replenishment period because of exchange rate fluctuation will be funded by an additional
reflow-based commitment authority, subject to a cap of 3% of the total planned operational
level.3
1
2
3
Loans approved prior to 1983 were denominated in US dollars.

ADB. 2005. Asian Development Fund Currency Management Proposal. Manila.
ADB. 2007. Review of the Financial Framework of the Asian Development Fund. Manila.
OM Section H7/BP
Page 3 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
10.
Disbursement risk, as an extension of commitment risk, is the risk of a future
resource shortfall in meeting the disbursement requirements of SDR-denominated loans
already committed. Exchange rate movements over the long disbursement period can
create a substantial difference between the amounts of undisbursed SDR-denominated
loans and the SDR value of resources financing such amounts. Under the 2007 ADF
financial framework, the disbursement risk provisioning of 6.5% was discontinued.
Instead, currency risks will be managed as a whole through a portion of the ADFs
prudential minimum liquidity (footnote 3). A currency rebalancing mechanism is used to
align ADF resources to SDR, with the exception of grants. ADF grants are currently
denominated and disbursed in US dollars.
2.
Relending and Onlending
11.
Special considerations are required when ADB loans are relent to one or more
beneficiaries, and particularly when they are onlent by intermediaries to subborrowers.
12.
ADB normally expects that a foreign exchange risk is passed on to the beneficiary. This
may be achieved either directly through the beneficiary servicing the loan in foreign exchange or
indirectly by reflecting the cost of bearing the risk in the relending rates charged to the
beneficiary. When loan proceeds are onlent by a financial intermediary, (which may or may not
be the borrower of the ADBs loan) to a number of subborrowers, ADB requires, as a matter of
prudent banking practice, that the intermediary hedge the foreign exchange risk arising from the
ADB loan. Generally, this risk should be passed on to subborrowers. The operational
procedures of the development finance institution should, however, ensure that the risk
assumed by the subborrower is adequately mitigated.
13.
Regardless of who the borrower is, ADB may agree to a DMC government assuming the
foreign exchange risk, normally expecting the related cost to be shifted to the beneficiary. In
some DMCs, governments may be willing to undertake the risk, and may charge the
beneficiaries or subborrowers a fee (usually by way of increased lending rates) to ensure risk
protection. As a matter of principle, a government subsidy to cover such costs should be
avoided. However, in exceptional cases, ADB may consider such subsidization, if warranted by
country- and/or project-specific considerations.
D.
Policy on Equity Operations
14.
In contrast to lending operations, any foreign exchange risk arising in the context of
ADBs private sector operations, such as investment in shares, units of mutual funds, and
underwriting commitments, is borne by ADB.
Basis:

ADB. 2007. Doc. R211-07. Review of the Financial Framework of the Asian
Development Fund. Manila.
OM Section H7/BP
Page 4 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
ADB. 2006. Doc. R221-06. Enhancements for the Asian Development Banks
Loan and Debt Management Products. Manila.
ADB. 2005. Doc. R359-05. Proposed Revisions to the Regulations of the Asian
Development Fund and the Special Operations Loan Regulations. Manila.
ADB. 2005. Board of Governors Resolution No. 311: Conversion of ADF
Resources into Other Currencies. Manila.
ADB. 2005. Doc R265-05. Asian Development Fund Currency Management
Proposal. Manila.
ADB. 2005. R195-05. Introducing the Local Currency Loan Product. Manila.
ADB. 2002. Doc. R215-02. Pricing Local Currency Loans in Private Sector
Operations. Manila.
ADB. 2001. Doc. R79-01. Review of the Asian Development Banks Financial
Loan Products. Manila.
ADB. 2000. Currency Risk Management in ADF. Manila.
ADB. 1994. Doc. R210-94. A Proposal to Introduce a Market-Based Loan
Window. Manila.
ADB. 1992. Doc. R76-92. Improving the Manageability of Borrowers Foreign
Exchange Exposure on OCR Loans. Manila.
ADB. 1983. Doc. R38-83, Revision 2, Final. Equity Investment Operations by the
Bank. Manila.
ADB. 1982. Doc. R153-82. Denomination of ADF Loans in SDR. Manila.
ADB. 1981. Doc. R50-81. Exchange Risk Pooling System. Manila.
For inquiries: Questions may be directed to the Assistant Treasurer, Financial Policy and
Planning Division, Treasury Department.
19 December 2008
Prepared by Treasury Department and

issued by Strategy and Policy Department
OM Section H7/OP
Page 1 of 1
OPERATIONS MANUAL
FOREIGN EXCHANGE RISK
19 December 2008
Prepared by Treasury Department and

issued by Strategy and Policy Department
OM Section J1/BP
Page 1 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
These policies were prepared for use by ADB staff and are not necessarily a complete treatment of
the subject.
PROJECT PERFORMANCE MANAGEMENT SYSTEM
A.
Introduction
1.
ADB is committed to the development effectiveness of its operations. Harmonization of the
support provided by funding agencies, alignment with country priorities and systems, mutual
accountability, and managing for development results (MfDR) are the cornerstones of development
effectiveness. At the project level, development effectiveness is supported through the project
performance management system (PPMS). ADB emphasizes the need for more result-focused
projects by improving project quality at entry and strengthening project management. Through
internal management decisions and directives, ADB has streamlined and strengthened project
processes, including the mandatory requirement of the design and monitoring framework (DMF) in
loan, grant-funded, and technical assistance (TA) projects.
B.
Definitions
2.
The following terms are defined as used in this OM section (BP and OP):
(i)
The DMF (previously referred to in ADB as the logical framework, project

framework, and TA framework) is a results-based tool for designing, implementing,
monitoring, and evaluating projects. It provides structure to the project-planning
process and communicates essential information about the project to stakeholders. It
also captures ADB-administered cofinanced components of the project.
(ii)
The project and program performance report (PPR) is a management tool for
monitoring implementation progress and assessing the likelihood that public sector
projects will deliver their intended outputs and achieve their desired outcome.
(iii)
The TA performance report (TPR), like the PPR, is a management tool to assess
the implementation progress of a TA and progress in achieving the desired
outcome.
(iv)
Project and program completion reports (PCRs) are assessments of the

performance and outcome of all completed public and private sector loan- and
grant-funded projects and programs. PCRs are prepared separately by the
executing agency and the concerned ADB operations department, normally within
1224 months of completion. The Independent Evaluation Department (IED) may
validate the methodology used and the performance rating in a proportion of PCRs.1
(v)
TA completion reports (TCRs) are prepared by the responsible ADB department for
completed TAs, TA loans, and project preparatory TAs that do result in a loan
OM section K1/OP (Operations Evaluation) provides detailed information on the differences between PCRs for public
sector projects and programs and private sector operations.
OM Section J1/BP
Page 2 of 3
and/or an Asian Development Fund (ADF) grant.2 The objective of preparing a TCR
is to benefit from the experience gained to improve TA planning, formulation, and
implementation.
C.
(vi)
Project and program performance evaluation reports (PPERs) are independent

evaluations of the performance of a sample of completed projects with PCRs.
PPERs are prepared by IED, generally 35 years after completion, when
development impacts are becoming evident.
(vii)
TA performance evaluation reports (TPERs) are evaluations of individual or cluster

TA operations by IED. TPERs assess the relevance, effectiveness, and impacts of
TAs, and identify lessons to improve planning, formulation, and implementation of
TAs.
ADB Project Performance Management System
3.
ADBs PPMS3 is a coherent and results-based approach to project planning, performance
monitoring, and evaluation of results. During the design phase, PPMS emphasizes stakeholder
participation; builds on a cause-effect relationship in problem analysis; assesses alternative
approaches; ensures a consequential relationship between inputs, activities, outputs, outcome, and
impact; and determines a set of measurable process and result indicators with performance
targets. Country ownership enhanced through the joint development of the DMF provides the basis
for improving project performance. As management tools, the PPR and TPR, which include the
DMF, provide early warning to project team leaders and others of emerging problems that require
corrective actions. The PPMS must be used for all loan- and grant-funded projects/programs and
TAs assisted by ADB.4
4.
PPMS encompasses a participatory approach to the project cycle and comprises five
components: (i) DMF; (ii) PPR and TPR; (iii) borrower monitoring and evaluation (at the central,
and executing and implementing agency levels); (iv) PCR and TCR; and (v) PPER and TPER, and
where appropriate, impact evaluation studies.
D.
Scope of the PPMS
5.
The DMF provides the basis upon which the PPMS operates. It does this by establishing
quantified, time-bound targets and measurable indicators, and by identifying key risks and
assumptions that are used to monitor and evaluate performance in the PPR, TPR, PCR, TCR,
PPER, and TPER. Given this, preparation of a high-quality DMF is critical. During implementation,
the DMF needs to be reviewed and, when needed, adjusted to reflect changing circumstances and
project environments so that the intended project outcome can be achieved.
6.
During implementation, the PPMS, through the PPR, assesses the likelihood that key
milestone dates for activities, outputs, outcome, and impact will be achievedthe impact indirectly
by monitoring assumptions and risks. Following project completion, all projects and TAs are
subjected to an assessment of their outcome along with recommendations for enhancing and
2
3
4
ADF grants, introduced by ADF IX Grants Framework, are generally governed by the same policies, procedures and
practices that apply to ADF loans and adhere to the same standards as loan projects.
The PPMS applies to loan- and grant-funded, cofinanced, and ADB-administered programs, projects, and TAs.
The PPMS fully applies to public sector operations. Currently, only PCR and PPER components of the PPMS are
applicable to private sector operations. See OM section D10/OP (Private Sector Operations) on the current
performance monitoring arrangements for private sector investment projects.
OM Section J1/BP
Page 3 of 3
sustaining the outcome. The PCR/TCR also includes a preliminary assessment of the impact.
Finally, a sample of projects is subject to more detailed performance evaluation and impact
assessment about 3 or more years after completion (PPER).
7.
The PPR tracks progress from the baseline situation against the targets and the indicators
identified in the DMF. Through the use of the project-at-risk concept and identification of potential
problem projects, attention is drawn to projects where task managers need to take corrective
actions. Summaries and aggregations of PPR results provide performance information on
groupings of projects as well as the portfolio as a whole, for accountability and as an input to
process enhancement and strategy and policy development.
8.
The TPR, introduced in 2004, helps project team leaders record and monitor the progress
of TA implementation. The DMF is the basis of the TPR.
9.
Monitoring and evaluation of ADB-assisted loan and/or ADF grant projects by central
executing and implementing agencies is an essential part of the PPMS. The DMF serves as the
basis for monitoring and evaluation by the borrower, and provides specific inputs on performance
for the PPR. The project administration manual5 details the process to be followed by the agencies
concerned. The project design should establish whether these agencies have the capacity and
resources to monitor and evaluate ADB-financed projects. If needed, loan or ADF grant funds or
TA may be used to strengthen the agencys capacity to monitor and evaluate the project.
Borrowers are required to prepare their own PCRs and encouraged to selectively continue impact
assessment following project completion and to develop the capacity to post-evaluate a sample of
projects.
Basis:

ADB. 2006. Guidelines for the Preparation of Project Performance Evaluation
Reports. Manila.
ADB. 2005. PPMS: Guidelines for Preparing the Design and Monitoring
Framework. Manila.
ADB. 2003. Special Evaluation Study on Project Performance Management in
the Asian Development Bank and its Projects in Developing Members Countries.
Manila.
This OM section is to be read with OM Sections J1/OP, K1/BP, and K1/OP.
Compliance:
For inquiries:
Questions may be directed to the Principal Director, Central Operations Services

Office.
28 October 2011
This supersedes OM Section J1/BP
Prepared by the Central Operations Services

Office and issued by the Strategy
See OM Section D11 (Processing Sovereign and Sovereign Guaranteed Loan Proposals). The project administration
manual is an active document that is updated and revised as needed.
OM Section J1/OP
Page 1 of 4
OPERATIONS MANUAL
PROJECT PERFORMANCE MANAGEMENT SYSTEM
A.
Introduction
1.
The project performance management system (PPMS) is a results-based approach to
project planning, performance monitoring, and evaluation of results. The PPMS extends and
replaces benefit monitoring and evaluation (BME). 1
2.
The PPMS builds on a participatory approach during the project cycle and comprises
five interlinked elements: (i) design and monitoring framework (DMF) providing the basis for the
system; (ii) project performance report (PPR) and technical assistance (TA) performance report
(TPR) for assessing and recording performance during implementation; (iii) monitoring and
evaluation by the executing and implementing agencies to provide input to the PPR,
supplemented by periodic ADB reviews; (iv) project and program completion report (PCR) and
TA completion report (TCR) providing evaluation of project performance at completion; and (v)
project, program, and/or TA performance evaluation report, and where appropriate, impact
evaluation studies for independent evaluation about 35 years after completion.
B.
Application of Project Performance Management System
3.
The implementation of the PPMS throughout the project cycle (identification, design,
implementation, and evaluation) is discussed in the following sections.2
1.
Design and Monitoring Framework
4.
The DMF is a results-based tool that provides structure to the project-planning process,
contributing to robust project design and selection while providing the basis for project
monitoring and evaluation. Prepared with stakeholder participation, the DMF helps develop
stakeholder understanding and ownership of projects.
1
The PPMS serves the same ends as BME (and more) but achieves them in a different manner. BME and the
PPMS measure results at the output, outcome, and impact levels. The PPMS goes beyond BME by seeking to
establish a cause and effect relationship between the project and the impact. It does this by using the targets and
indicators set in the DMF during design. During implementation, the PPMS requires an assessment of the
likelihood that the outcome will be achieved. A preliminary assessment of the impact or their likely magnitude is
made at completion via the project completion report. For a sample of projects, a more detailed impact assessment
is made via the project performance evaluation report and, in a few cases, by follow-on reevaluation or impact
evaluation studies. BME, however, measured changes in a range of socioeconomic indicators at fixed points of
project implementation (typically at the start, midpoint, and completion). Relating these changes to project
interventions was difficult. Further, because BME focused only on benefits, it provided limited information of value
to project managers. However, the PPMS is expected to be part of day-to-day project management by providing
regular updates on projects at risk. The enhancement of PPMS is supported by an action plan adopted in April
2004.
The PPMS fully applies to public sector operations. Currently, only PCR and PPER components of the PPMS are
applicable to private sector operations. See OM section D10/OP (Private Sector Operations) on the current
performance monitoring arrangements for private sector investment projects.
OM Section J1/OP
Page 2 of 4
5.
The DMF is a matrix containing (i) a hierarchy of results (impact, outcome, outputs) and
the means to produce them (activities and inputs); (ii) performance targets and indicators at
each level that are specific, measurable, attainable, relevant, and time-bound, by which
progress toward achieving the respective result level impact, outcome, outputsis monitored
and measured; (iii) data sources and reporting mechanisms for each indicator; and (iv)
assumptions and risks covering external events and actions that influence project success but
are outside the projects direct control. The DMF (i) helps ensure design integrity by establishing
a demonstrable means-end relationship (and identifying assumptions and risks) from inputs to
impact, and (ii) provides the basis for subsequent performance assessment.
6.
The final DMF3 is the product of an iterative process that includes (i) identification of key
stakeholders and their interests, (ii) analysis of problems in terms of causes and effects, (iii)
specification of objectives in terms of means and ends, (iv) assessment of alternative
approaches to achieving the desired outcome and impact, and (v) selection of a preferred
option.4
2.
Project Performance Report
7.
The PPR provides information on project implementation and progress in achieving
development outcome and impact. The DMF provides the basic inputs for the PPR. The design
summary (impact, outcome, outputs, and key activities); the performance targets and indicators
for impact, outcome, and outputs and activity milestones; and the key assumptions and risks are
transferred to the PPR. Progress toward the performance targets is tracked and reported in the
PPR from the baseline using the indicators and their respective data sources and reporting
mechanisms contained in the DMF, and as verified in the project administration manual.
8.
PPRs are prepared by the project team leader for all ongoing projects financed or
administered by ADB, including cofinanced components financed by other sources and
administered by ADB.5 The initial PPR is prepared from the DMF by the loan and/or Asian
Development Fund (ADF) grant processing mission leader at project concept stage and updated
after loan/grant approval. Review mission and executing and implementing agency reports
provide the input for periodic updating of the PPR during implementation.
9.
The concepts of potential problem projects and project at risk are incorporated to
focus attention on projects where remedial action may be required for existing or emerging
problems.
10.
Regional departments hold PPR meetings at least quarterly to review the performance of
projects for which they are responsible, and to discuss specific project implementation issues.
Operations review meetings, held quarterly or more frequently, are a mechanism for operations
vice presidents to review the status of the ongoing region-wide and countrywide operations
program and portfolio. The findings of the operations review meetings are discussed by the
Management Committee each quarter. The Management Committee reviews the ADB-wide
operations program and portfolio in these quarterly meetings.
3
This refers to the final version of the DMF at the end of the project design phase. It is included as Appendix 1 in
the RRP and the TA report. Revisions will be made during project implementation when needed.
For more information on the use of the DMF, see ADB. 2007. Guidelines for Preparing the Design and Monitoring
Framework. Manila.
In exceptional cases, operations coordination divisions may be responsible for the preparation of project and,
hence, the preparation of the PPR.
OM Section J1/OP
Page 3 of 4
3.
Technical Assistance Performance Report
11.
ADB introduced the TPR reporting system in 2004. It provides a tool to help manage the
TA portfolio and resources, and expands the scope of TA portfolio monitoring to include
maintenance of historical records on major issues, problems, and actions taken and information
on the TA DMF needed for the TCR and TA evaluation.
C.
Monitoring and Evaluation by Executing and Implementing Agencies and ADB
12.
Monitoring and evaluation by executing and implementing agencies and ADB is an
essential part of the PPMS. During loan and/or ADF grant processing, the borrower, executing
agency, and ADB agree on the content, format, and timing for submitting progress reports.
These reports must contain sufficient information and be in a format that facilitates the provision
of information required to update the PPR. The DMF design summary, the outcome and output
indicators, the activities and milestones, and assumptions and risks, provide for a
results-focused monitoring and reporting structure. This agreement and a pro forma progress
report is appended to the processing missions memorandum of understanding and
incorporated in the project administration memorandum. These reports are used to update the
PPR.
13.
Regular ADB review missions, preferably semiannual and joined by the executing and
implementing agencies and cofinanciers, when appropriate, discuss the latest progress,
address current and emerging problems by developing mitigation measures, and participate in
the review and preparation of annual plans of operations/work plans. Review missions, including
the in-depth midterm review, assess whether the projects outputs are being delivered or if
adjustments are required to ensure that the outcome is likely to be achieved. These adjustments
to outputs, output indicators, activities, and assumptions and risks as well as further
specification of the outcome and outcome indicators are attached to the back-to-office report of
the review mission and reflected in a revised DMF and transferred to the PPR and TPR. In case
of ADB-administered cofinanced components, review missions will also record the progress and
the current and emerging problems of the cofinanced components in the back-to-office report
and reflect them in the PPR and TPR.
D.
Evaluation at Completion
14.
At completion, the borrower initially prepares its own PCR. The concerned ADB
operations division then conducts an assessment culminating in a separate PCR. The main
purpose of the PCR is to learn from experience, and to use the lessons learned to improve the
performance of ongoing and future ADB-financed projects. The PCR is also used as a measure
of ADBs development effectiveness for accountability and as an input to country strategy
formulation. In case of ADB-administered cofinanced components, the PCR provides the
cofinancier with a picture of its involvement in the project and the performance of ADB as loan
administrator of the cofinanced component.
15.
Through PCRs, the departments responsible for administering and supervising projects
make an assessment of achievements of outputs and the outcome against targets and using the
indicators established in the DMF, reflecting, where applicable, the revisions made during
implementation. The chronological PPRs provide the history of project implementation progress
and performance.
OM Section J1/OP
Page 4 of 4
16.
Similarly, the implementing division of ADB prepares a TCR (where applicable) for a
completed TA, assessing achievements against its outputs, outcome, and likely impact. The
chronological TPR provides the history of implementation progress and performance from which
the TCR can draw.
E.
Operations Evaluation
17.
The final element of the PPMS is the independent evaluation of a sample of projects.
Operations evaluation takes place about 35 years after completion, when development
impacts should become evident. Again, the DMF, reflecting, where applicable, the revisions
made during implementation, provides the basis for performance evaluation in the PPER6 and
TPER. The assessments of performance, recommendations, and lessons learned from PPERs
and TPERs are fed back into country strategy and program development and the formulation of
new projects.
Basis:
This OM section is based on OM Section J1/BP and the documents cited

therein.
Compliance:
This OM section is not subject to compliance review.
For inquiries:
Questions may be directed to the Principal Director, Central Operations

Services Office.
28 October 2011

Office and issued by the Strategy
________________________
6
For further information, see ADB. 2006. Guidelines for the Preparation of Project Performance Evaluation Reports.
Manila. PPERs and TPERs are prepared by the Independent Evaluation Department.
OM Section J2/BP
Page 1 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
CONSULTANTS
A.
Introduction
1.
The services of consultants may be needed by ADB and its borrowers to help prepare,
implement, and operate projects, and to carry out ADB technical assistance (TA) activities (e.g.,
training, advisory services, regional studies, and workshops). These services may be financed
by ADB from its own resources or from another source but administered by ADB.1 ADBs policy
on the use of consultants is governed by Article 14(ix) and (xi) of the Agreement Establishing
the Asian Development Bank (the Charter) and is set out in the Guidelines on the Use of
Consultants by the Asian Development Bank and Its Borrowers dated April 2006 (the
Guidelines).
B.
Definition
2.
For purposes of ADBs policy, terms used here are defined as follows:
(i)
Borrower includes a recipient of ADB-financed loans and/or grants and ADBadministered funds, and where the borrower (or grant recipient) does not directly
execute the ADB-financed or ADB-administered project, also includes an
executing and/or implementing agency for project, as well as subborrowers to
which the loan proceeds are onlent by the borrower;
(ii)
Consultant includes private and public legal entities and individuals as referred
to in para. 1.3 of the Guidelines;
(iii)
DMC means a developing member country of ADB;
(iv)
National consultant means a consultant from the borrowers country that is

established or incorporated and has a registered office in the borrowers country,
or who is a citizen of the borrowers country;
(v)
NGO refers to a nongovernment organization; and
(vi)
Procurement plan means a plan prepared by a borrower, in consultation with

ADB, for procurement of goods and works, and recruitment of consulting services
under ADB-financed loans and/or grants or ADB-administered funds, as further
described in para.1.27 of the Guidelines.
Staff consultants financed by ADBs administrative budget are not covered by this OM section. For procurement
policies relating to goods and civil works, see OM Section J3 on Procurement.
OM Section J2/BP
Page 2 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
(vii)
Services means a wide range of services, generally of an intellectual and

advisory nature, as referred to in para 1.7 of the Guidelines.
C.
The Policy
3.
ADBs policy requires that:
D.
(i)
Consultants financed by ADB-financed loans and/or grants or from ADBadministered funds be engaged from ADB member countries, except as
otherwise specifically permitted by the Board of Directors pursuant to Article
14(ix) of the Charter;
(ii)
Consultants financed by ADB from its Special Fund resources be engaged from
any of the eligible source countries specified by ADB from time to time;2
(iii)
The proceeds of ADB-financed loans or grants and ADB-administered funds be

used only for the purposes for which such loans, grants, and funds were granted,
with due considerations of economy and efficiency;3
(iv)
The highest standard of ethics be observed during the selection process and in
the execution of contracts; and
(v)
Competitive selection be the standard mode of consultant recruitment, based on

quality and cost, except in cases of single-source selection.
Scope of the Policy

1.
The Role of ADB and Borrower
4.
The borrower is responsible for selecting, engaging, and supervising Consultants
engaged under loans and/or grants funded or administered by ADB.
5.
ADB is responsible for selecting, engaging, and supervising the experts who perform
missions for ADB under TA, staff consultants, and resource persons (whether financed from
ADBs own resources, or financed by another institution and administered by ADB), unless
otherwise agreed by ADB and the borrower.4
2
3
4
The loan proceeds from contributions to the Asian Development Fund (ADF) are used to engage consultants from
the territories of ADF contributors and all DMCs. See ADF Regulations, 7 February 2005, Section 4.03.
See OM Section D10 on Private Sector Operations and OM Section E1 on Cofinancing.
To increase country ownership and improve sustainability of TA project benefits, ADB may, in particular
circumstances, delegate responsibility to a borrower to recruit and supervise TA consultants. See OM Section D12
on Technical Assistance and the policies described therein.
OM Section J2/BP
Page 3 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
2.
Principles of the Use of Consultants
6.
While the specific rules and procedures to be followed for employment of consultants
depend on the circumstances of a particular case, six main considerations guide ADB policy on
the selection process:
(i)
the need for high-quality consulting services;
(ii)
the need for economy and efficiency;
(iii)
the need to give all qualified consultants an opportunity to compete in

providing the services financed by ADB;
(iv)
ADBs interest in encouraging the development of national consulting

industries and use of national consultants from DMCs;
(v)
the need for transparency in the selection process; and
(vi)
the need for increasing focus on anticorruption and observation of ethics.
7.
High-quality consulting services are best achieved through a competitive selection and
engagement process based on quality and cost. Appropriate selection methods and contracting
arrangements 5 shall be used, with due regard for economy and efficiency. Past consultant
performance should be linked to future business opportunities.
8.
To foster competition, ADB permits qualified consultants from all ADB member countries
to offer services to be financed by ADB.
9.
ADB provides capacity development to DMCs to enhance (i) country capacity and
ownership, (ii) the borrower recruitment capacity at the project level, and (iii) development of
DMC consulting industries by addressing capacity building requirements at (a) policy and
regulatory, (b) consulting association, (c) firm, and (d) individual consultant levels.
10.
Preparation of the Procurement Plan will increase borrower ownership, including
borrower participation in determining consultancy requirements, producing and endorsing terms
of reference, and focusing more on identification of national consultants.
11.
Transparency and fairness in the selection process require that any unfair competitive
advantage be prevented by ADB and its borrowers.
5
The Guidelines provide for a flexible range of selection methods for use in engagement of consulting firms: qualityand cost-based selection (QCBS), which is ADBs preferred selection method, quality-based selection (QBS), fixedbudget selection (FBS), least-cost selection (LCS), consultant-qualification selection (CQS) and single-source
selection (SSS), as well as various types of contracting methods, depending on particular circumstances, which
include time-based, retainer and/or contingency fee, indefinite delivery, lump sum, and performance-based
contracts.
OM Section J2/BP
Page 4 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
12.
In accordance with ADBs policy on anticorruption, the highest standard of ethics must
be observed by borrowers, beneficiaries, as well as consultants under contracts financed by
ADB loans and grants, and ADB-administered funds. Corrupt, fraudulent, collusive, or coercive
practices, and conflict of interest6 are strictly prohibited and will be dealt with as set out in the
Guidelines.
13.
If recruitment of Consultants is not carried out as agreed, ADB will declare
misprocurement and exercise appropriate remedies as described in para. 1.18 of the
Guidelines.
Basis:

ADB. 2006. Doc. R12-06. Use of Consultants by the Asian Development Bank
and Its Borrowers. 12 January. Manila.
ADB. 2004. Doc. R 185-04. Anticorruption Policy: Proposed Clarifications and
This OM section is to be read with OM Section J2/OP and OM Section C5
(Anticorruption).
Compliance: This OM section is not subject to compliance review.

For inquiries: Questions may be directed to the Principal Director, Central Operations Services
Office.
Definitions of corrupt, fraudulent, collusive, or coercive practices, and conflict of interest are provided in Section
1.23 of the Guidelines.
1 April 2006

OM Section J2/OP
Page 1 of 1
OPERATIONS MANUAL
CONSULTANTS
The operational procedures for this OM Section are contained in the Guidelines on the Use of
Consultants by the Asian Development Bank and Its Borrowers (April 2006) and Project
Administration Instructions, chapter 2, as well as the documents cited therein.
Basis:
This OM section is based on OM Section J2/BP and the documents cited

therein.
Compliance:
For inquiries:
Questions may be directed to the Principal Director, Central Operations

Services Office.
1 April 2006
This supersedes OM Section J2/OP

OM Section J3/BP
Page 1 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
PROCUREMENT
A.
Introduction
1.
ADBs policy on procurement is governed by Article 14(ix) and (xi) of the Agreement
Establishing the Asian Development Bank (the Charter), and is set out in the Procurement
Guidelines, dated April 2006.
B.
Definition
2.
The terms used here are defined as follows for the purposes of ADBs policy:
C.
(i)
Borrower includes recipients of ADB-financed loans and/or grants and ADBadministered funds, and also refers to the executing agency for a project. In
some cases, the borrower acts only as an intermediary, and the project is carried
out by another agency or entity, in which case borrower includes such agencies
and entities, as well as subborrowers under onlending arrangements.
(ii)
Financing includes financing provided by an ADB-financed loan or grant, or

ADB-administered funds.
(iii)
Services means works, typically construction works, and all project-related

services, such as surveying, design, commissioning, and supervision, including
consulting services provided as part of a single-responsibility contract.
The Policy
3.
The policy requires that (i) the proceeds of ADB loans, ADB-financed grants, and ADBadministered funds be used only for procurement in member countries of goods and services
supplied from and produced in member countries (unless specifically permitted otherwise by the
Board) pursuant to the provisions of Article 14(ix) of the Charter; (ii) the proceeds of loans or
grants from Special Funds resources be used only for procurement in the territories of all
contributors and all developing member countries of goods and services supplied from and
produced in such territories; (iii) the proceeds of any ADB financing be used only for the
purposes for which the financing was approved; (iv) procurement be carried out with due
consideration of economy and efficiency; (v) borrowers, as well as bidders, suppliers, and
contractors under ADB-financed contracts observe the highest standard of ethics during the
procurement and execution of such contracts; and (vi) ADB provide equal and fair opportunity to
all bidders, suppliers, and contractors from all member countries for the supply of goods, works,
and services financed by ADB.
OM Section J3/BP
Page 2 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
D.
Scope of the Policy
4.
ADB-financed procurement must comply with the Procurement Guidelines, as provided
for in the relevant financing agreement. The rights and obligations of the borrower and the
provider of goods, works, and services are governed by the bidding documents, and by the
contracts signed by the borrower with the providers, not by the Procurement Guidelines.
5.
The responsibility for procurement under ADB financing rests with the borrower. ADB
has the obligation to ensure that the proceeds of its financing are used in accordance with ADB
procurement policy and with due attention to considerations of economy, efficiency, and
transparency.
E.
Anticorruption
6.
In accordance with ADBs policy on anticorruption, the borrowers, bidders, suppliers,
contractors, and ADB staff are to observe the highest standard of ethics. Refer to OM Section
C5 (Anticorruption). Corrupt, fraudulent, collusive and coercive practices are strictly prohibited
and will be severely dealt with as set out in the Procurement Guidelines.
F.
Domestic Preference Scheme under ICB
7.
ADB recognizes that domestic manufacturers and contractors are faced with high and
variable levels of import duties and other indirect taxes on intermediate inputs, capital goods,
and equipment. To allow competition with foreign counterparts on more equal terms,
domestically manufactured goods and domestic contractors may be given a margin of
preference when goods and works are procured following international competitive bidding
(ICB). The preference scheme is applicable only to procurement of goods, works, and some
additional services as specified in the procurement documents, and excludes consulting
services.
8.
All developing member countries receiving ADB financing are eligible to participate in the
domestic preference scheme in respect of certain goods using the proceeds of the financing.
The preference is applicable only to goods procured through ICB where specified in the
procurement documents. Under the scheme, goods manufactured in the country of the borrower
may be eligible for a preference when comparing bids offering such goods with those offering
goods manufactured abroad. It is the origin of goods that determines application of preference,
not the nationality of the manufacturer or supplier.
9.
The domestic preference scheme is applicable to bona fide domestic contractors for
works conducted in qualifying member countries.1 The preference is applicable only to contracts
procured through ICB where specified in the procurement documents. Under the scheme, the
evaluation of bids for works in qualifying member countries may apply a preference when
Qualification is based on annual per capita gross national product, reviewed periodically and published in the
Project Administration Instructions (PAI).
OM Section J3/BP
Page 3 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
comparing bids from eligible domestic contractors with those from foreign firms. It covers both
works and some additional services (including but not limited to aerial photography, mapping,
exploratory drilling, crop spraying, plant commissioning, and training of the executing agencys
staff in the operation of plant and equipment, but excluding consulting services).
G.
10.
For procurement using technical assistance funds, also refer to OM Section D12 on
Technical Assistance and the policies described therein.
H.
Procurement of Consulting Services
11.
For procurement of consulting services, refer to OM Section J2 on Consultants and the
policies described therein.
I.
Private Sector Operations
12.
For procurement utilizing funds provided under private sector operations, refer to OM
Section D10 on Private Sector Operations and the policies described therein.
J.
Cofinanced Procurement
13.
Procurement that is jointly cofinanced and administered, or parallel cofinanced and
administered by ADB, is to be undertaken in accordance with the Procurement Guidelines.
Refer also to OM Section E1 on Cofinancing.
Basis:

ADB. 2006. Doc. R11-06. Revising the Procurement Guidelines. 3 February.
Manila.
ADB. 2004. Doc. R185-04. Anticorruption Policy Proposed Clarifications and
ADB. 1991. Doc. R108-91. Revision 1, Final, Review of Domestic Preference
Scheme. 8 August. Manila.
This OM section is to be read with OM Section J3/OP.
OM Section J3/BP
Page 4 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)

Office.
1 April 2006

OM Section J3/OP
Page 1 of 1
OPERATIONS MANUAL
PROCUREMENT
The operational procedures for this OM section are contained in the Procurement Guidelines,
and Project Administration Instructions (PAI), Chapter 3, as well as the documents cited therein.
For procurement using technical assistance funds, refer also to the Guidelines for
Disbursements of Technical Assistance Grants, and PAI Section 5.11. For procurement of
consulting services, refer to the Guidelines for Use of Consultants by ADB and Its Borrowers,
and PAI Chapter 2.
Basis:
This OM section is based on OM Section J3/BP and the documents cited therein.

Office.
1 April 2006

OM Section J4/BP
Page 1 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
LOAN COVENANTS
A. Introduction
1.
the following:
(i)
(ii)
(iii)
ADB will promote investment in the Asian and Pacific region of public and
private capital for development purposes (Article 2[i]);
ADB will take necessary measures to ensure that any loan made,
guaranteed, or participated in by ADB is used only for the purposes for which
it was granted and with due attention to considerations of economy and
efficiency (Article 14[xi]); and
ADB will be guided by sound banking principles in its operations
(Article14[xiv]).
2.
The Charter also provides that the contract for direct loans made or participated
in or loans guaranteed by ADB will establish the terms and conditions for the loan or the
guarantee concerned (Article 15.1).
3.
Thus, ADBs legal agreements stipulate loan covenants that are considered
necessary to ensure efficient implementation of, and full realization of benefit from,
projects financed by ADB. These covenants include development covenants that deal
with the objectives and implementation of an ADB-financed project, taking into account
ADB's role as a development financing institution and its objective to contribute to the
economic growth of the region. These covenants include covenants entered into by ADB
in its equity investments.
4.
During project implementation, including review, midterm review, and project
completion missions, ADB departments concerned review the status of compliance with
loan covenants in the legal agreements entered into by ADB with the
borrowers/guarantors/executing agencies of ADB-financed projects.
B. Definition
5.
As used in this OM section, the term "legal agreements" refers to all or any of the
project-related legal documents, including the loan agreement, guarantee agreement,
and project agreement.
C. The Policy
6.
Loan covenants are primarily the obligations to be performed by the
borrowers/guarantors/executing agencies of ADB-financed projects. ADB is under an
obligation to monitor and follow up these obligations contained in loan covenants. ADB's
OM Section J4/BP
Page 2 of 3
general approach on noncompliance with loan covenants is to seek corrective measures
in order to attain the original development objectives of the ADB-financed project. ADB's
legal remedies on noncompliance with loan covenants include suspension, cancellation,
or acceleration of maturity, which are available under the loan agreement and the loan
regulations made applicable thereto. Resorting to legal remedies in the event of
noncompliance is not automatic or mandatory. Before resorting to such measures, ADB
uses available means to rectify the situation satisfactory to all parties to the legal
agreements, including initiating dialogue with the parties concerned such as the
borrower, guarantor, or executing agency to explore ways to achieve covenant
compliance.
7.
ADB's legal agreements have covenants that specify actions important for
efficient project implementation and for the realization of the expected objectives and
benefits. There are two categories of covenants in the legal agreements: general and
special.
8.
General covenants are those standard assurances and undertakings that ADB
obtains from all borrowers, guarantors, and executing agencies in respect of ADBfinanced projects, regardless of the special features of a particular project. General
covenants include obligations to repay the loan and to maintain project records and
accounts. Special covenants are those assurances and undertakings that ADB
considers necessary or desirable to obtain from the borrower, guarantor, and executing
agency for each specific project, considering the special features of the individual
project.
9.
Special covenants may include matters such as institutional and staffing
arrangements for project execution; acquisition of required land; allocation or provision
of water, fuel or power resources; distribution and marketing arrangements or supporting
services; conduct of surveys and studies; institutional development and training; review
of tariffs, rates, charges and prices; sector or regional policy matters; operational and
management matters; and cofinancing arrangements and other financial measures.
10.
Both general and special covenants provide a basis for ADB to monitor project
implementation and performance. On general covenants, the formulation is based
primarily on the loan regulations made applicable to the loan. In formulating special
covenants, they should indicate, where possible, the date by which compliance is
expected of various items therein, on the basis of a realistic assessment of projectspecific requirements.
11.
Covenants will be compatible with the socioeconomic conditions of developing
member countries, and local laws, regulations, and administrative procedures, except
where ADB and the borrower/guarantor/executing agency agree to have appropriate
changes in the existing local laws, regulations, or administrative procedures. Covenants
must also satisfy ADBs sectoral/subsectoral policy requirements.
OM Section J4/BP
Page 3 of 3
Basis:

ADB. 1987. Doc. IN.300-87, Study of Compliance with Special Loan
Covenants, 28 December. Manila.

ADB. 2001. Ordinary Operations Loan Regulations (Applicable to
LIBOR-Based Loans Made from ADB's Ordinary Capital Resources),
1 July. Manila.
Loans Made by the Bank from Its Ordinary Capital Resources), 1 July.
Manila.
ADB. 1982. Special Operations Loan Regulations (Applicable to
Loans Made by the Bank from Its Special Funds Resources), 7
December. Manila.
Compliance:
For inquiries:

General Counsel.
29 October 2003
Prepared by the Office of the General Counsel

and issued by the Strategy and Policy
Department with the approval
of the President.
OM Section J4/OP
Page 1 of 1
OPERATIONS MANUAL
LOAN COVENANTS
Instructions, Chapter 5 (Project Administration Actions) and Chapter 6 (Internal
Procedures and Reports), as well as the documents cited therein.
Basis:
This OM section is based on OM Section J4/BP and the documents

cited therein.
Compliance:
For inquiries:

General Counsel.
29 October 2003

of the President.
OM Section J5/BP
Page 1 of 2
OPERATIONS MANUAL
BANK POLICIES (BP)
EFFECTIVENESS OF THE LOAN AGREEMENT
A. Introduction
1.
that ADB will be guided by sound banking principles in its operations (Article14[xiv]).
2.
The Charter also provides that the contract for direct loans made or participated
in or loans guaranteed by ADB will establish the terms and conditions for the loan or the
guarantee concerned (Article 15.1).
3.
The loan agreement, to which ADB is a party, becomes effective after its signing
by all parties, upon the borrower's compliance with the conditions specified in the loan
regulations made applicable thereto and any additional conditions specified in the loan
agreement ("the effectiveness conditions"). The effectiveness conditions are sometimes
called conditions precedent to draw down.
B. The Policy
4.
The effectiveness conditions are to ensure that ADB's interests as a development
financing institution are protected before any proceeds of the loan are drawn down. The
borrower is to satisfy the effectiveness conditions within a period of time agreed upon
with ADB and as specified in the loan agreement. This period may be extended by ADB
upon the request of the borrower. ADB does not waive fulfillment of any of the
effectiveness conditions except with the prior approval of the Board of Directors in case
the Board approval of the investment was based on these conditions.
5.
There are two types of conditions of loan effectiveness: standard and special or
project specific.
6.
Standard conditions of loan effectiveness are stipulated in the applicable loan
regulations. They relate to the legal validity of the relevant loan documents stipulated in
the applicable loan regulations. Special or project-specific conditions of loan
effectiveness are stipulated in the loan agreement. They relate to conditions critical for
the effective implementation of the project or where the borrower or executing agency
has not yet complied with a covenant stipulated in an earlier loan, and compliance with
such covenant is stated as a condition of loan effectiveness in the new loan.
OM Section J5/BP
Page 2 of 2
Basis:

ADB. 1984. General Counsel's memorandum of 5 January 1984 on
Loan Effectiveness Guidelines. Manila.

LIBOR-Based Loans Made from ADB's Ordinary Capital Resources),
1 July. Manila.
Loans Made by the Bank from Its Ordinary Capital Resources), 1 July.
Manila
ADB. 1982. Special Operations Loan Regulations (Applicable to
Loans Made by the Bank from Its Special Funds Resources), 7
December. Manila.
Compliance:
For inquiries:

General Counsel.
29 October 2003

of the President.
OM Section J5/OP
Page 1 of 1
OPERATIONS MANUAL
EFFECTIVENESS OF THE LOAN AGREEMENT
Instructions, No. 1.04 on Conditions and Declaration of Loan Effectiveness, as well as
the documents cited therein.
Basis:

cited therein.
Compliance:
For inquiries:

General Counsel.
29 October 2003

of the President.
OM Section J6/BP
Page 1 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
These policies were prepared for use by ADB staff and are not necessarily a complete treatment
of the subject.
DISBURSEMENT
A.
Definitions
Closing date
The date the Asian Development Bank (ADB) may

terminate the right of the recipient or borrower to make
withdrawals from a grant or loan account.
Disbursement
The withdrawal of proceeds from an ADB-financed1 grant

or loan account.
Eligible expenditures
Project expenditures that can be financed under an

ADB-financed grant or loan.
Expenditures incurred
The recipient of a grant or borrowers obligation to pay

either as a result of contractual terms or after goods and
services have been provided.
Financing agreement
A grant agreement, loan agreement, or combined grant and

loan agreement, as appropriate; the related counterparty is
referred to as the recipient for a grant and the borrower
for a loan.
Grant account or loan account
The account opened or to be opened by ADB on its books

in the name of the recipient or borrower, and to which the
amount of the grant or loan has been or will be credited.
B.
Introduction
1.
Articles 13 and 14(ix), (x), and (xi) of the Agreement Establishing the Asian Development
Bank (the Charter) stipulate conditions for the use of loan proceeds financed by the Asian
Development Bank (ADB). ADBs policy on disbursement is a key element in meeting these
conditions of the Charter. The Regulations2 further set out conditions for the use of loan or grant
proceeds financed by ADB, or proceeds administered by ADB.3
In this Operations Manual section J6/BP, the term ADB-financed or ADB financing includes ADB-administered
grants or loans, unless the context requires otherwise. This Operations Manual section J6 does not cover technical
assistance grants.
Includes Ordinary Operations Loan Regulations, Special Operations Loan Regulations, Special Operations Grant
Regulations, and Externally Financed Grant Regulations.
ADB in practice applies similar principles to those set out in Articles 13 and 14 (ix), (x), and (xi) of the Charter to
grants or loans from external funding sources that are administered by ADB, except when ADB and the relevant
cofinancier agree otherwise.
OM Section J6/BP
Page 2 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
C.
The Policy
2.
The Charter sets out the principles to be followed in disbursement:
D.
(i)
The proceeds of any loan, investment, or other financing provided by ADB shall
be used only for procurement in member countries of goods and services
produced in member countries unless the Board of Directors specifically permits
otherwise (Article 14[ix]).4
(ii)
The borrower shall be permitted to draw its funds only to meet expenditures in
connection with the project as they are actually incurred (Article 14[x]).5
(iii)
The proceeds of any ADB loan are to be used only for the purposes for which the
loan was approved, with due attention to considerations of economy and
efficiency (Article 14[xi]).
Eligibility of Expenditure
3.
The eligibility of expenditures for ADB financing is governed by Article 14(ix), (x), and (xi),
and the relevant operational policies, including the one on cost sharing and eligibility of
expenditures.6 For grants or loans from external funding sources that are administered by ADB,
cofinanciers and ADB may discuss and agree on additional eligibility conditions.
4.
Disbursements can begin only after the financing agreement becomes effective7 and
relevant conditions for withdrawal, if any, are met. Expenditures incurred before the effective
date of the agreement are not eligible for ADB financing, except when ADB has agreed to
retroactive financing.8
5.
Expenditures incurred after the closing date stipulated in the financing agreement should
not be financed from the grant or loan proceeds. If a review of the disbursement and project
implementation status of a project suggests that an extension of the closing date is necessary
and justified, and will help to achieve the project objectives within a reasonable time, ADB may
extend the closing date.
E.
Conditions for Withdrawal
6.
The financing agreement may include conditions for withdrawal from the grant or loan
account,9 which are conditions to be met before the loan or grant proceeds can be disbursed.
These may include certain actions that the borrower, the recipient and/or the executing and/or
implementing agencies are required to undertake.
4
5
6
7
8
9
Operations Manual section J3 (Procurement).

Disbursement may precede the incurrence of eligible expenditure as long as the disbursement is related to the
incurrence of such an expenditure (e.g., providing advance subject to liquidation by eligible expenditure incurred).
Operations Manual section H3 (Cost Sharing and Eligibility of Expenditures for ADB Financing).
Operations Manual section J5 (Effectiveness of the Loan Agreement).
Operations Manual section H4 (Retroactive Financing).
These are commonly called disbursement conditions.
OM Section J6/BP
Page 3 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
Basis: This OM section is based on:

ADB. 2001. Ordinary Operations Loan Regulations. Manila (1 July).
ADB. 2005. Cost Sharing and Eligibility of Expenditures for Asian Development
Bank Financing: New Approach. Manila.
ADB. 2007. Loan Disbursement Handbook. Manila (amended from time to time).
ADB. Project Administration Instructions (amended from time to time). Manila.
For inquiries: Questions may be directed to the Assistant Controller, Loan Administration
Division, Controllers Department.
04 May 2012
Prepared by the Controllers Department
This supersedes OM Section J6/BP and issued by the Controllers Department on 22 October
2008. with the approval of the President.
OM Section J6/BP
Page 4 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
OM Section J6/OP
Page 1 of 7
OPERATIONS MANUAL
DISBURSEMENT
A.
Introduction
1.
The procedures for withdrawing grant or loan proceeds for the purpose of carrying out a
project as specified in the applicable financing agreement (in general disbursement
procedures) are set forth in this section.1 This policy applies only to Asian Development Bank
(ADB)s sovereign grants and loans. For nonsovereign operations, the disbursement
arrangements are specified in their respective financing agreements. Further details are
contained in the Project Administration Instructions and the Loan Disbursement Handbook.
B.

1.
Grant or Loan Account, Conditions for Withdrawal, Authorization of

Payment
2.
Disbursements can begin only after the financing agreement becomes effective and
relevant conditions for withdrawal (i.e., the disbursement conditions), if any, are met. When the
agreement becomes effective, a grant account is opened in the name of the recipient or a loan
account is opened in the name of the borrower, and the agreed amount is credited to that
account.
3.
Conditions for withdrawal, if any are stated in the financing agreement, and the
expenditures subject to such conditions are clearly separated, to the extent possible, from the
rest of the expenditures under the project and designated in a separate expenditure category, as
the conditions for withdrawal should not prevent implementation of other portions of the project.2
4.
Withdrawal from the account (i.e., disbursement) is subject to the approval of the
Controllers Department of a withdrawal application. In approving a withdrawal application, the
Controllers Department may consult the concerned regional department, or the resident or
regional mission supervising the project, the Office of the General Counsel, and other concerned
departments and offices, where necessary. Upon approval of disbursement, the Treasury
Department makes the payment. The Controllers Department advises the recipient or the
borrower3 of the disbursements through internet or other means.
2.
Disbursement Procedures
These procedures also apply to grants or loans from external funding sources that are administered by ADB, except
when ADB and the relevant cofinancier agree otherwise.
For example, conditions for withdrawal on a portion of a loan and a grant may be used in the following cases: (i)
establishment of a particular implementing unit for a portion of the loan, and (ii) execution of a subsidiary legal
agreement for a portion of the loan.
In this Operations Manual section J6/OP, the term recipient and borrower may also mean the relevant executing
and/or implementing agencies, as the context requires.
OM Section J6/OP
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OPERATIONS MANUAL
5.
The recipient or borrower may use any of the following disbursement procedures for
payment of expenditures related to projects4 financed by ADB, subject to ADBs prior approval in
the case of procedure (iv):
6.
(i)
Direct Payment. This procedure provides for ADB to make the payment directly
to the supplier, contractor, or consultant on the basis of a withdrawal application
submitted by the recipient or the borrower.
(ii)
Commitment. This procedure involves a commercial letter of credit to pay a

supplier. The letter of credit is usually established by a commercial bank (issuing
bank) and is advised and paid usually by another commercial bank (advising,
negotiating, or paying bank depending on the actual arrangements) in accordance
with the terms of the letter of credit. ADB does not open the letter of credit nor
does it become a party to it, but ADB, on behalf of the recipient or the borrower,
assures payment from the related grant or loan proceeds to the paying bank.
(iii)
Reimbursement. This procedure, wherein the recipient or the borrower effects

payments and then requests reimbursement from ADB, is generally suitable when
the recipient or the borrower has sufficient funds to pay for project expenditures
first.
(iv)
Imprest Fund. Under this procedure, ADB provides the executing and/or
implementing agency with funds in advance (replenished from time to time as
necessary) for financing eligible expenditures to help the borrower reduce cash
flow difficulties thereby facilitating project implementation. Any advance not
liquidated by eligible expenditures shall be refunded to ADB. The procedure may
be allowed if the executing and/or implementing agency (i) needs to make
numerous payments for small expenditures, (ii) has sufficient administrative and
accounting capabilities, and (iii) can arrange for periodic independent audits.
Imprest accounts may be in any currency, including the borrowers local currency,
so long as the currency is freely convertible and stable. The currency of the
imprest account should be indicated in the Project Administration Manual (PAM),5
or other appropriate loan or grant document.
To facilitate efficient disbursement operations, the following simplified documentation

procedures may be used under the Reimbursement and the Imprest Fund procedures,
subject to ADBs prior approval.
(i)
Statement of Expenditures. This procedure, which involves submission by the

executing and/or implementing agency of a statement of expenditures (SOE) in
lieu of the usually required supporting documentation (such as invoices, bills, and
receipts), is used when applying for reimbursement or liquidation and/or
Disbursement procedures for policy-based loans are set out in Operations Manual section D4 (Policy-Based
Lending).
In this Operations Manual section J6/OP, the term PAM also refers to Facility Administration Manual (FAM) prepared
for Multitranche Financing Facility (MFF) unless the context requires otherwise. See Operations Manual section
D14.
OM Section J6/OP
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OPERATIONS MANUAL
replenishment under the imprest fund procedure. The SOE procedure is available
when (a) it is impractical or unduly burdensome for the executing and/or
implementing agency to submit full documentation of small expenditures below
the approved ceiling to ADB in support of applications for withdrawal of grant or
loan proceeds; (b) the executing and implementing agency has sufficient
administrative and accounting capabilities; and (c) the executing and
implementing agency is able to arrange periodic audits.
(ii)
Force Account Works. This procedure is used when ADB and the recipient or
the borrower consider it appropriate for the executing and/or implementing
agency to employ its own work-force, equipment, and other resources to carry out
civil works required for the project. As the supporting documentation usually
required (such as invoices, bills, and receipts) is not available, the executing
and/or implementing agency is required to submit periodic certification of progress
or completion of such civil works in support of applications for withdrawal of funds.
7.
To use the imprest fund, SOE, or force account works procedures, the Controllers
Department and the regional department, or the resident or regional mission responsible for
project administration, have to be satisfied with the capacity of the executing and/or
implementing agency, the nature of project expenditures, and other matters considered. ADB
staff and the recipient or the borrower should identify the need for the appropriate procedures
early in project processing and specify arrangements in the applicable PAM.
3.
Financing Plan, Financing Percentage and Detailed Cost Estimate by

Financier
8.
Financing Plan. The financing plan will identify the different sources of financing for the
project, the amounts to be provided by each financier, and the overall percentage of total project
cost that each financier will finance. The financing plan is included in the Report and
Recommendation of the President (RRP).
9.
Based on the financing plan, the detailed cost estimate by financier may be prepared in a
variety of ways, including the following three options:
(i)
Option 1. ADB finances eligible expenditures on a pro rata basis with the
cofinanciers, i.e., the eligible expenditures will be financed only up to an amount
equivalent to ADBs financing ratio for the entire project. For example, if ADB finances
60% of the project, only 60% of the eligible expenditures under each claim will be
financed.
(ii)
Option 2. ADB finances eligible expenditures up to 100% of every claim it
receives, as long as sufficient undisbursed grant or loan amounts remain. 6 If the
remaining amount is not sufficient to cover 100% of the claim, only the remaining amount
will be disbursed.
Under such an arrangement, allocation of amounts by expenditure category may not be determined.
OM Section J6/OP
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OPERATIONS MANUAL
(iii)
Option 3. ADB finances eligible expenditures in accordance with different ratios
specified for each cost category and/or subcategory. For example, the financing ratio for
civil works may be 20% and for equipment 90%.
10.
The RRP and PAM will explain the manner in which the eligible expenditures will be
financed. Moreover, for all financing plans other than the options 1 and 3, the RRP and PAM will
indicate the risks associated with it and the control mechanisms, if any, that will be put in place to
address them. Such a plan and the control mechanisms will be raised at the management review
meeting or the staff review meeting for endorsement.
11.
Financing Percentage. ADBs financing percentage is (i) the overall share of ADBs
financing for the project, as presented in the financing plan; and (ii) the share of ADBs financing
for expenditure categories, as presented in the detailed cost estimate by financier.
12.
Detailed Cost Estimate by Financier. The detailed cost estimate by financier should
exhibit (i) the expenditure category, (ii) the amounts allocated to each expenditure category by
financier, and (iii) the financing percentage for each category by financier.7 This table must be
included in the PAM.
4.
Expenditure
Percentage
Categories,
Allocation
of
Amounts
and
Disbursement
13.
As a basis for disbursement operations during project implementation, the following are
summarized in a table as an attachment to one of the schedules in the financing agreement
(hereinafter referred to as the attachment to schedule) for all ADB-financed projects: 8 (i)
expenditure categories, 9 (ii) their corresponding allocation of amounts, (iii) disbursement
percentages, and (iv) other applicable conditions.
14.
The amount of ADB financing and disbursement percentage for each expenditure
category is derived from the detailed cost estimates by financier.
15.
The project team leader is responsible for ensuring that the attachment to schedule is
accurately prepared, in consultation with the project counsel and financial control specialist.10
a.
16.
Expenditure Categories
The project expenditures to be financed by ADB are grouped into expenditure categories.
Such as ADB ordinary capital resources loan, Asian Development Fund (ADF) loan, ADF grant, a co-financiers loan,
co-financiers grant, a trust fund and/or the government contribution.
8
The attachment to schedule must be completed and inserted for all types of loan, grant and financing agreements
(including sector loans, unless the information necessary to complete the attachment is not available at the time of
Board approval). For financial intermediation grants or loans, the attachment to schedule may or may not be
attached to the financing agreement.
9
In this Operations Manual, the expenditure category also refers to expenditure subcategory, unless otherwise
specified.
10
The accuracy is ensured through the peer review process during processing of loans. In case any changes are
proposed to the attachment to the schedule during the loan negotiation, the financial control specialist should be
consulted before the loan negotiation is completed.
OM Section J6/OP
Page 5 of 7
OPERATIONS MANUAL
17.
Each expenditure category is given in the attachment to schedule. The Office of General
Counsel must furnish to the Controllers Department a copy of the financing agreement, including
the attachment to schedule, as soon as it is signed by the recipient or the borrower.
b.
Allocation of Amounts
18.
The attachment to schedule specifies the amount allocated to each expenditure category.
A part of the grant or loan may be shown as unallocated. From this category, reallocation may be
made to other specified categories to cover cost increases. Amounts no longer required for
disbursement in an expenditure category may also be reallocated to another category.
c.
Disbursement Percentage
19.
The disbursement percentage is the ratio or proportion of ADB financing which is applied
to expenditures claimed under a particular expenditure category as specified in the attachment to
schedule11. The disbursement percentage is derived from the detailed cost estimate by financier,
in consideration of the financing options, treatment of local taxes and duties, and other project
specific requirements.
d.
Treatment of Local Taxes and Duties
20.
ADBs standard practice is to include local taxes and duties in the total project
expenditure amount, in the detailed cost estimate by financier.
21.
Where ADB finances taxes and duties. ADB may finance the local taxes and duties,
subject to the criteria12 described in the policy related to eligibility of expenditures under ADB
financing.
22.
Where ADB does not finance taxes and duties. When ADB does not finance local
taxes and duties, those to be excluded from ADB financing are value-added tax (VAT), gross
sales taxes (GST), and other similar types of taxes and duties 13 that are identifiable and
determinable as the final tax amount at the time of transaction. On the other hand, income tax14
and other taxes and duties that are not identifiable and determinable as a final tax amount at the
time of transaction are not excluded from the amount to be financed by ADB. If a country has a
particular type of tax that requires clarification on its nature and treatment under an ADB project,
the RRP and PAM should describe that tax and indicate whether ADB will finance it, or not.
11
This is presented in the financing agreement as Basis for Withdrawal from Loan/Grant Account.
The criteria include a threshold identified in the Country Partnership Strategy (CPS). See Operations Manual
section H3/OP, for detailed requirements.
13
VAT or GST-type taxes and duties are levied by borrowing countries on specific goods, works, and services, by
adding the relevant taxes to the costs.
14
Income tax is a tax levied by tax authorities on the total income of all business activities of the contractor during a
fiscal year, including ADB-financed activities. Income tax withheld by the executing agency from a contractors
invoice is temporary, subject to adjustments at the time of declaring annual income tax returns. Actual income tax
cannot be determined at the time of payment of individual invoices.
12
OM Section J6/OP
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OPERATIONS MANUAL
23.
When ADB does not finance local taxes and duties, particular attention should be paid in
determining the financing percentage for each expenditure category and disbursement
percentage. In such cases, one of the following two methods should be used:
(i) Gross basis. ADBs financing percentage and disbursement percentage must be set
at levels that will exclude local taxes and duties. For example, if the estimated local tax is
10% for a category, ADBs financing percentage and disbursement percentage for the
category must not exceed 91% (= 1/1.1). The gross basis presentation is generally
preferred as (a) it does not require the Governments particular tax exemption, and (b) it
is helpful in streamlining disbursement processing. The local taxes and duties must be
broken down further into the expenditure categories in the detailed cost estimate by
financier included in the PAM.
(ii) Net-of-tax basis. If ADB intends to finance 100% or part of the cost under a certain
category except the local taxes and duties, then ADBs disbursement percentage can be
presented on a net-of-tax basis, i.e., 100% excluding local taxes and duties. An asterisk
[*] that indicates exclusive of taxes and duties imposed within the territory of the
Borrower must be placed on the expenditure category in the attachment to schedule.15 If
all expenditure categories are financed on a net-of-tax basis, the detailed cost estimate
by financier may indicate estimated taxes and duties amount in one line item, and all
individual cost amounts excluding taxes and duties. Typically, the net-of-tax basis
presentation is appropriate when the governments counterpart funding for an
expenditure category is in the form of tax exemption. 16 If the government does not
provide tax exemption and requires disbursement by 100% excluding local taxes and
duties, supporting documents of each withdrawal application should indicate the amount
of the local taxes and duties that should be excluded from disbursement. As these
additional considerations in disbursement operations are required, the net-of-tax basis
presentation should be used only when the circumstances require.
5.
Grant and Loan Closing
24.
The borrower may make withdrawals from the grant or loan account only for the
expenditures incurred on or before the grant or loan closing date. Expenditures incurred after the
grant or loan closing date will not be financed under the grant or loan. If a review of the
disbursement and project implementation status of a project suggests that an extension of the
closing date is necessary, justified, and will help to attain the project objectives within a
reasonable time, ADB may extend the closing date.
15
Different expenditure categories within the same attachment to schedule may be presented on a gross or net-of-tax
basis, if appropriate.
16
If taxes are exempted, each invoice or claim will not indicate the amount of taxes, but shows only the amount of
costs; therefore, the net-of-tax basis disbursement percentages should be used, in order for ADB to finance the
project costs as envisaged.
OM Section J6/OP
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OPERATIONS MANUAL
Basis: This OM section is based on OM Section J6/BP and the documents cited therein.
Other background information and references:
This OM section is to be read with Project Administration Instructions and the
documents cited therein; and ADB. 2007. Loan Disbursement Handbook. Manila
(amended from time to time).
For inquiries: Questions may be directed to the Assistant Controller, Loan Administration
Division, Controllers Department.
04 May 2012
Prepared by the Controllers Department
This supersedes OM Section J6/OP and issued by the Controllers Department on 22 October
2008. with the approval of the President.
OM Section J7/BP
Page 1 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
PROJECT FINANCIAL REPORTING AND AUDITING
A.
Introduction
1.
Charter) requires ADB to take necessary measures to ensure that the proceeds of any loan
made, guaranteed, or participated in by ADB are used only for the purposes for which the
loan was approved and with due attention to considerations of economy and efficiency. In
addition, Article 14(xiv) of the Charter requires ADB to be guided by sound banking
principles in its operations. 1
B.
Definitions
2.
The term auditing standards refers to the standards to be applied in the audit of
financial statements.
3.
The term accrual basis refers to the accounting method that measures the
financial performance and position of an entity by recognizing economic events regardless
of when cash transactions occur. Economic events are recognized by matching revenues
to expenses at the time that the transaction occurs rather than when payment is made (or
received).
4.
The term audited financial statements refers collectively to the audited financial
statements, notes to the financial statements and audit report.
5.
The term audit report refers to the independent auditors report on the financial
statement, 2 specifically the auditor's opinion on whether the financial statement shows a
true and fair view, or is presented fairly, in all material respects.
6.
The term cash basis refers to the accounting method in which receipts is recorded
when cash is received, and payments are recorded when cash is paid out.
7.
The term financial reporting standards refers to the financial reporting standards
that are to be observed in the presentation of financial statements. For project financial
statements, ADB may accept financial statements prepared on a cash-basis. For
independent entities ADB may accept financial statements prepared in accordance with
nationally approved accrual based financial reporting standards.
8.
The term financial statements refers to the financial statements prepared on a
cash or accruals basis and notes to the financial statements for the project or independent
entity.
1
2
The above requirements also apply to grant financing for ADB projects.
This is described in the International Standard on Auditing (ISA) 700, Forming an Opinion and Reporting on
Financial Statements.
7 June 2012
issued on 29 October 2003

Office and issued by the Strategy and Policy
OM Section J7/BP
Page 2 of 3
OPERATIONS MANUAL
BANK POLICIES (BP)
9.
The term executing agency (EA) refers to the agency that is responsible for
implementation and operation of a project and its facilities.
10.
The term independent entity refers to EAs or implementing agencies (IAs) that are
separate legal entities required by national law or regulation to prepare audited financial
statements, including income financial position, and cash flows.
11.
The term management letter refers to the formal communications from the auditor
to client management, highlighting deficiencies in internal control, identified by the auditor
during the course of the audit. 3
C.
The Policy
12.
ADB requires for all projects that:

(i) The borrower should maintain separate financial records for each project, and
prepare annual project financial statements in accordance with financial reporting
standards acceptable to ADB. The borrower should have these annual project
financial statements audited by an independent auditor acceptable to ADB in
accordance with auditing standards that are acceptable to ADB. The independent
auditor should prepare the audit report on the audited project financial statements,
and the management letter. The borrower should submit to ADB the audited
financial statements, including the auditors report and the management letter for
each financial reporting period (fiscal year) from the date of loan effectiveness 4 until
the loan accounts financial closing on ADBs record of loan account.
(ii) When an independent entitys annual financial statements are subject to audit under
the DMCs statutory or regulatory requirements, such entity will submit to ADB the
audited financial statements within one month of their approval by the relevant
authority. When such audited financial statements are not required, ADB will not
require an audit to be conducted. When applicable, the audited financial statements
should be for each reporting period (fiscal year) from the date of loan effectiveness
until the loan accounts financial closing on ADBs record of loan account.
13.
These requirements enable ADB to monitor the financial performance and position
of the project and use of loan proceeds and assess whether ADBs fiduciary requirements
are being satisfied.
14.
Public disclosure of the annual audited project financial statements including the
audit report for the project financial statements should be guided by ADBs public
communication policy. 5
3
The management letter is provided in accordance with International Standard on Auditing 265,
Communicating Deficiencies in Internal Control to Those Charged with Governance and Management.
In cases, where the legal agreement provides for retroactive financing, the reporting period could include the
date when costs that were approved for retroactive financing were incurred.
See OM Section L3 (Public Communications). Country specific circumstances that could affect the timing of
disclosure will be agreed during either country level discussions with ADB or project processing and
documented in the project administration manual as appropriate.
7 June 2012

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OPERATIONS MANUAL
BANK POLICIES (BP)
D.
Scope of the Policy
15.
The policy applies to: investment activities that have been undertaken with support
from project, sector, and technical assistance loans; nonsovereign financing; sector
development programs; financial intermediary loans; and project design advances under
the project design facility. 6
16.
Generally, ADB supports national-level harmonization of financial reporting and
auditing arrangements with other multi- or bi-lateral financiers. Where an ADB project is
cofinanced with one or more multi- or bi-lateral financier, discussions should be undertaken
during project processing on harmonizing the financiers and ADBs financial reporting and
auditing requirements so that the borrower, EA and/or IA is required to submit only one set
of annual audited project financial statements and audit report to all financiers.
Other
background
information and
references:

Development Bank: Disclosure and Exchange of Information. Manila.
This OM section is to be read with OM Section J7/OP
Compliance:
This OM section is subject to compliance review
For inquiries:
Questions may be directed to the Director, Public Management,

Development Department
As audit arrangements for active projects for the current fiscal year have been made, agreement on a projectby-project basis will be documented in an aide memoire or memorandum of understanding with each EA on
when relevant requirements will be applied.
7 June 2012

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OPERATIONS MANUAL
PROJECT FINANCIAL REPORTING AND AUDITING

A.
Introduction
1.
A project or an independent entitys daily financial transactions are recorded,
normally on a cash-basis of accounting and include (at a minimum) cash-based receipt and
payment statements. These are prepared in accordance with national financial reporting
systems. An audit provides an opinion by an independent party on whether or not the
financial statements give a true and fair view or are presented fairly, in all material respects,
in accordance with the applicable financial reporting framework. The following procedures
are applied to ensure that ADB is provided with comprehensive, reliable, and timely
information to enable it to meet its obligations under Article 14(xi) and (xiv) of the Charter.
B.

1.
Financial Reporting and Auditing Standards
2.
ADB acknowledges the significant improvements in nationally approved financial
reporting standards over the past decade. For independent entities ADB may accept
financial statements prepared in accordance with national accrual-based financial reporting
standards.
3.
ADB promotes the use of international standards on auditing and prefers borrowers
and EAs engage auditors who conform to these standards. ADB recognizes the following
international standards: (i) International Standards on Auditing which are issued by the
International Auditing Assurance Standards Board which is an independent board
established by the International Federation of Accountants for the audit of the annual
financial statements; and (ii) the International Standards of Supreme Audit Institutions
issued by the International Organisation of Supreme Audit Institutions for the audit of the
annual project financial statements of government agencies. ADB may also accept national
auditing standards that it considers to be equivalent to these international standards.
4.
ADB recognizes that in some DMCs auditors are obliged to apply auditing
standards that may not conform to the standards preferred by ADB but that have been
prescribed by the laws of the DMC, or that have been adopted by public accountants or
associations of public accountants in the DMC. ADB has made assessments of the
adequacy of national auditing standards in some DMCs, and will gauge the variances from
international standards prior to agreeing on auditing standards for a project. In DMCs
where assessments by ADB are not available, staff will evaluate existing auditing standards
in the country during project preparation, and present an assessment of variances. In such
cases, supplementary auditing and reporting procedures may be requested by ADB, if
necessary, to confirm accountability and financial performance.
7 June 2012

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OPERATIONS MANUAL
2.
Financial Statements
5.
ADB requires that, for all projects a comprehensive set of annual project financial
statements should be prepared by the EA or the IA. Project financial statements prepared
using the cash basis of accounting is acceptable to ADB. 1
6.
For an independent entity, ADB requires that such entitys annual financial
statements should be prepared in accordance with national accrual-based standards
acceptable to ADB.
7.
ADB requires submission of the annual audited project financial statements, the
audit report, and the management letter for each financial reporting period (fiscal year) from
the date of loan effectiveness until the loan accounts financial closing on ADBs record of
loan account. When an independent entitys annual financial statements are subject to
audit under the DMCs statutory or regulatory requirements, such entity will submit to ADB
the audited financial statements within one month of their approval by the relevant
authority. In this case, the audited financial statements should be for each reporting period
(fiscal year) from the date of loan effectiveness until the loan accounts financial closing on
ADBs record of loan account.
3.
Public Disclosure of Audited Project Financial Statements
8.
ADB will agree with the borrower on a country-specific basis, 2 the procedures to
disclose the annual audited project financial statements (including the audit report on the
financial statements) for sovereign projects. The management letter will not be disclosed.
The agreed arrangements will be incorporated into legal agreements. In general, such
audited project financial statements and the audit report will be disclosed within 30
calendar days of receipt by ADB. Country specific circumstances that could affect the
timing of disclosure will be agreed during either country level discussions with ADB or
project processing and documented in the PAM as appropriate.
4.
Project and Independent Entity Financial Reporting
9.
The financial management assessment undertaken during project processing 3
would include agreement between the borrower and ADB on the form, content, and timing
of the annual project financial statements that are to be submitted for audit. Agreement
should also be reached on the timing of receipt by ADB of the independent entitys annual
audited financial statements.
10.
When it is likely that an EA will be unable to submit to ADB the annual audited
project financial statements at the agreed upon time, the EA should provide unaudited
project financial statements until such time as the audited ones are made available. The EA
will provide unaudited project financial statements as part of its progress reports to ADB.
1
2
At a minimum this includes cash-based receipt and payments statements.

Regional departments will arrange meetings with the Ministry of Finance, the ministry responsible for foreign
financed projects, and the Supreme Audit Institution to discuss the application of ADBs public disclosure
requirements in light of any relevant provisions in the country's constitution, laws and procedures. Countrylevel arrangements will be recorded in a memorandum of understanding or aide memoire and will form the
basis of project level arrangements to be detailed in project administration manual (PAM).
See OM Section G2 (Financial Management Systems, Financial Analysis, and Financial Performance
Indicators).
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5.
Appointment of Auditors and Scope of Audit
11.
An EA for an ADB-financed project is to have the project financial statements
audited each fiscal year in accordance with the agreed upon auditing standards by
independent auditors whose qualifications, experience, and terms of reference (TOR) are
acceptable to ADB.
12.
The borrower or EA should appoint an independent auditor at or before the start of
project activities, and for each fiscal year until the project is financially closed. The auditors
TOR prepared by the EA will include: the scope and details of the audit to be conducted;
require the auditor to provide an opinion on the project financial statements including
whether or not ADB funds were used by the EA for purposes stipulated in the legal
agreement(s); specify the period of time for submission of the financial statements, audit
report, and management letter. The TOR is to be approved by ADB prior to the auditor
being appointed.
13.
ADBs audit requirements include:

(i) Financial statements should be prepared and the audits conducted in
accordance with financial reporting and auditing standards acceptable to ADB.
(ii) Annual project financial statements are audited.
(iii) The opinion(s) of the auditor should address: (a) whether the financial
statements show a true and fair view; and (b) the use of the loan proceeds,
compliance with the financial covenants of the legal agreement, the use of the
procedures for the imprest account(s) and the use of procedures for statement
of expenditures (as applicable).
(iv) A management letter should be provided. 4
14.
The borrower or EA will advise ADB of any change of the auditor and the reasons
for it, and to seek ADBs concurrence prior to such change being made. 5
6.
Acceptability and Qualifications of Auditors
15.
To be considered as acceptable by ADB, auditors appointed by the borrower or EA
must satisfy the following criteria:
(i) Auditors must be impartial and independent of the control of the entity to be
audited and of the person or entity appointing them. In particular, auditors must
not be otherwise employed by; serve as directors of; or have family, financial, or
close business relationships with the entity during the period covered by the
audit.
In those cases where a management letter is received for the agency as a whole, a separate management
letter relating to preparation of project financial statements is not required.
5
In DMCs where the supreme audit institution as a standard practice appoints independent auditors to projects
on a rotational basis, such arrangements will be agreed during project processing and documented in the
legal agreement or PAM as appropriate.
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OPERATIONS MANUAL
(ii) Auditors must be well-established and reputable; use procedures and methods
that conform to agreed international auditing standards, or the national auditing
standards of the DMC acceptable to ADB (supplemented where necessary with
additional auditing and reporting procedures); and employ adequate numbers of
staff with the required qualifications, experience, and competence.
(iii) Auditors must be able to demonstrate experience in auditing accounts and
financial statements for projects and entities comparable in type, nature, and
complexity to the assignment to be undertaken.
(iv) Auditors must propose (and assign) the audit work to personnel who have the
necessary capabilities to complete it competently and on time.
16.
If auditors who meet the requirements above and are acceptable to ADB are not
available in the DMC, the borrower or EA is to appoint suitable foreign auditors, preferably
to work in collaboration with a local auditor.
17.
In many DMCs, statutory requirements specify the use of the supreme audit
institution (SAI). In such cases, ADB still requires the SAI to satisfy the above criteria,
although the presumption is that such SAI is acceptable to ADB unless there is specific
evidence available that indicates that the SAI does not meet the required criteria. For
guidance, staff should refer to Regional and Sustainable Development Department.
7.
The Audit Report and Opinion
18.
The borrower is required to submit copies of annual audited project financial
statements, together with the audit report (which includes the auditors opinion as
described in para. 13(iii) above) and the management letter, immediately after completion
of the audit. The audited project financial statements are to be accompanied by any other
material issued by the auditor that relates to the audit and its interpretation, including the
management letter. The management letter, submitted by the auditor to the appointing
authority, describes any material deficiencies or weaknesses in the financial reporting
system or in the overall system of internal control and audit of a project or its EA.
8.
Legal Agreements
19.
The legal agreements are to include a provision requiring EAs/IAs to submit to ADB
the annual audited project financial statements, together with the audit reports (which
include the auditors opinion(s) described in para. 13(iii) above), and the management
letters; and a provision on disclosure of the annual audited project financial statements.
For independent entities, EAs/IAs will be required to submit their annual audited financial
statements where such entities are subject to audit under the DMCs statutory or regulatory
requirements. All audited financial statements, audit reports and management letters will be
prepared in the English language and submitted to ADB within a reasonable period of time
for the reporting period taking into account the fiscal year of the DMC. 6 The foregoing
6
Where a project is cofinanced with one or more multi- or bi-lateral financier, the financial reporting and auditing
requirements should be harmonized such that the borrower, EA and/or IA is required to submit only one set of
annual audited project financial statements and audit report to all financiers. These requirements should be set
forth in the PAM. Where there is no agreement on the financial reporting auditing requirements, the
requirements for ADBs financing will follow this OM.
7 June 2012

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OPERATIONS MANUAL
obligations will remain in force until the loan accounts financial closing on ADBs record of
loan account (unless the legal agreement provides otherwise).
9.
Financing Audit Costs
20.
The costs of annual audits of project financial statements may be included in the
project cost estimates and are eligible for ADB financing. In cases where only part of the
audit cost is incremental (such as reporting on compliance with loan covenants, or when
borrowers require foreign exchange to finance the cost of audits), these may also be
financed from the loan. For projects with external grant financing, the costs of annual audits
of the grants to be undertaken by independent auditors will be funded by the financing
partners whether as part of their contribution to the project or to be separately provided in
accordance with the relevant cofinancing agreements.
Other
background
information
references:

cited therein.
and OM Section G2 BP/OP (Financial Management Systems, Financial
Analysis, and Financial Performance Indicators).
Compliance:
For inquiries:
Questions may be directed to the Director, Public Management,

7 June 2012

OM Section K1/BP
Page 1 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
These policies were prepared for use by Asian Development Bank (ADB) staff and are not
necessarily a complete treatment of the subject.
INDEPENDENT EVALUATION
A.
Introduction
1.
Originally known as the Post-Evaluation Office, the Operations Evaluation Department
(OED) was established in 1978 to evaluate ADB operations. Over the years, OED has
undergone several organizational changes, culminating in the establishment, on 1 January
2004, of an independent department reporting to the Board of Directors through the
Development Effectiveness Committee (DEC). 1 In 2008, about 5 years after OED became
independent, a further review of OEDs independence and effectiveness was undertaken.
Following the 2008 review, OED was renamed the Independent Evaluation Department (IED) to
reflect its enhanced independent status. IEDs current functions, priorities, and procedures are
embodied in the provisions of the 2008 Board paper on the review of the independence and
effectiveness of OED.2
2.
Evaluation covers all aspects of sovereign and sovereign-guaranteed operations (public
sector operations); nonsovereign operations; 3 and the policies and strategies, practices, and
procedures that govern them. The evaluation of ADB operations emphasizes effective feedback
on performance and use of lessons identified to improve the development effectiveness of
ongoing ADB operations and to enhance their contribution to the development of developing
member countries (DMCs).
B.
Definitions
3.
As used in this section of the Operations Manual (OM),
1
2
3
(i)
Project performance management system (PPMS) 4 refers to ADBs resultsbased approach to monitoring and evaluating implementation performance and
development impact during the planning, implementation, completion, and
evaluation stages of the project cycle. PPMS is part of an ADB accountability
framework aimed at improving project performance.
(ii)
Self-evaluation refers to evaluation of ADB operations by the departments

responsible for the concerned public sector operations, nonsovereign operations,
technical assistance (TA) operations, other operations (including grants),
ADB. 2003. Enhancing the Independence and Effectiveness of the Operations Evaluation Department. Manila.
ADB. 2008. Review of the Independence and Effectiveness of the Operations Evaluation Department. Manila.
Nonsovereign operations include any loan, guarantee, equity investment, or similar financing arrangement that is
(i) without government guarantee; or (ii) if with government guarantee, under terms that do not allow ADB to
accelerate, suspend, or cancel, upon default by the government of such guarantee, any other loan or guarantee
between ADB and the related sovereign.
OM Section J1/BP (Project Performance Management System) provides detailed information on PPMS.
OM Section K1/BP
Page 2 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
policies, and procedures, and includes the preparation of completion and

performance reports on country partnership strategies, public sector operations,
nonsovereign operations, and TA activities.
(iii)
C.
Independent evaluation refers to an evaluation of ADB operations by IED

through the preparation of (a) project or program and nonsovereign operation
completion validation reports, performance evaluation reports, and TA
performance evaluation reports; (b) evaluation reports on an ongoing portfolio;
(c) broadly based evaluation reports, including country and sector assistance
evaluation, impact evaluation, and special evaluation studies; and (d) annual
evaluation reports on portfolio performance and summaries of evaluation
activities and findings over a specific time span.
ADB Independent Evaluation System
4.
Within the PPMSs broad framework, ADBs evaluation system follows a two-tier
approach to evaluating implementation performance and development effectiveness. The first
tier comprises self-evaluation at completion or, in the case of nonsovereign operations, at the
relevant stage of the operations as set out in para. 6 of the Operational Procedures of this OM.
The second tier constitutes independent evaluation, which includes (i) meeting the global
demand for more rigorous impact evaluation, as well as (ii) earlier feedback through validation
of the self-evaluation at completion and evaluation of ongoing operations. This OM section
focuses on independent evaluation.
D.
Policy on Independent Evaluation
5.
The objective of evaluation is to assess development effectiveness and the
long-term impact of (i) ADB assistance on DMCs, (ii) country partnership strategies, and (iii)
ADB policies, practices, and procedures. Independent evaluation is carried out at a distance
from those responsible for project or program design and implementation to provide an objective
performance assessment. The essential functions of every evaluation include (i) deriving
lessons and best practices to promote sustainability and the development impact of ADB
assistance; (ii) recommending appropriate measures for the design of future operations, country
partnership strategies, and sector policy or strategy, as well as changes in ADB policies,
practices, and procedures; (iii) assessing the development effectiveness of the use of
resources; and (iv) following up on evaluation recommendations. In carrying out such functions,
IED operates in line with internationally accepted principles for evaluation of development
assistance. Among these guiding principles are impartiality and independence, credibility,
usefulness, and partnership.5
6.
The review of ADB policy on the independence and effectiveness of IED in 2008 (footnote
2) made several changes to the 2003 policy (footnote 1) to strengthen the extent and perception
of IEDs independence and effectiveness. Among them, interactions between IED staff and
5
Development Assistance Committee. 1991. Principles for Evaluation of Development Assistance. Organisation for
Economic Co-operation and Development. Paris.
OM Section K1/BP
Page 3 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
operations staff as well as consultation with DMCs have intensified. To ensure ownership of
evaluation results and to accelerate the application of lessons learned, a more rigorous system for
monitoring progress on implementing IEDs recommendations has been put in place.
E.
Scope and Outputs of Independent Evaluation
7.
IED independently and systematically evaluates policies, strategies, country and sector
assistance, modalities, public sector operations, nonsovereign operations, and TA operations,
including their design, implementation, results, and associated business processes to determine
their relevance, effectiveness, efficiency, sustainability, and impact.
8.
Key outputs from the independent evaluation include:

(i)
evaluation reports and publications, including the validation of country

partnership strategy completion reports and project or program completion
reports prepared by operations departments; and evaluation of (a) the
performance of completed ADB operations, the ongoing portfolio, and broader
thematic issues; and (b) the effectiveness of ADB policies, practices, procedures,
and modalities;
(ii)
feedback on operations, including (a) comments on operational documents and

participation in management review meetings; and (b) periodic monitoring and
validation of progress on implementation of IED recommendations;
(iii)
support for ADB policies and operations through evaluations of policies,

procedures, and modalities;
(iv)
dissemination of evaluation results, lessons, recommendations, and related

knowledge management both internally and externally;
(v)
external coordination, including conducting joint evaluations as well as

coordinating evaluation practices and activities through the Evaluation
Cooperation Group of the multilateral development banks, with the Evaluation
Network of the Organisation for Economic Co-operation and DevelopmentDevelopment Assistance Committee and the Evaluation Group of the United
Nations agencies;
(vi)
assistance in measuring, monitoring, and managing for development results; and
(vii)
supporting evaluation capacity development in DMCs.
9.
ADB uses feedback obtained from its evaluation activities to improve the design and
execution of its future operations and to revise its policies and business processes. It also seeks
to provide timely feedback to DMC central governments and executing and implementing
agencies to help them follow up on recommendations to sustain the benefits of activities
OM Section K1/BP
Page 4 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
supported by ADB. ADB continues to strengthen and reinforce the self-evaluation component of
the evaluation process through efforts aimed at shortening the feedback loop.
F.
Oversight of ADB Independent Evaluation
10.
The Boards DEC oversees the evaluation program and its results to strengthen the
institutional focus on evaluation. The DEC assists the full Board in ensuring that ADB programs
and activities achieve their desired development objectives and make efficient use of ADB
resources.
Basis:

ADB. 2009. Country Partnership Strategy: Responding to the New Architecture.
Manila.
ADB. 2008. Review of the Independence and Effectiveness of the Operations
Evaluation Department. Manila.
ADB. 2003. Enhancing the Independence and Effectiveness of the Operations
Evaluation Department. Manila.
This OM section is to be read with OM sections K1/OP, J1/BP, and J1/OP.
Compliance:
This OM section is subject to compliance review only in relation to evaluation

activities up to and including publication of a project completion report.
For inquiries: Questions may be directed to the Independent Evaluation Department.
This supersedes OM Section K1/BP

issued on 23 December 2010
Prepared by the Independent Evaluation Department

OM Section K1/OP
Page 1 of 6
OPERATIONS MANUAL
These procedures were prepared for use by Asian Development Bank (ADB) staff and are not
necessarily a complete treatment of the subject.
INDEPENDENT EVALUATION
A.
Introduction
1.
ADB, through the Independent Evaluation Department (IED), (i) independently evaluates
completed sovereign guaranteed operations (i.e., public sector operations), nonsovereign
operations, and grant and technical assistance (TA) operations through project or program
completion report (PCR) validation reports, project or program performance evaluation reports
(PPERs), and technical assistance performance evaluation reports (TPERs); (ii) prepares
broader evaluation studies that assess the development effectiveness of ADBs operations at
the sector, thematic, country, and subregional levels; (iii) evaluates portfolio performance
annually; (iv) provides feedback on ongoing operations; (v) evaluates the effectiveness of ADBs
policies and strategies, practices, procedures, and modalities; (vi) coordinates evaluation
practices and activities with other multilateral development banks (MDBs); (vii) assists in
developing evaluation capacity in developing member countries (DMCs); and (viii) disseminates
the results and lessons of its evaluations.
B.
2.
IED reports directly to ADBs Board of Directors through the Boards Development
Effectiveness Committee (DEC). The DEC reviews IEDs proposed evaluation work program,
annual evaluation reports (AERs) relating to IED activities as a whole, its Annual Report on Loan
and TA Portfolio Performance, its Annual Report on Acting on Recommendations, and selected
evaluation reports.
3.
IEDs evaluation activities are discussed in the following sections.
C.
Preparation of Evaluation Reports

1.
Completion Reports and Performance Reports
4.
ADB uses a two-tier approach to evaluate individual operations. The first tier involves
self-evaluation through the preparation of PCRs for public sector operations and expanded
annual review reports (XARRs) for nonsovereign operations by the responsible operations
departments. These self-evaluation reports provide a concise description and assessment of
public sector operations and nonsovereign operations from identification to completion, and
evaluate the adequacy of preparation, design, appraisal, implementation arrangements, and the
performance of the client, borrower, executing agency (as applicable), and ADB. PCRs and
XARRs provide a preliminary evaluation of the operation, achievements, and sustainability of
benefits; the extent of achievement of outcomes; and the contribution to the achievement of
impacts. Following the IED rating methodologies for public sector operations and nonsovereign
operations, these reports provide an overall performance assessment of individual operations.
OM Section K1/OP
Page 2 of 6
OPERATIONS MANUAL
PCRs and XARRs suggest follow-up actions; make recommendations to improve ADBs
operations, policies, and procedures; and identify issues and lessons drawn during the selfevaluation.
5.
PCRs are prepared for all completed public sector operations generally within 1224
months after completion.
6.
XARRs are prepared for nonsovereign operation investments after early operating
maturity, defined as occurring when a direct investment project is materially completed, has at
least 18 months of operating revenues, and has at least 12 months of audited reports. For
nonsovereign investments via financial intermediaries, early operating maturity occurs when at
least 30 months have elapsed from the final material subproject disbursement. From 2008,
XARRs are prepared for all nonsovereign operations.
7.
The second tier in evaluating individual operations consists of an independent evaluation
by IED comprising (i) independent validation of all PCRs and XARRs, and (ii) in-depth
evaluation of selected completed individual operations through PPERs.
8.
IED validates PCRs and XARRs in order to improve (i) achievement of results,
(ii) the quality of the PCRs and XARRs so they can provide a more robust basis for higher level
evaluations and future operations, and (iii) more independent project or program ratings in
which the IED rating will stand as the official project or program rating. The final validation report
with the operations departments final response attached, i.e., concurrence or disagreement
with the validation assessment, is circulated to the Board and Management and is posted on the
IED website in compliance with ADBs public communications policy.1
9.
PPERs are prepared for selected public sector operations and for nonsovereign
operations. Selection of completed public sector operations for in-depth evaluation is based on
purposive sampling. Selection triggers may include disputes over a rating during the validation
process, upcoming country and sector assistance program evaluations, and special interests.
10.
A PPER is generally self-contained and, to the extent possible, avoids repeating the
contents of the PCR or XARR. The PPER focuses on important issues affecting implementation
performance and assesses the individual operation according to a consistent set of criteria.
Public sector operations rating criteria include relevance, effectiveness, efficiency, and
sustainability. An assessment of the impact and performance of ADB and the executing agency
is also conducted but not taken into account in the performance rating. Nonsovereign operations
are evaluated in accordance with their development impacts and outcomes, as well as ADBs
profitability, work quality, and additionality. Performance evaluations and ratings in PPERs and
other IED evaluation reports are part of ADBs accountability to its stakeholders and support
performance comparisons across multilateral development institutions. Other major
considerations when preparing PPERs are identifying key issues, highlighting remedial
measures, and drawing meaningful lessons that can improve ADBs future policies and
1
See OM Section L3/OP (Public Communications).
OM Section K1/OP
Page 3 of 6
OPERATIONS MANUAL
operations.
11.
Evaluated public sector operations and nonsovereign operations are rated as highly
successful, successful, partly successful, or unsuccessful.
2.
12.
ADB also evaluates TA operations to provide feedback to improve its future TA activities.
Following a similar two-tier evaluation approach to that used for public sector operations and
nonsovereign operations, a TA completion report is prepared by the department or office in
charge of implementing the TA. A TA completion report is generally prepared within 612
months of TA completion. IED neither comments on nor validates these reports.
13.
Independent evaluation of TA is carried out by IED and is generally undertaken as part
of the preparation for a broader evaluation study or a stand-alone TPER. TPERs are prepared
on a highly selective basis, generally based on ADB-wide priorities, including strategic planning
considerations and the relevance and appropriateness of lessons identified for future design
and implementation of TA operations in a particular sector or country. TPERs evaluate the
design, implementation, and performance of TA activities according to an agreed upon set of
criteria, including relevance, efficacy, efficiency, and sustainability. Specifically, TPERs draw
lessons to improve ADBs future TA activities. Usually, several TA operations are covered in the
same TPER to optimize evaluation resources.
14.
Evaluated TA operations are rated highly successful, successful, partly successful, or
unsuccessful.
3.
Real-Time Evaluation
15.
Real-time evaluation assesses ongoing portfolios in the same sector or country,
processes, and procedures related to the implementation of individual operations. It aims to
provide earlier feedback on selected topics to improve ADBs development effectiveness.
4.
Impact Evaluation
16.
Previously, impact evaluation studies (IESs) evaluated the longer-term impact of
selected programs or projects. IESs covered groups of completed and ongoing projects in the
same sector or country, and focused on the relevance to and impact on the development
process. In line with the global agenda for more rigorous impact evaluation, the term IES is
now reserved for those studies that deploy rigorous impact evaluation techniques, including
counterfactual assessments. The topics for IESs are proposed following consultation with the
DEC and operations departments.
5.
17.
Special Evaluation
Special evaluation studies focus on selected sector or thematic issues across countries
OM Section K1/OP
Page 4 of 6
OPERATIONS MANUAL
or a subregion, or evaluate an ADB policy or process relevant to ADB operations. The topics for
special evaluation studies are proposed following consultation with the DEC and operations
departments.
6.
Country and Sector Assistance Program Evaluation
18.
Country and sector assistance program evaluations assess ADBs strategy and
assistance to a country or sector. Examining experience over a longer time period, such
evaluations assess the development impact of ADB assistance. IED selects the country or
sector for such evaluations in consultation with the operations departments. A country
assistance program evaluation (CAPE) is normally done prior to preparation of the relevant
country partnership strategy (CPS). IED can also validate a CPS final review including
supplementary self-evaluation if a CAPE is not prepared. IED can undertake similar studies at a
subregional level.
7.
Annual Evaluation Reports
19.
The IED Annual Evaluation Report summarizes IEDs performance evaluation activities,
findings, and lessons over a specific time span, and addresses a particular theme. The Annual
Evaluation Report also provides information on IEDs evaluation activities and key evaluation
findings of the year. IED evaluates portfolio performance through the Annual Report on Portfolio
Performance. The Central Operations Services Office is responsible for most of the compilation
of statistics on portfolio performance for the review. The Annual Report on Acting on
Recommendations provides information on summary progress of management actions on IED
recommendations. These three annual reports are discussed with the DEC every year.
D.
Feedback on Operations
20.
Along with other departments and offices, IED comments on major draft project and
policy operations documents for public sector operations and nonsovereign operations,
including concept papers, reports and recommendations of the President, project preparatory
TA papers, CPS documents, and policy and strategy papers.
21.
After an evaluation mission IED holds a workshop selectively to which representatives
from concerned operations departments are invited. The workshops purpose is to present the
missions preliminary findings and provide operations departments with an opportunity to give
immediate feedback that could be useful in the preparation or implementation of new projects,
programs, and TA.
22.
For major studies, IED holds a meeting with the relevant directors general to discuss and,
ideally, reach consensus on corresponding conclusions and recommendations.
23.
To facilitate more rigorous monitoring of the cumulative progress of actions on IED
recommendations, a management action record system has been established. IED inputs
recommendations into the system from its evaluation studies. Management, in collaboration with
OM Section K1/OP
Page 5 of 6
OPERATIONS MANUAL
the concerned departments, is responsible for monitoring actions taken in response to IED
recommendations and for recording implementation progress in the system at least twice a year.
The results are consolidated and analyzed, forming IEDs Annual Report on Acting on
Recommendations.
E.
Support to ADBs Policies and Procedures
24.
IED strives to mainstream evaluation experience in ADB policies and the decisionmaking process through (i) use of follow-up action reports, (ii) assessments of how new
operations can be evaluated, and (iii) participation in selected networks and working groups.
F.
External Coordination
25.
IED evaluation procedures continue to be strengthened through rigorous evaluation
standards and practices in order to generate more operationally useful results as sources of
learning. The methods for evaluating individual operations and broader evaluation studies are
being harmonized among MDBs. IED coordinates evaluation practices and activities with other
MDBs through the Evaluation Cooperation Group and its working groups on public and private
sector evaluation. IED also participates in the evaluation activities of multilateral and bilateral
agencies through the Working Party on Aid Evaluation of the Development Assistance
Committee of the Organisation for Economic Co-operation and Development and the Evaluation
Group of the United Nations agencies.
G.
Assistance in Measuring, Monitoring, and Managing Development Results
26.
IED and the Central Operations Services Office have separate but complementary
responsibility for the development and oversight of the project performance management
system, a results-based approach to design, monitoring, and evaluation at various stages of the
project cycle. IED may undertake or facilitate the independent evaluation of ADBs system of
managing for development results.
H.
Evaluation Capacity Development
27.
At the request of a DMC and when included in the CPS, IED may process a TA grant for
building or strengthening the DMCs evaluation capacity. Such a TA grant is expected to
improve the effectiveness of government development expenditures by providing feedback on
project impact that can then be used in the planning and management process. In countries
where such TA has been provided and a project or program is to be evaluated by IED, the
concerned government agency is invited to send a representative, at the DMCs expense, to join
the evaluation mission. Involvement in such a mission provides on-the-job training. IED may
also process regional TA in support of broader efforts aimed at developing evaluation capacity.
28.
IED may organize seminars or workshops with ADB staff for the preparation of PCRs
and XARRs.
OM Section K1/OP
Page 6 of 6
OPERATIONS MANUAL
I.
Dissemination of Results
29.
IED maintains a high degree of transparency and openness in reporting and disclosing
its evaluation findings. Since 1995, IED has made all reports on public sector operations and TA
available to both internal and external stakeholders. Since January 2006, IED has prepared
versions of private sector PPERs that have been redacted to remove commercially sensitive
information. These reports are also widely disseminated, without restriction, to the development
community through the IED website. Since January 2004, the final reports include, as
attachments, any Management response and any IED comments on it, and the summary of
DEC discussions by the DEC chair, where applicable.2
30.
In addition, IED promotes and disseminates its evaluation products through the
Evaluation Information Systema database of evaluation lessons, recommendations, and
actions, and of management responses to recommendationswhich provides users with an
easily accessible source of searchable evaluation information and employs various parameters
to refine a search. IED evaluation products are also disseminated through (i) Success Rates
brochures, dedicated to raising awareness of highly successful and successful projects or
programs; (ii) Learning Curves summaries, which bring findings and recommendations of ADB
evaluations to a broader range of readers; (iii) Sector Summation series, which provides a
synthesis of evaluation findings by sector; (iv) Case Studies, designed to expose specialized
material from evaluations; and (v) IED's Inquiry Desk, which responds to internal and external
queries about evaluation products and services.
Basis:
This Operations Manual (OM) section is based on OM Section K1/BP and the
This OM section is to be read with OM Sections K1/BP, J1/BP, and J1/OP,
and the documents cited therein.
Compliance:
This OM is subject to compliance review only in relation to evaluation

activities up to and including publication of a PCR.
For inquiries:
Questions may be directed to the Independent Evaluation Department.
This supersedes OM Section K1/OP

issued on 23 December 2010
.
Prepared by the Independent Evaluation Department

Nonsovereign operation evaluation reports may include business-sensitive information that may jeopardize legitimate
business interests and proprietary rights of private sector clients. Therefore, prior to disclosure, commercially
confidential information is deleted from the version made publicly available.
OM Section L2/BP
Page 1 of 1
OPERATIONS MANUAL
BANK POLICIES (BP)
INTERNAL AUDIT
A.
Introduction
1.
Article 8 of the Agreement Establishing the Asian Development Bank (the
Charter) provides for the resources and facilities of ADB to be used exclusively to
implement the purpose and functions set forth respectively in Articles 1 (Purpose) and 2
(Function) of the Charter. Article 14 of the Charter provides the principles governing
ADB operations. Specifically, Article 14(xiv) provides for ADB to be guided by sound
banking principles in its operations. In view of its organizational position and authority,
internal audit plays a significant role in evaluating the effectiveness of ADBs internal
control systems.
B.
Definitions
2.
Internal auditing1 is an independent, objective assurance and consulting activity
designed to add value and improve the organizations operations. It helps an
organization accomplish its objectives by bringing a systematic, disciplined approach to
evaluate and improve the effectiveness of risk management, control, and governance
processes. Risk exposure is the likelihood (i) that material errors will occur either due to
the absence of related internal controls or as a result of intrinsic limitation in the system
of internal controls, and (ii) which could have an impact on the achievement of the
organizations objectives. Internal control is a process designed to provide reasonable
assurance about the effectiveness and efficiency of the organizations operations,
compliance with rules and regulations, and reliability of financial reporting. Governance
process includes the procedures used by the organizations stakeholders to provide
oversight of risk and control processes administered by management.
C.
The Policy
3.
The authority to carry out the internal audit function is vested in the Office of the
Auditor General (OAG), which reports directly to the President and meets periodically
with the Audit Committee of the Board of Directors on OAGs work programs, reports,
and the status of its recommendations.
4.
OAG undertakes independent reviews of ADB operations, encompassing
financial, administrative, information technology, and project-related activities, including
those relating to loans and technical assistance (TA).
As defined in the Standards for the Professional Practice of Internal Auditing published by the Institute of
Internal Auditors, January 2002.
OM Section L2/BP
Page 2 of 2
D.
Scope of the Policy
5.
The primary objectives of internal audit are to (i) ascertain whether ADB assets
are properly safeguarded; (ii) assess the reliability and integrity of information and
reporting thereof; (iii) verify compliance with established ADB policies, procedures,
guidelines, agreements, laws, and regulations; (iv) identify means to eliminate waste and
misuse of resources, abuse, and other risks; and (v) recommend improvements relating
to efficiency, economy, and effectiveness in the use of ADB resources.
6.
In undertaking the internal audit function, OAG is guided by the principles
governing ADB operations as embodied in its Charter. OAG undertakes periodic
reviews, including audit review missions2 to ADBs developing member countries to
ascertain compliance by borrowers/executing agencies with ADBs loan and TA
agreements as well as other regulations and procedures.
An audit review mission is fielded periodically by the Office of the Auditor General to gain first-hand
knowledge of problems and issues confronting operations in the field so that (i) more practical and
effective recommendations can be formulated in operations audits; (ii) the implementation status of
outstanding recommendations of past operations audit reports can be updated; and (iii) possible areas
can be identified for future operations audits aimed at improving ADBs policies, systems, and
procedures. The Audit review mission also makes available to ADB an independent assessment of the
economy, efficiency, and effectiveness of the Banks project administration policies and procedures.
OM Section L2/BP
Page 3 of 3
Basis:

ADB. 2001. Reorganization of the Asian Development Bank. Manila
ADB. 2003. Organizations Bulletin. Administrative Orders 1.02. Lotus
Notes database LNADBG1. Manila.
Compliance:
For inquiries:
Questions may be directed to the Director, Financial, Administration

and Information System Division, Office of the Auditor General.
15 December 2003
Prepared by the Office of the Auditor General

of the President.
OM Section L2/OP
Page 1 of 1
OPERATIONS MANUAL
INTERNAL AUDIT
15 December 2003
Prepared by the Office of the Auditor General

of the President.
OM Section L1/BP
Page 1 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
ACCOUNTABILITY MECHANISM
A.
Objectives
1.
The Accountability Mechanism policy (Accountability Mechanism) of the Asian
Development Bank (ADB) has two functions: problem-solving and compliance review. The
Accountability Mechanism provides an independent and effective forum for people adversely
affected by ADB-assisted projects to (i) voice their concerns and seek solutions to their
problems, and (ii) request a review of the alleged ADBs noncompliance with its operational
policies and procedures that may have caused them, or is likely to cause them, direct and
material harm.
B.
Definitions
2.
The following terms, as used in this section (Bank Policies and Operational Procedures),
have the following meaning:
ADB-assisted project
A project financed or to be financed, or administered or to

be administered, by ADB, and covers both sovereign and
nonsovereign operations.
Board
ADBs Board of Directors.
borrower
When applied to a sovereign operation, means the

borrower of an ADB loan or the recipient of an ADB grant;
and when applied to a nonsovereign operation, means the
borrower, guarantee beneficiary, fund manager, investee,
or similar entity to which ADB lends or guarantees, or in
which it invests.
borrowing country
The country in which the ADB-assisted project is located.
days
Unless specified otherwise, refers to working days in ADB.
operations department
Any department that handles the formulation, processing,

or implementation of an ADB-assisted project. The
operations departments include the regional departments
and the Private Sector Operations Department.
OM Section L1/BP
Page 2 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
C.
Guiding Principles
3.
The Accountability Mechanism is designed to (i) increase ADB's development
effectiveness and project quality; (ii) be responsive to the concerns of project-affected people
and fair to all stakeholders; (iii) reflect the highest professional and technical standards in its
staffing and operations; (iv) be as independent and transparent as possible; (v) be cost-effective
and efficient; and (vi) be complementary to the other supervision, audit, quality control, and
evaluation systems at ADB.
4.
The Accountability Mechanism is a last resort mechanism. ADB must continue to
strengthen its project design, implementation, and learning mechanisms to prevent problems
and ensure compliance from the outset, and to deal with the legitimate concerns of projectaffected people at the project and operational levels wherever possible.
D.
Structure
5.
The Accountability Mechanism has two functions. The problem solving function is led by
the Special Project Facilitator (SPF), who responds to problems of local people affected by
ADB-assisted projects through a range of informal and flexible methods. The compliance review
function is led by the Compliance Review Panel (CRP), which investigates alleged ADBs
noncompliance with its operational policies and procedures that has caused, or is likely to
cause, direct and material harm to project-affected people.
6.
To provide an easily accessible single entry point for project-affected people, this twopronged structure is supported by a Complaint Receiving Officer (CRO), who receives all
complaints from people seeking access to the Accountability Mechanism.
E.
Scope of Problem Solving
7.
The problem solving function assists people directly, materially, and adversely affected
by specific problems caused by ADB-assisted projects through informal, flexible, and
consensus-based methods with the consent and participation of all parties concerned. The
problem solving function is outcome-driven. It does not focus on the identification and allocation
of blame, but on finding ways to address the problems of the project-affected people. The SPF
problem solving function also aims to strengthen the internal problem solving processes of the
operations departments.
8.
The scope of the problem solving function is broader than the compliance review
function. People who believe they have been or will be directly, materially, and adversely
affected by an ADB-assisted project can use the problem solving function regardless of whether
ADB operational policies and procedures have been complied with. However, the problem
solving function is limited to ADB-related issues concerning ADB-assisted projects.
OM Section L1/BP
Page 3 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
F.
Scope of Compliance Review
9.
Compliance Review Panel. The CRP is a fact-finding body on behalf of the Board. The
CRP investigates alleged ADBs noncompliance with its operational policies and procedures in
any ADB-assisted project in the course of the formulation, processing, or implementation of the
project that directly, materially, and adversely affects local people.
10.
The scope of compliance review is ADB's operational policies and procedures as they
relate to formulating, processing, or implementing an ADB-assisted project. The scope excludes
matters relating to the procurement of goods and services (including consulting services),
corruption, and non-operational administrative matters, such as finance and administration. In
cases where operational policies have been approved by the Board and have become effective
but have not been incorporated into the Operations Manual in a timely manner, or in cases
where there is a conflict between a Board-approved policy and an Operations Manual section,
the Board-approved policies will be used for the purpose of the Accountability Mechanism. In
cases where an Operations Manual section refers to another section that has been superseded,
the section that has superseded the cross-referenced section will prevail.1
11.
A compliance review does not investigate the borrowing country, the executing agency,
or the private sector client. The conduct of these other parties is considered only to the extent
that they are directly relevant to an assessment of ADB's compliance with its operational
policies and procedures. The compliance review does not provide judicial-type remedies, such
as injunctions or monetary damages. Relative to a request for problem solving with the SPF, a
request for compliance review is not an appeal to a higher authority. The SPF and CRP are of
equal standing in the hierarchy of the Accountability Mechanism.
12.
The CRP does not consider the policies and procedures of other institutions except to
the extent that ADB's policies and procedures have explicitly incorporated those of the other
institutions.
Sometimes an Operations Manual section has been updated or replaced, but other sections still refer to the old
section. Such references should be deemed to be references to the new Operations Manual section.
OM Section L1/BP
Page 4 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
Basis:

ADB. 2012. Review of the Accountability Mechanism Policy. Manila.
This OM section is to be read with OM Section L1/OP.

ADB. 1995. Establishment of an Inspection Function. Manila.
ADB. 2003. Review of the Inspection Function: Establishment of a New ADB
Accountability Mechanism. Manila.
ADB. 2011. Public Communications Policy 2011: Disclosure and Exchange of
Information. Manila.
Compliance:
For inquiries: Questions may be directed to the Office of the Special Project Facilitator or the
Office of the Compliance Review Panel.
24 May 2012
This supersedes OM Section L1/BP

OM Section L1/OP
Page 1 of 24
OPERATIONS MANUAL
ACCOUNTABILITY MECHANISM PROCEDURES
A.
Introduction
1.
This Operations Manual section describes the operational procedures of the
Accountability Mechanism policy (Accountability Mechanism) of the Asian Development Bank
(ADB) and the roles of the parties involved in its implementation.
B.
Appointment and Administrative Matters
2.
Problem Solving. The Special Project Facilitator (SPF) is appointed by the President
after consultation with the Board, and reports directly to the President. The SPFs term is for 3
years and may be renewed for another 2 years. The SPF must not have worked in any ADB
operations department for at least 5 years before the appointment. The SPF must disclose
immediately to the President any personal interest or significant prior involvement in a project
that is subject to problem solving procedures. The SPF has access to all ADB staff and
Management, and all ADB records that the SPF deems relevant, except personal information
that is typically restricted. The President evaluates the performance of the SPF.
3.
The Office of the SPF (OSPF) supports the work of the SPF. The OSPF may engage
technical experts as consultants to assist OSPF work, including monitoring activities.
4.
Compliance Review Panel. The Compliance Review Panel (CRP) is a fact-finding body
on behalf of the Board. The CRP has three members, one of whom is the chair. The CRP chair
serves full time and the other two members serve part time as and when required. CRP
members are appointed by the Board upon the recommendation of the Board Compliance
Review Committee (BCRC) in consultation with the President. The BCRC directs the search
and selection process, which may involve the use of an executive search firm if necessary.
Budget, Personnel and Management Systems Department (BPMSD), in coordination with the
Office of the Secretary (OSEC), handles the administrative processes.
5.
Each panel member has a 5-year, nonrenewable term. Two panel members are from
regional member countries, with at least one from a developing member country (DMC). The
third panel member is from a nonregional member country.
6.
Directors, alternate directors, directors advisors, Management, staff, and consultants are
ineligible to serve on the CRP until at least 3 years have elapsed from their time of service with
ADB. After serving on the CRP, panel members are barred from any future employment at ADB,
including engagement as consultants. A panel member may be removed by the Board upon the
recommendation of the BCRC and in consultation with the President on the grounds of
OM Section L1/OP
Page 2 of 24
OPERATIONS MANUAL
inefficiency and/or misconduct. A panel member will be disqualified from participating in a

compliance review if he or she has a personal interest or has had significant prior involvement in
the project under review. A panel member must disclose immediately to the BCRC any personal
interest or significant prior involvement in a project subject to compliance review.
7.
The CRP may engage technical experts as consultants in accordance with ADB's
Guidelines on the Use of Consultants (2010, as amended from time to time) and other
arrangements satisfactory to ADB to assist in its work, including post-compliance review
monitoring. The CRP has access to all ADB staff and Management, and all ADB records that it
deems relevant, except personal information that is typically restricted.
8.
Office of the Compliance Review Panel. The Office of the Compliance Review Panel
(OCRP) supports the CRP. OCRP staff are ADB staff but report to the CRP chair. The terms
and conditions of their employment are determined the same way as for other ADB staff. OCRP
staff can be transferred to and from other parts of ADB. BPMSD handles the administrative
processes in relation to OCRP staff in accordance with ADB guidelines.
9.
The CRP chair is responsible for preparing the combined annual work plan and budget
of the CRP and OCRP, with due regard to principles of efficiency and cost effectiveness. The
annual work plan and budget is endorsed by the BCRC in consultation with the President and
reviewed by the Boards Budget Review Committee. The work plan and budget proposal is then
presented to the Board for approval, separately from ADBs overall administrative budget. The
BCRC chair, in consultation with other BCRC members, provides written feedback annually on
the performance of the CRP members.
10.
Complaint Receiving Officer. The OSPF and OCRP jointly engage a Complaint
Receiving Officer (CRO) from outside ADB, in a way similar to the engagement of the executive
secretary of ADBs Administrative Tribunal. The CRO is engaged on a full-time basis to respond
promptly to complainants. The CRO reports to the SPF and the CRP chair. The CRO has
access to the OSPF, OCRP, and operations departments regarding the status and processing
of complaints.
11.
Board Compliance Review Committee. The BCRC consists of six Board members,
including four regional members (at least three of whom must be from borrowing countries) and
two nonregional members. The BCRC members are appointed in accordance with the Board's
Rules of Procedure. OSEC provides support to the BCRC.
C.
Roles and Activities

1.
12.
Complaint Receiving Officer
The CRO
(i)
receives all complaints from people seeking access to the Accountability
Mechanism and promptly acknowledges them;
(ii)
registers the complaints;
(iii)
informs the complainants about whom to contact after complaints have been
registered;
(iv)
forwards complaints to either the SPF or the CRP chair, as requested by the
OM Section L1/OP
Page 3 of 24
OPERATIONS MANUAL
(v)
(vi)
(vii)
(viii)
13.
The CRO carries out all functions with objectivity and neutrality.
2.
14.
complainants; or forwards complaints that are beyond the scope of the

Accountability Mechanism, such as those relating to procurement or corruption,
to other relevant departments and offices;
copies the SPF, CRP, and operations department concerned if the complaints
are not forwarded to them, ensuring the complainants identities are not revealed
to parties other than the SPF and the CRP;
provides information to complainants;
maintains the landing page of the Accountability Mechanism website within
ADBs public website, as directed by the OSPF and OCRP, and working with the
Department of External Relations (DER); and
undertakes other work as assigned by the SPF and CRP chair.
Office of the Special Project Facilitator
The OSPF1
(i)
processes complaints requesting problem solving;
(ii)
obtains from the operations departments all materials relating to the complaints;
(iii)
engages with all relevant parties, including the complainants, the borrower, the
Board member representing the borrowing country, Management, and staff to
gain a thorough understanding of the issues to be examined during problem
solving;
(iv)
facilitates consultative dialogue, promotes information sharing, undertakes joint
fact-finding,2 and/or facilitates the establishment of a mediation mechanism;
(v)
informs the Board and other stakeholders about the results of problem solving
activities;
(vi)
monitors the implementation of the remedial actions agreed upon during the
problem solving process;
(vii)
collates and integrates internal and external experiences with problem solving to
be fed back into ADB's operations, including the formulation, processing, and
implementation of projects;
(viii) provides generic support and advice to operations departments in their problem
prevention and problem solving activities, but not for specific problems that the
operations departments are working to resolve;
(ix)
works with the OCRP to produce a clear, simple, informative, and succinct
information packet about the Accountability Mechanism, highlighting the different
processes and remedies available under the two functions;
(x)
prepares and publishes Accountability Mechanism annual reports jointly with the
OCRP;
In carrying out the problem solving and other related functions, the SPF, as the head of the OSPF, decides which
activities will be performed by the SPF and which by the OSPF staff.
Joint fact-finding can be undertaken with parties that the SPF deems relevant, including the complainants, the
operations department concerned, and the borrower.
OM Section L1/OP
Page 4 of 24
OPERATIONS MANUAL
(xi)
(xii)
(xiii)
(xiv)
(xv)
produces a learning report every 3 years through joint efforts with the OCRP, the
Independent Evaluation Department (IED), and the Regional and Sustainable
Development Department (RSDD);
raises awareness within ADB and through outreach activities with the public that
include a holistic introduction to the Accountability Mechanism while focusing on
specific subjects;
works with the CRO, OCRP, and DER to maintain a common ADB Accountability
Mechanism website within ADBs public website to provide information on both
the problem solving and compliance review functions;
conducts other activities required to carry out the problem solving function
effectively and efficiently; and
liaises with accountability mechanisms at other institutions.
15.
The OSPF problem solving function does not replace the project administration and
problem solving functions of the operations departments, which are an inherent part of their
work. Operations departments have the initial responsibility for responding to the concerns of
affected people. However, the OSPF, in consultation with the operations departments, carries
out activities designed to improve the internal problem solving capacity of ADB.3
16.
The SPFs role is confined to ADB-related issues on ADB-assisted projects. The SPF
does not interfere in the internal matters of any DMC and does not mediate between the
complainants and local authorities.
3.
17.
Compliance Review Bodies
The CRP
(i)
processes complaints requesting compliance review;
(ii)
engages with all relevant parties and stakeholders, including the complainants,
the borrower, the Board member representing the borrowing country,
Management, and staff to gain a thorough understanding of the issues to be
examined during the compliance review;
(iii)
coordinates its activities, to the extent appropriate, with those of the compliance
review mechanism of any other cofinancing institution that is conducting a
separate compliance review of the same project;
(iv)
conducts thorough and objective reviews of compliance by ADB with its
operational policies and procedures;
(v)
engages all stakeholders concerned throughout the compliance review process;
(vi)
consults with the complainants, the borrower, the Board member representing
the borrowing country, Management, and staff on its preliminary findings; and
addresses any resulting comments;
(vii)
issues draft reports which will be sent to the complainants, the borrower, the
BCRC, Management, and the operations department concerned;
(viii) completes the compliance review even if the borrowing country refuses to grant a
site visit;
Since 2004, the OSPF has been proactive in improving the internal problem solving capacity of ADB. The OSPF
has provided training to staff, designed complaint tracking systems, developed and disseminated problem solving
good practices, and carried out other related activities.
OM Section L1/OP
Page 5 of 24
OPERATIONS MANUAL
(ix)
(x)
(xi)
(xii)
(xiii)
(xiv)
(xv)
issues its final compliance review report to the Board;

provides comments on Managements proposed remedial actions to bring a
project into compliance;
monitors the implementation of decisions made by the Board and produces
annual monitoring reports;
prepares and publishes Accountability Mechanism annual reports jointly with the
OSPF;
produces a learning report every 3 years through joint efforts with the OSPF,
IED, and RSDD;
develops a roster of independent technical experts who can assist the CRP in
carrying out its work; and
liaises with accountability mechanisms at other institutions.
18.
The CRP chair

(i)
ensures all the functions listed for the CRP are carried out;
(ii)
serves as the head of the OCRP and has full responsibility for running the
OCRP;
(iii)
manages the OCRP as an effective, efficient, and independent office, including
managing the OCRPs personnel, budget, and work program under the oversight
of the BCRC, and in accordance with ADB rules and procedures;
(iv)
assigns member(s) of the CRP to conduct compliance review and monitoring
tasks in consultation with the BCRC;
(v)
provides regular (e.g., quarterly) briefings to the BCRC, one of which may be
combined with the briefing on the Accountability Mechanism annual report;
(vi)
prepares the annual work program and budget for the CRP and OCRP;
(vii)
engages stakeholders in the compliance review process and ensures that
compliance review results are communicated to them and the public;
(viii) ensures high-quality professional work and sets quality standards for OCRP
outputs;
(ix)
formulates and implements the OCRPs work program as approved by the Board,
and reports to the Board through the BCRC on the activities of the CRP and
OCRP; and
(x)
provides input to the BCRCs annual performance feedback on the other CRP
members.
19.
The OCRP
(i)
supports the work of the CRP;
(ii)
works with the OSPF to produce a clear, simple, informative, and succinct
information packet about the Accountability Mechanism, highlighting the different
processes and remedies available under the two functions;
(iii)
raises awareness in ADB and through public outreach activities that include a
holistic introduction to the Accountability Mechanism while focusing on specific
subjects;
(iv)
in coordination with the OSPF, operations departments, the NGO and Civil
Society Center, and DER, ensures that such information dissemination and
OM Section L1/OP
Page 6 of 24
OPERATIONS MANUAL
(v)
(vi)
20.
public outreach is integrated with ADB's activities to promote interaction with

project beneficiaries and stakeholders, including civil society organizations;
works with the CRO, OSPF, and DER to maintain a common ADB Accountability
Mechanism website within ADBs public website to provide information on both
the problem solving and compliance review functions; and
facilitates the CRPs communication and coordination with the Board,
Management, the OSPF, and staff.
The BCRC
(i)
clears the CRP's proposed terms of reference (TOR) for compliance review
before it is released by the CRP;
(ii)
reviews the CRPs draft compliance review reports;
(iii)
reviews the CRP's draft reports on monitoring implementation of remedial actions
approved by the Board as a result of a compliance review before the CRP
finalizes them;
(iv)
decides and adjusts the CRP monitoring time frames;
(v)
reviews and endorses the combined CRP and OCRP annual work plan and
budget;
(vi)
searches for CRP members in consultation with the President;
(vii)
provides annual written feedback to all CRP members on their performance;
(viii) in case of a borrowing countrys rejection of a CRP site visit, dialogues with
Management on the reasons for the borrowing countrys refusal; and
(ix)
serves as the focal point for the CRPs communication and dialogue with the
Board on the Accountability Mechanism.
21.
The BCRC's function in clearing the proposed TOR and reviewing the draft compliance
review reports is to ensure that the CRP operates within the scope of the compliance review
function as set out in the Accountability Mechanism. The BCRC reviews the CRP's monitoring
reports to ensure that the CRP has carried out a satisfactory process in monitoring the
implementation of any remedial actions approved by the Board following the compliance review.
D.
Roles and Functions of Others
22.
The Board of Directors with regard to the CRP

(i)
oversees the CRPs work through the BCRC;
(ii)
appoints and removes CRP members on the recommendation of the BCRC in
consultation with the President;4
(iii)
authorizes compliance reviews;
(iv)
considers CRP final compliance review reports;
(v)
considers and decides on Managements proposed remedial actions in response
to the CRPs findings; and
(vi)
approves the combined annual work plan and budget of the CRP and OCRP.
The process to identify suitable candidates will be transparent and may involve engaging an executive search firm
and advertising in international publications. Relevant information on appointments and removals will be posted on
the ADB website.
OM Section L1/OP
Page 7 of 24
OPERATIONS MANUAL
23.
ADB Management and staff

(i)
ensure that the SPF and CRP have full access to project-related information in
carrying out their functions;
(ii)
provide assistance as required by the OSPF in problem solving;
(iii)
coordinate with the CRP on compliance review;
(iv)
propose remedial actions to bring a project into compliance in response to CRPs
findings, in consultation with the borrower;
(v)
assist in mission arrangements for the OSPF, CRP, and OCRP; and provide
other assistance to them as needed;5
(vi)
track the ineligible complaints that were forwarded to the operations departments
because of the complainants lack of prior good faith efforts to solve the problems
and issues with the operations departments; and
(vii)
engage in problem prevention and problem solving, and seek to ensure
compliance with ADB operational policies and procedures.
24.
Operations departments play an essential role in problem prevention, problem solving,
and ensuring compliance, as follows:
(i)
As a part of project design and implementation, operations departments engage
in day-to-day problem prevention, problem solving, and prevention of
noncompliance with ADBs operational policies and procedures.
(ii)
Operations departments handle complaints which were filed under the
Accountability Mechanism but were found ineligible by the SPF or CRP for lack
of prior good faith efforts by the complainants to solve the problems or issues
with the relevant operations department; after handling such a complaint, the
operations departments file a report with the CRO for posting on the
Accountability Mechanism website.
(iii)
During the Accountability Mechanism processes, operations departments
contribute to smooth problem solving and provide necessary cooperation for the
effective compliance review.
(iv)
Operations departments are a key party in ensuring the implementation of the
remedial actions as a result of the Accountability Mechanism processes.
25.
The Office of the General Counsel (OGC) advises the OSPF, SPF, OCRP, CRP, BCRC,
and Board on matters concerning ADB's legal status, rights, and obligations under the
Agreement Establishing the Asian Development Bank (the Charter)6 and any agreement to
which ADB is a party, and on any other matters relating to ADB's rights and obligations with
respect to any complaint requesting problem solving or compliance review under the
Accountability Mechanism. Consistent with the practice since 2003, the OGC facilitates the
CRPs access to specialist legal advice on the laws and regulations of the borrowing countries
concerned as necessary.
5
6
For example, assistance may include setting up meetings or providing the use of facilities in resident missions.
OM Section L1/OP
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OPERATIONS MANUAL
E.
Eligibility
1.
Who Can File Complaints
26.
For both the problem solving and compliance review functions, complaints may be filed
by (i) any group of two or more people in a borrowing country where the ADB-assisted project is
located or in a member country adjacent to the borrowing country who are directly, materially,
and adversely affected; (ii) a local representative of the affected persons; or (iii) a nonlocal
representative of the affected persons, in exceptional cases where local representation cannot
be found and the SPF or CRP agrees. A complaint made through a representative must clearly
identify the project-affected people on whose behalf the complaint is made and provide
evidence of the representatives authority to represent such people.
27.
For a compliance review, complaints may also be filed by any one or more ADB Board
members, after first raising their concerns with Management, in special cases involving
allegations of serious violations of ADB's operational policies and procedures relating to an
ongoing ADB-assisted project. These alleged violations must have, or are likely to have, a
direct, material, and adverse effect on a community or other group of individuals residing in the
borrowing country or in a member country adjacent to the borrowing country. The conduct of the
compliance review requested by a Board member does not affect or limit the existing rights of
Board members to request or initiate reviews of ADB policies and procedures.
28.
Compliance reviews cover only ADB-assisted projects.7 The filing of a complaint to either
the SPF or CRP does not suspend or otherwise affect the formulation, processing, or
implementation of the project unless agreed to by the borrower concerned and ADB.
2.
Scope
29.
Problem Solving Function. The problem solving function is outcome-driven, focusing
not on the identification and allocation of blame, but on finding ways to address the problems of
the people affected by ADB-assisted projects. The scope of the problem solving function is
broader than the compliance review function. People who believe they have been or will be
directly, materially, and adversely affected by an ADB-assisted project can use the problem
solving function regardless of whether ADB operational policies and procedures have been
complied with. However, the problem solving function is limited to ADB-related issues
concerning ADB-assisted projects.
30.
Compliance Review Function. The CRP examines whether the direct and material
harm alleged by the complainants is the result of ADB's failure to follow its operational policies
and procedures in the course of formulating, processing, or implementing an ADB-assisted
project. The scope of compliance review is ADB's operational policies and procedures as they
relate to formulating, processing, or implementing an ADB-assisted project. The applicable
operational policies and procedures depend on whether the complaint concerns a proposed or
Since ADB cannot control the actions of third parties with respect to associated facilities which are not funded by
ADB, such associated facilities are not covered by the Accountability Mechanism.
OM Section L1/OP
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OPERATIONS MANUAL
an ongoing project.8 For a proposed project, the applicable policies and procedures are those in
effect when the complaint is filed with the CRP. For an ongoing project, the applicable policies
and procedures are those in effect at the time of the Board or Presidents approval of the
project, unless otherwise specified in the relevant policies, procedures, or project documents.
31.
The Board decides whether a policy is an operational policy subject to compliance
review,9 and the CRP determines which part, if any, of the operational policies and procedures
was or is not complied with after carrying out a compliance review. ADBs operational policies
and procedures subject to compliance review do not include guidelines and/or similar
documents or statements. The CRP does not consider the policies and procedures of other
institutions except to the extent that ADB's policies and procedures have explicitly incorporated
those of the other institutions.
32.
To determine noncompliance, the CRP must be satisfied that there is evidence of (i)
direct and material harm that has been caused by the ADB-assisted project; (ii) noncompliance
of ADB with its operational policies and procedures; and (iii) the noncompliance as a cause for
such harm.
3.
Exclusions
33.
Complaints are excluded from both problem solving and compliance review functions if
they are
(i)
about actions that are not related to ADB's actions or omissions in the course of
formulating, processing, or implementing ADB-assisted projects;
(ii)
about matters that complainants have not made good faith efforts to address with
the operations department concerned;
(iii)
about an ADB-assisted project for which 2 years or more have passed since the
loan or grant closing date;10
(iv)
frivolous, malicious, trivial, or generated to gain competitive advantage;
(v)
about decisions made by ADB, the borrower or executing agency, or the private
sector client on the procurement of goods and services, including consulting
services;
(vi)
about allegations of fraud or corruption in ADB-assisted projects and/or
misconduct by ADB staff;
(vii)
about the adequacy or suitability of ADB's existing policies and procedures;
8
A proposed project is a project that is being prepared and has not yet been approved by the Board or the President
(as delegated by the Board). An ongoing project is a project that has been approved by the Board or the President.
9
Whether a policy is subject to the Accountability Mechanism is generally indicated in the policy when it is submitted
to the Board for its consideration. The Operations Manual clearly indicates whether a specific section is subject to
compliance review.
10
For programmatic operations, such as multitranche financing facilities, additional financing, and single-tranche
policy loans under one program, the cutoff is tranche- (or its equivalent) based. For projects whose loan or grant
closing dates are extended after project completion for purposes such as capitalizing interest payments and
liquidation or for which the loan or grant closing date is not relevant, the cutoff date is 2 years after the project
completion date. In the case of nonsovereign projects for which the loan or grant closing date is not relevant, the
cutoff date is 2 years after the project is physically completed or, where physical completion is waived or is not
relevant (e.g., financial intermediation projects), 1 year after the date of the final disbursement or termination of
ADB's involvement in the project, whichever occurs earlier.
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(viii)
(ix)
within the jurisdiction of ADB's Appeals Committee or ADB's Administrative

Tribunal, or relate to ADB personnel matters; and/or
about ADB's non-operational administrative matters, such as finance and
administration.
34.
The problem solving function also excludes

(i)
matters already considered by the OSPF, unless the complainants have new
evidence previously not available to them or the subsequent complaint can be
readily consolidated with the earlier complaint; in such cases, any resubmission
or consolidation of a complaint, as the case may be, should occur within 2 years
after the loan or grant closing date; and/or
(ii)
matters that are being dealt with, or have already been dealt with, by the CRP
(including those that have completed the compliance review process), except
those complaints considered ineligible for compliance review by the CRP. The
request for problem solving after the CRP has found the complaint ineligible for
compliance review must take place within 2 years after the loan or grant closing
date.11
35.
The compliance review function also excludes complaints that

(i)
relate to actions that are the responsibility of other parties, such as a borrower,
executing agency, or potential borrower, unless the conduct of these other parties
is directly relevant to an assessment of ADB's compliance with its operational
policies and procedures;
(ii)
do not involve ADBs noncompliance with its operational policies and procedures;
(iii)
are being dealt with by the OSPF up to the completion of step 3 under the
problem solving function;
(iv)
relate to the laws, policies, and regulations of the borrowing country, unless they
directly relate to ADB's compliance with its operational policies and procedures;
and/or
(v)
are about matters already considered by the CRP, unless the complainants have
new evidence previously not available to them and the subsequent complaint can
be readily consolidated with the earlier complaint. In such cases, any
resubmission or consolidation of a complaint, as the case may be, should occur
within 2 years after the loan or grant closing date.
36.
Complainants are encouraged to first address their problems using project-level
grievance redress mechanisms to facilitate prompt problem solving on the ground. However,
this is not a precondition for their access to the Accountability Mechanism.
F.
How to File a Complaint
37.
Complaints from people seeking access to the Accountability Mechanism must be in
writing and preferably addressed to the CRO. Complaints may be submitted by mail, facsimile,
e-mail, or hand delivery to the CRO at ADB headquarters. Complaints are also accepted by any
ADB office, such as a resident mission or representative office, which will forward them to the
CRO. The working language of the Accountability Mechanism is English, but complaints may be
11
All complaints to the SPF or CRP must be filed within 2 years after the loan or grant closing date..
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submitted in any of the official or national languages of ADB's DMCs. In cases where the
complaints are submitted in languages other than English, additional time is required for
translation. The identities of complainants are kept confidential unless the complainants agree
to disclose their identities, but anonymous complaints are not accepted. The identities of
representatives who are not at the same time complainants are not kept confidential, but are
disclosed to ensure transparency.
38.
The complaint must specify the following:

(i)
names, addresses, and contact information of the complainants and their
representative(s);
(ii)
if a complaint is made through a representative, the names of the project-affected
people on whose behalf the complaint is made and evidence of the authority to
represent them;
(iii)
whether the complainants choose to keep their identities confidential;
(iv)
whether the complainants choose to undergo problem solving with the OSPF or
compliance review with the CRP;
(v)
a brief description of the ADB-assisted project, including its name and location;
(vi)
a description of the direct and material harm that has been, or is likely to be,
caused to the complainants by the ADB-assisted project;
(vii)
a description of the complainants good faith efforts to address the problems first
with the operations department concerned, and the results of these efforts; and
(viii) if applicable, a description of the complainants efforts to address the complaint
with the OSPF, and the results of these efforts.
39.
Complaints may also include the following information:

(i)
an explanation of the complainants claim that the direct and material harm
alleged is, or will be, caused by the alleged failure by ADB to follow its
operational policies and procedures in the course of formulating, processing, or
implementing the ADB-assisted project;
(ii)
a description of the operational policies and procedures that have not been
complied with by ADB in the course of formulating, processing, or implementing
the ADB-assisted project;
(iii)
a description of the complainants efforts to address the problems with the
project-level grievance redress mechanisms concerned, and the results of these
efforts;
(iv)
the desired outcome or remedies that complainants believe ADB should provide
through the Accountability Mechanism; and
(v)
any other relevant matters or facts with supporting documents.
40.
A template for filing complaints will be posted on the ADB website.
G.
Processing Complaints
41.
The complainants decide and indicate in the complaint whether they want to initiate
problem solving or compliance review. They can exit or disengage from the problem solving
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process at any time, which will terminate the process.12 After exiting or disengaging from the
problem solving process, the complainants may request the CRO to forward the complaint to
the CRP for compliance review. To meet the cutoff date for compliance review, such a request
must be made within 2 years of the loan or grant closing date.
42.
Complainants can also request compliance review upon completion of step 3 of the
problem solving process if they have serious concerns about compliance issues. In that case,
compliance review of the complaint, if found eligible, is carried out in parallel with step 4 of the
problem solving process.
43.
Complainants can also exit or disengage from the compliance review process at any
time, which will terminate the process. However, unless the complaint is found ineligible by the
CRP, they cannot switch from compliance review to problem solving regardless of whether the
compliance review was completed. Complainants can provide additional information or evidence
on the complaint during the problem solving or compliance review processes. However,
complaints about different issues are considered new complaints.
44.
The SPF and CRP determine independently whether the complaint meets their
respective eligibility criteria. The SPF and CRP fully share information and analysis with each
other on the complaint.
45.
The complaint processes are described in paras. 4687.

1.
Receiving Complaints
46.
Step 1: Receiving and registering a complaint. The complainants or their
representative(s) file a complaint with the CRO. Complaints received by any other ADB
departments or offices from people seeking to access the Accountability Mechanism are
forwarded to the CRO. The CRO informs the SPF, the CRP chair, and the operations
department concerned about the complaint within 2 days of receiving it, attaching a copy of the
complaint letter. Unless the complainants have clearly indicated that confidentiality is not
required, the CRO takes necessary measures when copying or forwarding the information to
ensure the confidentiality of the complainants identities (for example, by masking the names of
the complainants). The CRO also stresses to all parties concerned within ADB the importance
of ensuring the confidentiality requested by complainants. The CRO registers the complaint on
the Accountability Mechanism website within 2 days of receiving it. This is an administrative
step and does not mean the complaint is eligible for problem solving or compliance review.
47.
Step 2: Acknowledging the complaint. Within 2 days of receiving the complaint, the
CRO acknowledges receipt of the complaint and sends an Accountability Mechanism
information packet to the complainants. The information packet indicates that the complainants
can choose to undertake either problem solving or compliance review. It highlights the
differences between the two functions, explaining that the problem solving function addresses
problems on the ground and facilitates their resolution, while the compliance review function
reviews ADBs compliance with its operational policies and procedures. The resulting remedies
12
Exiting from the process occurs when the complainants make it known that they do not want to pursue the process
any further. Disengagement occurs when the complainants no longer respond.
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(if any) to bring a project into compliance may or may not mitigate any harm. The information
packet also explains the procedural differences between the two functions.
48.
If the complainants choice for either problem solving or compliance review is clearly
indicated in the complaint letter, the CRO informs them that they can change their choice within
21 calendar days from the date of the CROs acknowledgement letter. If the complainants
choice is not clearly indicated in the complaint letter, the CRO asks them to clarify their choice
within 21 calendar days from the date of the CROs acknowledgement letter.
49.
Step 3: Forwarding the complaint. Within 5 days after the CROs deadline for the
complainants to notify the CRO of any change in their choice, the CRO decides whether to
forward the complaint to
(i)
the SPF if the complainants indicated a choice for problem solving; or
(ii)
the CRP chair if the complainants indicated a choice for compliance review; or
(iii)
other relevant departments and/or offices as appropriate if the complaint falls
outside the mandate of the Accountability Mechanism, such as a complaint
concerning procurement or corruption, in accordance with the relevant ADB
policy or procedure.
50.
The CRO informs relevant parties within ADBincluding the SPF, CRP chair, the
operations department, and any other departments or officesabout its decision on where to
forward the complaint, explaining the basis for the decision. The CRO gives the relevant parties
3 days to raise any objections and concerns regarding his/her decision. The relevant parties
may only object to the CROs decision if they find that the complainants choice has not been
properly reflected in the decision. If there is no objection, the CRO forwards the complaint to the
relevant party and copies other relevant parties.
51.
If the complainants have not clearly indicated a choice for problem solving or compliance
review, or if any party in ADB objects to the CROs decision regarding where to forward the
complaint, the CRO returns the complaint to the complainants and seeks their clarification. In
such a case, the CRO again includes the information packet on ADBs Accountability
Mechanism. The CRO gives the complainants 60 calendar days from the date of the CROs
letter to respond. If the complainants do not respond by the deadline, the Accountability
Mechanism process ends, and the CRO informs the complainants accordingly.
52.
Step 4: Informing the complainants. Within 2 days of forwarding the complaint to the
relevant party, the CRO notifies the complainants and their authorized representative(s) about
which party will consider the complaint and the contact person(s) for the subsequent steps.
53.
Table A1.1 in Appendix 1 summarizes the complaint receiving process.

2.
The Problem Solving Function
54.
The problem solving process takes about 180 days from the registration of the complaint
to an agreement on remedial actions. This excludes translation time, any request for extension
to provide information or file documents, and the time needed by the parties to facilitate the
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resolution of their problems. The OSPF may draw on the project-level grievance redress
mechanisms and/or the operations departments to resolve problems.
55.
Step 1: Determining eligibility. The SPF screens the complaint forwarded to him or her
by the CRO13 and determines its eligibility within 21 days of receiving the complaint. To find a
complaint eligible, the SPF must (i) be satisfied that the complaint meets all eligibility criteria for
problem solving; and (ii) believe, in his or her sole discretion, that the SPFs involvement could
be useful.
56.
In determining whether the complaint is eligible, the OSPF reviews whether the
complainants made prior good faith efforts to solve the problems with the operations department
concerned. The OSPF forwards the complaint to the operations department if the complainants
did not make such efforts. The OSPF consults and seeks information from relevant parties, such
as the complainants, the borrower, and the operations department. The OSPF also ascertains
whether confidentiality has been requested by the complainants, including any representatives
who are at the same time also complainants, and takes the necessary actions.
57.
The SPF reports the decision on eligibility to the President, with a copy to the vicepresident concerned, the operations department, and the CRO. The SPF informs the
complainants upon the determination of eligibility.
58.
Step 2: Review and assessment. If the complaint is eligible, the OSPF reviews and
assesses the complaint to (i) understand the history of the complaint, (ii) confirm the
stakeholders, (iii) clarify the issues of concern and the options for resolving them, (iv) explore
the stakeholders' readiness for joint problem solving, and (v) recommend how the problems can
best be solved.
59.
The review may include site visits; interviews; and meetings with the complainants, the
borrower, and any other people the OSPF believes would be helpful and beneficial. The OSPF
obtains information from the operations department concerned and, if necessary, requests the
operations departments advice and support. The OSPF conducts fact-finding missions on the
SPFs own initiative; or participates, in consultation with the operations department, in special
project administration missions of the operations department.
60.
The OSPF completes the review and assessment, and the SPF reports the findings to
the President, with a copy to the vice-president concerned. The OSPF also sends the findings to
the complainants, the borrower, and the operations department, with a request for their
comments. Based on the assessment and taking into account the comments received, the SPF,
solely at his or her discretion, (i) decides whether to proceed with problem solving, or (ii)
determines that no further problem solving efforts will be purposeful and concludes the process.
The OSPF is expected to take about 120 days from determination of eligibility to complete the
review and assessment.
61.
Step 3: Problem solving. If problem solving proceeds, the OSPF assists the parties to
engage in resolving the problems. The problem solving process depends on the circumstances.
13
The forwarding of the complaint by the CRO to the SPF does not constitute a determination of the eligibility of the
complaint.
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The OSPF may facilitate a consultative dialogue, promote information sharing, undertake joint
fact-finding, facilitate the establishment of a mediation mechanism, and/or use other approaches
to problem solving. The time required for the problem solving varies depending on the nature,
complexity, and scope of the problems.
62.
Implementing the problem solving process requires the consent of every party involved.
Except for the SPF, any party can walk away from the process if it does not consider it
purposeful or if there is no consensus. This would formally close the problem solving process.
63.
Remedial actions that are adopted as a result of the problem solving process are
reflected in a written agreement or series of agreements among the parties. Remedial actions
involving a change in the project require approval according to ADB's applicable procedures
and agreement by the borrower.
64.
When the problem solving process has been completed (with or without any agreement),
the SPF submits a report to the President, with a copy to the vice-president and the operations
department concerned, summarizing the complaint, steps to resolve the issues, decisions by the
parties, and the agreement, if any, by the parties. The SPF issues this report and furnishes it to
the complainants, the borrower, the CRP, and the Board for information. If there is no
agreement, the problem solving process ends upon completion of this step.
65.
Upon submitting the report to the President (para. 64), with or without agreement, the
complainants can also request the CRO to forward the complaint to the CRP for compliance
review if they have serious concerns on compliance issues, to be carried out with the
implementation and monitoring of the remedial actions reached at the problem solving stage, if
any (step 4). To meet the time limit for eligibility for compliance review, the request to the CRO
must be made within the cutoff date of 2 years after the loan or grant closing date.
66.
Step 4: Implementation and monitoring. The relevant parties implement the agreed
remedial actions, and the OSPF monitors their implementation. As part of the monitoring
process, the OSPF consults with the complainants, the borrower, and the operations
department. The monitoring time frame is project specific, depending on the implementation of
the remedial actions, but generally does not exceed 2 years. All stakeholders, including the
public, may submit information regarding the status of implementation to the OSPF.
67.
The OSPF prepares monitoring reports on the implementation of the remedial actions.
These reports are sent to the complainants, the borrower, and the operations department; and
submitted to the President and copied to the Board for information. If the monitoring time frame
exceeds 1 year, the OSPF produces annual monitoring reports. If the monitoring time frame is
about 1 year or less, the monitoring results may be included in the OSPF final report described
in step 5. In monitoring the remedial actions, the OSPF produces either monitoring reports for a
single complaint or combined monitoring reports for multiple complaints.14
14
In the case of combined monitoring reports, the complainants, the borrower, and the operations department will
only be sent the portion of the report about the complaints relevant to them.
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68.
Step 5: Conclusion of the problem solving process. When the monitoring has been
completed, the OSPF prepares a final report and the SPF submits it to the President, the
complainants, the borrower, the operations department, the CRP, the BCRC, and the Board for
information. The OSPF produces either a final report for a single complaint or a combined final
report for multiple complaints (footnote 14).
69.
Table A1.2 in Appendix 1 summarizes the problem solving process.

3.
The Compliance Review Function
70.
The compliance review process is expected to take about 200 days from the registration
of the complaint to the Boards consideration of the CRP final report, including about 70 days to
Board authorization of the compliance review. These periods exclude time for translation, any
request for extension to provide information or file documents, and the time for conducting the
compliance review, which is not time-bound.
71.
Step 1: Requesting Management response. The CRP carries out an initial
assessment of the complaint forwarded by the CRO and determines within 5 days of receiving it
whether it falls within the mandate of the compliance review function. Upon determining this,
the CRP forwards the complaint to Management and requests a response within 21 days. In its
response, Management should (i) provide evidence that ADB has complied with the relevant
ADB policies and procedures; or (ii) acknowledge that there have been failures in ADBs
compliance with its policies and procedures, and express its intention to take actions to ensure
compliance to the extent possible. Management response may also include other information
that Management deems relevant. The CRP copies the BCRC in its correspondence with
Management. The CRP informs the borrower and the Board member representing the
borrowing country about receipt of the complaint. The CRP should ascertain whether
confidentiality is being requested by the complainants, including any representatives who are at
the same time also complainants, and take the necessary actions.
72.
Step 2: Determining eligibility. Within 21 days of receiving Managements response,
the CRP determines the eligibility of the complaint.15 The CRP reviews the complaint,
Managements response, and other relevant information. To find a complaint eligible, the CRP
must be satisfied that the complaint meets all eligibility criteria for compliance review. The CRP
must be satisfied that (i) there is evidence of noncompliance; (ii) there is evidence that the
noncompliance has caused, or is likely to cause, direct and material harm to project-affected
people; and (iii) the noncompliance is serious enough to warrant a compliance review. If the
CRP finds that the alleged direct and material adverse effect is not totally or partially caused by
ADBs noncompliance, its eligibility determination states this without analyzing the direct and
material adverse effect itself or its causes.
73.
As part of the eligibility determination, the CRP reviews and determines whether the
complainants made prior good faith efforts to resolve issues with the operations department
concerned. The CRP forwards the complaint to the operations department if there is no
evidence that the complainants made such efforts.
15
The forwarding of the complaint by the CRO to the CRP does not constitute a determination of the eligibility of the
complaint.
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74.
The CRP informs the complainants, the borrower, the Board member representing the
borrowing country, Management, and the operations department of its determination concerning
eligibility.
75.
Step 3: Board authorization of compliance review. The CRP submits its eligibility
report through the BCRC to the Board, attaching the complaint and Managements response. If
the CRP determines that the complaint is eligible, it recommends, that the Board authorize a
compliance review. Within 21 calendar days from receipt of the CRP's recommendation, the
Board decideson a no-objection basis and without making a judgment on the merits of the
complaintwhether to authorize the compliance review. Within 7 days from receipt of the
Boards authorization, the OCRP informs the complainants of the Boards decision.
76.
Step 4: Conducting compliance review. Within 10 days from the receipt of the Boards
authorization to conduct the compliance review, the BCRC clears the TOR for the compliance
review prepared by the CRP and the OCRP provides the TOR to the Board for information with
a copy to Management. The TOR includes the scope, methodology, estimated review time
frame, budget, CRP member(s), and other necessary information for the compliance review.
The scope of the TOR is limited to the specific complaint. The TOR may also provide for a site
visit by the CRP. In that case, the TOR clearly explains why a site visit is necessary, what will
be reviewed, and how it will be conducted.
77.
The CRP begins the compliance review upon receiving the Boards authorization and the
BCRCs clearance of the TOR. The time required for the CRP's review varies depending on the
nature, complexity, and scope of the project and the alleged noncompliance. Throughout the
compliance review process, the CRP consults, as appropriate, all relevant parties, including the
complainants, the borrower, the Board member representing the borrowing country,
Management, and staff. These parties are given an opportunity to record their views, if any. The
compliance review may include desk reviews, meetings, discussions, and a site visit.
78.
Step 5: Compliance Review Panel's draft report. Upon completion of its compliance
review, the CRP issues a draft report of its findings to the complainants, the borrower, and
Management for comments within 45 days. The CRP also forwards the draft report to the
BCRC for its review. Each party is free to provide comments, but only the CRP's final view on
these matters is reflected in its final report.
79.
The CRP compliance review report focuses on the specific complaint. It documents the
CRPs findings concerning any noncompliance, and alleged direct and material harm. It includes
all relevant facts needed to fully understand the context and basis for the CRPs findings and
conclusions. It focuses on whether ADB failed to comply with its operational policies and
procedures in formulating, processing, or implementing the project in relation to the alleged
direct and material harm. In case the CRP concludes there was noncompliance, it specifies the
exact provisions in the relevant operational policies or procedures with which ADB failed to
comply. It also ascertains whether the alleged direct and material harm exists. If noncompliance
is found and the alleged direct and material harm is confirmed, the report further focuses on
establishing whether the noncompliance was a cause of the alleged harm.
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80.
For assessing direct and material harm, the without-project situation is used as the base
case for comparison, based on available information. Non-accomplishments and unfulfilled
expectations that do not generate direct and material harm compared to the without-project
situation are excluded. If the CRP finds that the alleged direct and material adverse effect is not
totally or partially caused by ADBs noncompliance, its compliance review report states this
without analyzing the direct and material adverse effect itself or its causes. Because the
assessment of direct and material harm in the context of the complex reality of a project can be
difficult, the CRP exercises careful judgment in these matters and is guided by ADB policies and
procedures where relevant.
81.
Step 6: Compliance Review Panel's final report. Within 14 days of receiving the
comments on its draft report from the complainants, the borrower, and Management, the CRP
considers these comments and makes changes as necessary before issuing its final report to
the Board through the BCRC. The CRPs final report attaches a matrix of comments from the
complainants, the borrower, and Management, and the CRPs response to such comments. The
CRP's findings are reached by consensus among the panel members. In the absence of a
consensus, the majority and minority views are stated.
82.
Step 7: Board consideration of the Compliance Review Panels report. Within 21
calendar days of receiving the CRP's final report, the Board considers the report. Within 7 days
after the Boards consideration, the CRP's final reportwith the responses from the
complainants, the borrower, and Management attachedis released to the complainants and
the borrower. If the CRP concludes that there was no noncompliance by ADB, or that any
noncompliance by ADB did not cause direct and material harm to the complainants, the
compliance review process ends upon completion of this step.
83.
Step 8: Managements remedial actions. If the CRP concludes that ADBs
noncompliance caused direct and material harm, Management proposes remedial actions,
which may include an action plan, to bring the project into compliance with ADB policies and
address related findings of harm. Because the legal ownership of the project lies with the
borrower, which also has the principal responsibility for implementing the remedial actions,
Management must obtain the agreement of the borrower on the remedial actions. Management
may consult the CRP in developing the remedial actions. Management refers its draft remedial
actions to the CRP and seeks its comments to be provided within 5 days. Upon receiving the
CRP comments, Management submits a report on the proposed remedial actions to the Board,
attaching the CRP comments. The report specifies the parties responsible for implementing the
remedial actions, estimates of costs to implement the remedial actions, and parties to shoulder
the costs. The expected period of time between the Boards consideration of the CRP final
compliance review report and Managements submission of the proposed remedial actions to
the Board is 60 days.
84.
Step 9: Boards decision. The Board considers Managements proposed remedial
actions within 21 calendar days of receiving them. The Board makes a decision regarding the
remedial actions to bring the project into compliance and mitigate any harm, as appropriate. The
Boards decision, Managements remedial actions, and the CRP comments are released to the
complainants and the borrower within 7 days after the Boards decision.
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85.
Step 10: Monitoring and conclusion. The CRP monitors implementation of remedial
actions approved by the Board, if any. It reports to the Board concerning implementation of
Board decisions related to remedial measures, including its determination on the progress in
bringing the project into compliance.
86.
Any remedial actions in relation to project scope or implementation approved by the
Board are carried out in accordance with applicable ADB policies and procedures. Unless the
Board specifies a different timetable, the CRP reports on the progress annually. The CRP chair,
in consultation with the BCRC, determines which CRP member(s) will conduct the monitoring
exercise each year. The monitoring time frame is project-specific, depending on the
implementation of the remedial actions, but generally does not exceed 3 years. The final
monitoring report also concludes the compliance review process.
87.
The methodology for monitoring may include (i) consultations with the complainants, the
borrower, the Board member concerned, Management, and staff; (ii) a review of documents;
and (iii) site visits. The CRP also considers any information received from the complainants and
the public regarding the status of implementation. The CRP forwards its draft monitoring reports
to the BCRC for review. It finalizes the reports in consultation with the BCRC before making them
available to the complainants, the borrower, the Board, Management, staff, and the public.
88.
Table A1.3 in Appendix 1 summarizes the compliance review process.

4.
Operations Departments Handling and Tracking of Complaints
89.
Operations departments address problems or issues relating to complaints forwarded to
them by the OSPF or OCRP because the complainants did not make prior good faith efforts to
solve the problems or issues with the departments. Operations departments ascertain whether
confidentiality is being requested by the complainants and take the necessary actions.
Operations departments track the process and results in resolving the complaints forwarded to
them by the OSPF or OCRP, and they may develop a tracking system.16 Operations
departments, including resident missions, are encouraged to keep records of meetings,
correspondence, and other relevant information regarding complaints.
90.
At the end of the process of addressing the ineligible complaints forwarded to the
operations departments by the OSPF or OCRP, the operations department produces a report
summarizing the complaint, issues, actions taken to address the problems or issues, decisions
or agreements by parties concerned, results, and lessons. This report is posted on the
Accountability Mechanism website within 14 days of its completion (para. 96).
5.
Site Visits
91.
Site visits should be a routine and noncontroversial aspect of the Accountability
Mechanism. ADB adopts a partnership approach to help ensure that necessary site visits by the
16
The OSPF developed a tracking system in 2009 in collaboration with the Office of Information Systems and
Technology and the India Resident Mission. Operations departments may draw from this and other existing
systems.
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CRP take place. Goodwill and collaboration between the CRP and the borrowing countries are
necessary. Site visits will take place in consultation with the borrowing country and after
obtaining the borrowing countrys consent, for both sovereign and nonsovereign operations.
ADB expects borrowing countries to cooperate and allow site visits to take place.
92.
The CRP is responsible for arranging site visits and ensuring the independence of the
process. Management and staff, especially those in resident missions, will facilitate the CRP
visits when required and when requested by the CRP. Resident missions may assist in
obtaining the borrowing country governments consent, and may share the site visit and
compliance review TOR with the borrowing country government. The CRP is encouraged to
seek the assistance of the ADB Board member representing the borrowing country and share
the TOR with the Board member before submitting a mission request to the DMC through the
resident mission.
93.
If a site visit is declined, Management will discuss with the borrowing country the
reasons for not accepting the requested visit. In consultation with the BCRC and the borrowing
country, Management will convey the reasons to the Board through an information paper.
94.
If a site visit is declined, the CRP will complete the compliance review and deliver its
findings and final views in its final report without a site visit. The CRP will use all available
information, and may make appropriate assumptions and draw appropriate inferences in
completing the compliance review. The CRP will present the best and most detailed analysis
possible after exhausting the most cost-effective and logical alternative means to acquire the
necessary information. In the absence of a necessary site visit, the CRP may give added weight
to the complainants views.
G.
Transparency and Information Disclosure
95.
Information disclosure to the public is consistent with the fundamentals of the Public
Communications Policy (2011). A common ADB Accountability Mechanism website has been
set up within the ADB website. The OSPF and OCRP have their own components within this
common website. Any other information related to the Accountability Mechanism will also be
posted on the common Accountability Mechanism website.17
96.
The CRO registers complaints filed under the Accountability Mechanism on the
Accountability Mechanism website within 2 days after the complaints are received. The
registration includes the name, number, and location of the project. In cases where a complaint
ineligible for the Accountability Mechanism was forwarded to an operations department by the
OSPF or OCRP for handling, an end-of-process report prepared by the operations department
will be posted on the Accountability Mechanism website within 14 days of completion of the
report. In case a complaint is forwarded to the OSPF for problem solving or to the CRP for
compliance review, the provisions in paras. 97 or 98 and 99 apply.
17
The OSPF and CRP each has distinctive logos and letterheads, which is to be placed under a common ADB
Accountability Mechanism logo and letterhead.
OM Section L1/OP
Page 21 of 24
OPERATIONS MANUAL
97.
Problem Solving Function. The OSPF posts the following information and documents
on the Accountability Mechanism website:
(i)
the complaint letterafter the SPFs receipt of the complaint letter forwarded by
the CRO and subject to the agreement of the complainantswithin 7 days after
SPFs receipt of the complaint;
(ii)
a general description of the complaintupon the SPFs receipt of the complaint
letter if the complainants have not consented to disclosure of the complaint
letter;18
(iii)
the SPFs determination of eligibility of the complaintupon the SPFs
determination of the eligibility;
(iv)
the review and assessment report prepared by the SPFupon completion, and
subject to the consent of the complainants and the borrower;
(v)
a summary of the review and assessment reportupon completion, if the
complainants or the borrower have not consented to disclosure of the full review
and assessment report;
(vi)
a problem solving completion report summarizing the complaint, the steps to
resolve the issues, decisions by the parties concerned, and the agreement (if
any) by the parties concerned, within 2 months upon the completion of the
problem solving process (with or without an agreement), and subject to the
consent of the complainants and the borrower;
(vii)
a summary of the problem solving completion reportupon completion, if the
complainants and the borrower have not consented to disclosure of the full
problem solving completion report;
(viii) monitoring reportsupon circulation to the President and the Board for
information;19 and
(ix)
the SPFs final reportupon circulation to the complainants and the borrower.
98.
Compliance Review Function. The OCRP posts the following information and
documents on the Accountability Mechanism website at the times specified below:
(i)
the complaint letter (or the request for compliance review)after the CRPs
receipt of the complaint letter forwarded by the CRO and subject to the
agreement of the complainantswithin 7 days after OCRPs receipt of the
complaint;
(ii)
a general description of the complaintwithin 7 days after the CRPs receipt of
the complaint letter if the complainants have not consented to disclosure of the
complaint letter;
(iii)
the CRP report determining that the complaint is eligible and the Board decision
to authorize the compliance review, together with Managements response
within 7 days of the Board decision;
(iv)
the CRP report determining that the complaint is ineligible, together with
Managements responsewithin 7 days of circulation of the report to the Board;
(v)
the TOR for the compliance review within 10 days of the Boards authorization of
the compliance review;
18
Upon" as used in paras. 97 and 98 means as soon as it is reasonably practical and generally no later than 14
calendar days.
19
This is only required if there are remedial actions. The same applies to the compliance review function.
OM Section L1/OP
Page 22 of 24
OPERATIONS MANUAL
(vi)
(vii)
(viii)
the CRPs final compliance review report, attaching responses, if any, to the draft
report from Management and, subject to their consent, from the complainants,
and the borrowerwithin 7 days of the Boards consideration of the final report;
Managements proposed remedial actions, CRP comments on the remedial
actions, and the Boards decisionwithin 7 days of the Boards decision
(footnote 19); and
monitoring reports on implementation of any remedial actions approved by the
Board (footnote 19)upon circulation to the Board and other stakeholders.
99.
The SPF and CRP post the Accountability Mechanism annual reports on the
Accountability Mechanism website upon completion. The OSPF, OCRP, IED, and RSDD post
the learning reports upon completion. OSEC posts the Board information paper on the reasons
for a borrowing countrys rejection of a CRP site visit, if applicable, on the Accountability
Mechanism website within 21 days after submission to the Board.
100. The nature of problem solving and compliance review demands an appropriate degree
of confidentiality. For example, general descriptions about the process and final solution can be
made public, but substantive details about the discussions are kept confidential. The final
agreement and resolution are also kept confidential if the parties so request. Any information
submitted to the OSPF or OCRP on a confidential basis may not be released to any other
parties without the consent of the party that submitted it. When requested, the SPF and CRP
withhold the identities of the complainants and their representatives if they are also
complainants.
101. The SPF and CRP chair have the authority to issue press releases and public
communications, as appropriate. Before doing so, the SPF or CRP chair informs DER to provide
ADB with an opportunity to prepare responses to queries from the media or the public.
102. The SPF and CRP, and all staff working on the Accountability Mechanism, exercise
discretion and maintain a low profile while making site visits or otherwise operating in the
borrowing country. The SPF and CRP do not give any media interviews at any stage of the
Accountability Mechanism process.
H.
Application
103. The Accountability Mechanism policy applies to all ADB-assisted sovereign and
nonsovereign operations. In cases where country safeguard systems are used for ADB-assisted
projects in accordance with the Safeguard Policy Statement (2009), the use of the country
safeguard systems does not alter the role and function of ADB's Accountability Mechanism,
including the role of the OSPF and CRP. In the event of a complaint, the CRP could examine
ADB's assessment of the equivalence between ADB's policy scope, triggers, and applicable
principles with the country safeguard systems (and any additional measures agreed upon to
achieve equivalence) in materially achieving the objectives of the Safeguard Policy Statement,
as well as ADB's project supervision in accordance with the Safeguard Policy Statement. The
Accountability Mechanism policy also applies to ADB-administered cofinancing operations.
OM Section L1/OP
Page 23 of 24
OPERATIONS MANUAL
I.
Awareness and Learning
104. The OSPF and OCRP should update their joint outreach strategy regularly (for example,
every 3 years). The OSPF, OCRP, and staff should undertake three kinds of outreach activities.
105. Internal. This outreach should improve awareness and disseminate lessons to ADB staff
through workshops, training courses, and orientation sessions. The Accountability Mechanism
should be included as part of regular staff training. The Accountability Mechanism should be
seen as an important instrument for learning, and for ensuring project quality and development
effectiveness. The SPF and OSPF, the CRP chair and OCRP, staff, Management, and the
Board should all promote a culture change to eliminate the remaining perception that the
Accountability Mechanism is adversarial.
106. Country level. The OSPF and OCRP should hold regular dissemination activities in
ADBs DMCs. The OSPF and OCRP should distribute simple, pictorial-based, and user-friendly
descriptions of the mechanism. In each resident mission, a staff member should be designated
as a focal person for handling grievances caused by ADB-financed projects.
107. Project level. Improving the awareness of the Accountability Mechanism requires that
ADB staff work as conduits to disseminate information. Staff, working with the borrower,
disseminate information early in the project cycle about the Accountability Mechanism and its
availability as a recourse in case other mechanisms for dealing with harmful project effects are
not successful.20 The intensity and format of this activity varies with the nature of the project.
Operations departments, with support from RSDD as required, focus on projects with a high
degree of safeguard risks, such as projects with significant resettlement. The Accountability
Mechanism brochures in national or official languages, community notice boards, audiovisual
materials, or other appropriate and effective means are used to inform people.21 The Safeguard
Policy Statement requires that grievance redress mechanisms be set up at the project level. It
also requires government staff and/or project proponents to inform affected persons about these
grievance redress mechanisms. To ensure meaningful information sharing, operations
departments may require the borrower to organize awareness seminars in coordination with
resident missions, project teams, local government units, and executing agencies. Operations
departments, working with the OSPF and OCRP, may explore the possibility of outsourcing
outreach activities to suitable and credible nongovernment organizations (NGOs) or civil society
organizations. Gender issues will be taken into consideration when designing the outreach
strategies.
108. The joint learning reports by OSPF, OCRP, IED, and RSDD distill ADBs experience,
insights, and lessons, including the Accountability Mechanisms development impacts, benefits,
and costs. The Accountability Mechanism annual reports (i) outline key activities and outputs of
the Accountability Mechanism; (ii) summarize the complaints; (iii) analyze the development
20
Information on the Accountability Mechanism forms part of the information about the full range of options to
address grievances, and may include materials prepared by the OSPF and OCRP.
21
The outreach materials can make clear that the Accountability Mechanism is the last resort and encourage the use
of other grievance redress methods first.
OM Section L1/OP
Page 24 of 24
OPERATIONS MANUAL
impact of the Accountability Mechanism; (iv) discuss the benefits; (v) record and monitor the
direct and indirect costs on project-affected people, the borrowers, and ADB for each project;
and (vi) provide other relevant information and analysis.
Basis:
This OM section is based on OM Section L1/BP and the documents cited

therein.
Compliance:
For inquiries: Questions may be directed to the Office of the Special Project Facilitator or the
Office of the Compliance Review Panel.
24 May 2012
This supersedes OM Section L1/OP

OM Section L1/OP
Appendix 1
Page 1 of 4
ACCOUNTABILITY MECHANISMSUMMARY OF THE PROCESSES
Table A1.1: Process for Receiving Complaints
Within 2 days of receiving

the complaint
Step 1. Receiving and registering the complaint

The complaint is filed with the CRO.
The CRO informs the SPF, CRP chair, and the OD about the complaint,
with a copy of the complaint letter.
The CRO registers the complaint on the AM website.
Notes:
i. Complaints received by other ADB departments should be forwarded to the CRO.
ii. The CRO ensures the confidentiality of complainants identities if requested.
Within 2 days of receiving

the complaint
Step 2. Acknowledging the complaint

The CRO acknowledges receipt of the complaint and sends an
information packet to the complainants.
The CRO gives complainants who have clearly chosen for either problem
solving or compliance review 21 calendar days to change their choice
and notify the CRO.
If the choice is not clear, the CRO requests complainants to clarify their
choice.
Within 5 days after the 21- day

deadline for complainants to
change their choice
Step 3. Forwarding the complaint

The CRO decides to forward the complaint for handling to (i) the SPF, or
(ii) the CRP chair, or (iii) other departments or offices (if the complaint
falls outside the AM mandate).
The CRO sends its decision to (i) the SPF; (ii) the CRP chair; (iii) the
OD; and (iv) other departments or offices, if any.
If there are no objections to the CROs decision (see Note below), the
CRO will forward the complaint to the relevant party to be handled.
Note: Within 3 days of the CROs decision, the SPF, CRP chair, OD, and any other
relevant department or office may object if they find the CRO has misinterpreted the
complainants choice of function.
Returning
complaint
to complainants (if needed)
Informing the
complainants
The
CRO
return
complaintand
to the
with a requestas
to to
The
CRO
willwill
notify
the the
complainants
theircomplainants
authorized representative(s)
clarify
the
of function,
if: and the contact person(s) for the subsequent
which
party
willchoice
consider
the complaint,
steps.
(i) the choice was unclear; or
(ii) an objection is raised by the SPF, CRP chair, OD, or other relevant
department or office.
The complainants must clarify their choice within 60 calendar days of the
CROs request for clarification.
Note: If the complaint needs to be returned, the CRO again sends the information
packet to explain the two available functions.
Within 2 days of forwarding the

complaint to the relevant party,
or failure of the complainants to
clarify their choice
Step 4. Informing the complainants

The CRO informs the complainants and their representative(s), if any,
which party will handle the complaint and the contact person(s).
If the complainants did not clarify their choice within 60 calendar days, the
CRO informs them that the AM process has ended.
OM Section L1/OP
Appendix 1
Page 2 of 4
Table A1.2: The Problem Solving Process
Within 21
days of SPF
receiving
complaint
About 120
days from
determination
of eligibility to
complete
review and
assessment.
Time
required for
problem
solving
depends on
nature,
complexity,
and scope of
the
problems.
Generally not
longer than 2
years
Step 1: Determining eligibility

The OSPF screens the complaint to determine eligibility.
The OSPF consults with the complainants, borrower, and OD
concerned.
The OSPF ensures confidentiality of complainants identities, if
requested.
The SPF reports the decision on eligibility to the President, with a
copy to the vice-president and OD concerned, and the CRO.
The OSPF informs the complainants upon determination of eligibility.
Step 2: Review and assessment of eligible complaint

The review may include site visits; interviews; and meetings with the
complainants, borrower, and any others as deemed helpful and
beneficial by the SPF.
The OSPF obtains information from the OD and, if necessary,
requests the ODs advice and support.
The OSPF fields fact-finding missions on its own initiative; or
participates, in consultation with the OD, in special project
administration missions of the OD.
The OSPF completes review and assessment, and the SPF reports
findings to the President, with a copy to the vice-president concerned.
The OSPF sends findings to the complainants, borrower, and OD,
with a request for their comments.
The SPF (i) decides to proceed with problem solving, or (ii)
determines that further problem solving efforts will not be purposeful
and concludes the process.
Step 3: Problem solving

The OSPF assists parties to engage in resolving the problem.
The OSPF may facilitate a consultative dialogue, promote information
sharing, undertake joint fact-finding, facilitate establishment of a
mediation mechanism, and/or use other approaches to problem
solving.
Remedial actions involving a change in the project require approval
following applicable ADB procedures, and agreement by the
borrower.
Upon completion of step 3 (with or without agreement), the SPF
submits a report to the President, with a copy to the vice-president
and OD concerned, summarizing the complaint, steps to resolve the
issues, the parties decisions, and the parties agreement, if any. The
OSPF provides this report to the complainants, borrower, the CRP,
and the Board for information. If no agreement is reached, the
problem solving process ends.
Step 4: Implementation and monitoring
The OSPF monitors the implementation by parties of agreed remedial
actions.
As part of the monitoring process, the OSPF consults with the
complainants, borrower, and OD.
The OSPF prepares monitoring reports on implementation of remedial
actions, to be sent to the complainants, borrower, and OD; and
submits them to the President and the Board for information.
Step 5: Conclusion of the problem solving process
After monitoring of remedial actions is completed, the OSPF
prepares a final report and submits it to the President, complainants,
borrower, OD, CRP, BCRC, and the Board for information.
SPF
forwards
complaint to
OD, if
complainant
s did not
make prior
good faith
efforts to
solve the
problems
with OD.
A party can
walk away or
disengage
from the
problem
solving
process at
any time. This
closes the
process.
Upon
completion of
step 3,
complainants
can request
compliance
review, to be
carried out in
parallel with
implementation
and monitoring
of the remedial
actions (step
a
4) .
OM Section L1/OP
Appendix 1
Page 3 of 4
Table A1.3: The Compliance Review Process

Within 5 days of
receiving the
complaint
Management to
respond in 21 days
Within 21 days of
receiving
Managements
response
Step 1: Requesting Management response

The CRP carries out the initial assessment of the complaint
and determines whether it falls within its mandate.
If the complaint falls within its mandate, the CRP forwards it to
Management for response, with a copy to the BCRC.
The CRP informs the borrower and the Board member
representing the borrowing country concerned about receipt of
the complaint.
The CRP ensures confidentiality of the identities of
complainants, if requested.
Step 2: Determining eligibility
The CRP reviews the complaint, Managements response,
and other relevant documents, and determines the eligibility
of the complaint.
The CRP informs the complainants, borrower, Board member
representing the country concerned, Management, and OD of
its determination concerning eligibility.
Step 3: Board authorization of compliance review
The CRP submits its eligibility report through the BCRC to the
Board.
If the CRP determines that the complaint is eligible, it will
recommend, through the BCRC, that the Board authorize a
compliance review.
Within 21 calendar
days from receipt of
CRP's
recommendation
Within 7 days from
receipt of Board
authorization
Within 10 days from

the receipt of the
Boards authorization
Time required for

compliance
review depends
on projects
nature,
complexity, and
scope and alleged
noncompliance.
The Board decides whether to authorize a compliance review.
The OCRP informs the complainants of the Boards decision.
Step 4: Conducting compliance review

The CRP prepares, and the BCRC clears, the TOR for the
compliance review.
The OCRP provides the TOR to the Board for information, with
a copy to Management.
The CRP begins the compliance review upon the TOR
clearance by the BCRC.
The CRP consults all relevant parties.
The compliance review may include desk reviews, meetings,
discussions, and a site visit.
CRP forwards
the complaint
to OD if
complainants
did not make
prior good
faith efforts to
resolve issues
with OD.
OM Section L1/OP
Appendix 1
Page 4 of 4
Upon completion of
compliance review
Step 5: Compliance Review Panel's draft report

The CRP issues a draft report of its findings to the
complainants, borrower, and Management for comments and
responses.
CRP provides the draft report to BCRC for review.
Comments
and
responses to
be given
within 45
days of issue
of draft report
Step 6: Compliance Review Panel's final report

The CRP revises report as it finds warranted.
The CRP issues a final report to the Board through the BCRC.
Within 21 calendar
days of receiving
CRP final report
Step 7: Board consideration of the Compliance Review

Panel report
The Board considers the CRP report.
Within 7 days after

Board consideration
of CRP report
The OCRP releases the CRP report to the complainants and

borrower.
About 60 days after

Board consideration
of CRP report
Step 8: Managements remedial actions.

If the CRP report concludes that ADBs noncompliance
caused direct and material harm, Management proposes
remedial actions.
Management must obtain the borrowers agreement on
remedial actions.
Within 5 days of
Management
submission of draft
remedial actions
About 60 days
from step 7
Within 21 calendar
days of receiving
Management report
Within 7 days
Generally not longer
after Boards
than 3 years
decision
The CRP comments on Managements proposed remedial

actions.
Management submits report on proposed remedial actions to

the Board, with the CRP comments attached.
Step 9: Board decision

The Board decides on Managements proposed remedial
actions.
Step 10: Monitoring and conclusion
The CRP monitors the implementation of remedial actions
prepares
annual
monitoring reports
(or at
such other
and
OCRP
releases
Managements
remedial
actions
and CRP
times
as specified
by the Board).
comments
to complainants
and the borrower
The CRP finalizes draft reports in consultation with the BCRC.
The OCRP makes reports available to the complainants,
borrower, Board, Management, staff, and public.
ADB = Asian Development Bank, AM = Accountability Mechanism, BCRC = Board compliance review
Committee, CRO = Complaint Receiving Officer, CRP = Compliance Review Panel, OD = operations
department, OSPF = Office of the Special Project Facilitator, OCRP = Office of Compliance Review Panel,
SPF= Special Project Facilitator , TOR = terms of reference.
a
All complaints must be filed within the cutoff date, i.e. 2 years after the loan or grant closing date. See also
footnote 10.
OM Section L3/BP
Page 1 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
PUBLIC COMMUNICATIONS
A.
Introduction
1.
The Public Communications Policy aims to enhance stakeholders trust in and ability to
engage with the Asian Development Bank (ADB) and thereby increase the development impact
of ADB operations. The policy promotes transparency, accountability, and participatory
development. It establishes the disclosure requirements for documents that ADB produces or
requires to be produced.
B.
Definitions
2.
The following terms, as used in this section (Bank Policies and Operational Procedures),
have the following meaning:
Affected people
People who may be beneficially or adversely affected by a project

or program assisted by the ADB.
Board
Unless specified otherwise, refers to ADBs Board of Directors.
Borrower
When applied to a sovereign project, means a recipient of ADB

assistance.
Client
When applied to a nonsovereign project, means the borrower,

guarantee beneficiary, fund manager, investee, or similar entity to
which ADB lends or guarantees, or in which it invests.
Completion
In reference to a document, means preparation up to and

including the stage at which it meets the requirements of the ADB
department responsible for its preparation.
Final report
A report that (i) has been formally submitted to ADB as a final

report, (ii) ADB has determined to be of sufficient quality to be
used in preparing an ADB-assisted project or program, and (iii)
requires no further changes.
Nonsovereign project
Any project financed by a loan, guarantee, equity investment, or

other financing arrangement that is (i) not guaranteed by a
member state or a government; or (ii) guaranteed by a member
state or a government under terms that do not allow ADB, upon
default by the guarantor, to accelerate, suspend, or cancel any
OM Section L3/BP
Page 2 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
other loan or guarantee between ADB and the related member

state.
Sovereign project
Any project financed by a loan, grant, or other financing

arrangement that is (i) extended to a member state, or (ii)
guaranteed by a member state.
Upon
In relation to approval, circulation, completion, endorsement,

discussion, issuance, receipt or submission, means as soon as is
reasonably practical, and no later than 2 weeks (14 calendar
days) following the date of approval, circulation, completion,
endorsement, discussion, issuance, receipt, or submission.
C.
The Policy
3.
Proactive disclosure. ADB will proactively share its knowledge and information about
its work, as well as its opinions, with stakeholders and the public. The ADB website will be the
primary vehicle for proactive disclosure. The policy also calls for other means of disclosure or
dissemination, depending on the intended recipient or audience as well as the intended purpose
for disclosing the information. Proactive disclosure is important to assure stakeholders that
essential information about ADB and its operations will be publicly available following prescribed
time limits, thereby facilitating participation in ADBs decision making. ADB will also disclose
information in response to individual requests for information.
4.
Unless restricted by other provisions in the policy, documents submitted to the Board for
information will be posted on the ADB website upon circulation to the Board. The majority of
documents submitted to the Board for consideration will be posted on the ADB website before
approval or endorsement by the Board (paras. 4, 27, and 41 of Operations Manual section
L3/OP). Other Board documents will be posted on the ADB website upon approval or
endorsement by the Board.
5.
Presumption in favor of disclosure. The policy is based on a presumption in favor of
disclosure. Therefore, all documents that ADB produces or requires to be produced may be
disclosed unless they contain information that falls within the exceptions of the policy specified
in paras. 63 (list of exceptions) and 67 (negative override) of Operations Manual section L3/OP.
6.
Right to access and impart information and ideas. ADB recognizes the peoples right
to seek, receive, and impart information and ideas about ADB-assisted activities. ADB will
provide information in a timely, clear, and relevant manner. This will enable ADB to
communicate with, listen to, and consider feedback from its stakeholders, including affected
people. Information will be given to affected people early enough for them to provide meaningful
input into project design and implementation. ADB will not selectively disclose information.
People will have equal access to the information that ADB makes available under the policy
according to the terms of the policy and its implementation arrangements.
7.
Country ownership. ADB recognizes the importance of country ownership of the
OM Section L3/BP
Page 3 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
activities it supports in its developing member countries (DMCs). Thus, before disclosing certain
documents, the views of DMCs will be considered with regard to the contents and timing of their
disclosure.
8.
Limited exceptions. Full disclosure is not always possible. For example, ADB needs to
explore ideas, share information, hold frank discussions internally and with its members, and
consider the special requirements of its nonsovereign operations.1 ADB will safeguard the right
to privacy of its staff and protect legitimate business interests of itself and its clients. However,
these exceptions are limited. ADB will disclose all information that it produces or requires to be
produced unless such information falls within the exceptions specified in paras. 63 (list of
exceptions) and 67 (negative override) of Operations Manual section L3/OP. ADB reserves the
right to override the policy exceptions if it determines that the public interest in disclosing the
information outweighs the harm that may be caused by such disclosure. ADB also reserves the
right not to disclose, under exceptional circumstances, information that it would normally
disclose, if it determines that such disclosure would or would be likely to cause harm that
outweighs the benefit of disclosure.
9.
Right to appeal. The policy recognizes the right of those requesting information to a
two-stage appeals process when they believe that ADB has denied their request in violation of
its policy. To enhance the credibility of the appeals process, the second stage will be
independent from ADB. An appeal may also be filed with the Public Disclosure Advisory
Committee (PDAC) to override the policy exceptions that restrict access to the requested
information, on the basis that the public interest in disclosing the information outweighs the
harm that may be caused by such disclosure.
10.
Relation to other policies. The policy establishes the disclosure requirements for
documents that ADB produces or requires to be produced. It does not set forth the requirements
for producing such documents. References to other ADB policies are made throughout the
Public Communications Policy. Any reference to another ADB policy includes that policy as
amended by ADB from time to time. In the event of conflict between the disclosure provisions
(but not other provisions) of the Public Communications Policy and any other Board-approved
policy, the disclosure provisions of the Public Communications Policy will prevail. Any policy or
strategy developed or revised by ADB after the Public Communications Policys effective date
will clearly articulate the disclosure requirements for documents and other information required
to be produced under that policy or strategy. Such disclosure requirements must be consistent
with the fundamentals of the Public Communications Policy.
A legally binding undertaking not to divulge clients confidential business information is a standard requirement
for private sector financial institutions, as well as for ADBs comparators, to engage in business with clients. The
need for protection of confidential business information is also widely recognized in freedom of information laws,
which generally include an exception for the release of commercial information obtained in confidence.
OM Section L3/BP
Page 4 of 4
OPERATIONS MANUAL
BANK POLICIES (BP)
Basis:

Development Bank: Disclosure and Exchange of Information. October. Manila.
This OM section is to be read with OM Section L3/OP.

ADB. 1998. Anticorruption Policy. Manila.
ADB. 2012. Review of the Accountability Mechanism Policy. Manila.
For inquiries: Questions may be directed to the Public Information and Disclosure Unit,
Department of External Relations.
2 April 2012
This supersedes OM Section L3/BP
issued on19 December 2008.
Prepared by the Department of External Relations

OM Section L3/OP
Page 1 of 22
OPERATIONS MANUAL
PUBLIC COMMUNICATIONS
A.
1.
Unless specified otherwise, the documents mentioned in paras. 259 below will be
posted on the Asian Development Bank (ADB) website according to the time period specified,
after consultation with the respective borrower or client as appropriate, and subject to the
exceptions to disclosure in para. 63 and the negative override provision in para. 67.
1.
Country Partnership Strategies and Regional Cooperation Strategies
2.
A list of new country partnership strategies (CPSs), interim CPSs, and regional
cooperation strategies (RCSs) scheduled for preparation in the following year will be posted on
the ADB website on a rolling basis.
3.
To facilitate consultations with stakeholders1 and to allow them to contribute to the
development of the CPS, interim CPS, and RCS in their country and/or region, initiating papers,
subsequent available drafts of these documents, and other useful background information will
be shared in-country for stakeholders comments during their preparation. Draft consultation
plans will be posted on the ADB website as available.
4.
The CPS, interim CPS, and RCS will be posted on the ADB website at the same time
that they are circulated to the Board for endorsement, subject to the concurrence of the member
country concerned (simultaneous disclosure). ADB will seek the concurrence of the government
concerned for simultaneous disclosure when requesting government clearance of disclosure of
the CPS.2 If the country does not consent to simultaneous disclosure, the documents will be
posted on the ADB website upon endorsement by the Board. This requirement for simultaneous
disclosure will apply to CPSs, interim CPSs, and RCSs that have completed their Management
Committee meeting, or its equivalent, on or after the effective date of the policy.
5.
Key supporting documents that are referred to in the CPS and RCS through electronic
links3 will be posted on the ADB website at the same time as the CPS and RCS. Other thematic
and sector analyses and assessments (knowledge products) used to prepare the CPS and
RCS, including updates thereto, will be posted on the ADB website as available.4
2
3
Stakeholders include DMC governments, development partners, the private sector, and civil society, including
nongovernment organizations, as appropriate.
ADB. 2010. Country Partnership Strategy. Operations Manual. OM A2. Manila.
Key supporting documents include country and portfolio indicators and other documents mentioned in
Operations Manual section A2 (Country Partnership Strategy).
Knowledge products required to be available at the time of CPS preparation include economic, poverty, and
gender analyses; private sector and governance risk assessments; and other documents mentioned in
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6.
The chairs summary of each Board discussion on CPSs, interim CPSs, and RCSs will
be posted on the ADB website upon its final circulation to the Board. If English is not used
widely in the relevant country by target stakeholders, ADB will translate the CPS and interim
CPS into the relevant national language(s) within 90 calendar days of its endorsement by the
Board and post the translated version on its website.
7.
Country operations business plans (footnote 2) and regional operations business plans,5
including electronically-linked documents related to them, will be posted on the ADB website
upon their circulation to the Board.
2.
Projects and Programs

a.
Project Data Sheet
8.
Project teams will post on the ADB website project data sheets (PDS)6 with summary
information on each project or program under their responsibility. The PDS webpage provides
links to related documents produced during the project cycle. PDSs for sovereign and
nonsovereign projects will include (i) the project or program name; (ii) sector, and/or subsector
and thematic classification and gender mainstreaming category; (iii) project or program number;
(iv) type or modality of assistance; (v) country; (vi) project or program description and rationale,
including linkage to the country or regional strategy; (vii) impact, outcome, and outputs; (viii)
source of funding7 and amount, financing plan, and loan and/or technical assistance (TA)
utilization (for sovereign projects); (ix) executing and, if applicable, implementing agency, or
client(s); (x) safeguard categories; (xi) summary of environmental and social aspects; (xii)
stakeholder communication, participation, and consultation; (xiii) information for business
opportunities on expected procurement and consulting services; (xiv) responsible ADB
department, division, and officer; (xv) the date of PDS preparation and most recent update; (xvi)
status of loan covenants (for sovereign projects); and (xvii) a timetable for the project or
program, including design, processing, approval, and implementation. Because the PDS is a
work in progress, some information may not be included in its initial version but will be added as
it becomes available. The Department of External Relations (DER) may also, in consultation
with the project team and as deemed necessary, prepare narrative versions of the PDS.
9.
Project data sheet for sovereign projects. The initial PDS for a sovereign project or
program, including multitranche financing facility (MFF) and TA projects, will be posted on the
ADB website upon approval of the concept paper8 for the project or program. The initial PDS for
5
6
7
Operations Manual section A2 (Country Partnership Strategy). The extent of disclosure of the risk
assessmentswhich could contain confidential or sensitive information that qualifies as exceptions to disclosure
under para. 97 of the policyis to be determined on a case-by-case basis. However, as stated in Operations
Manual section C4 (Governance), the major findings of the risk assessments should be summarized and
disclosed as part of the CPS to the extent required to report on ADBs governance programs, projects, and
activities over the period covered by the CPS.
ADB. 2010. Regional Cooperation and Integration. Operations Manual. OM B1. Manila.
The PDS replaces the project information document required under the 2005 policy.
An external funding source, i.e., bilateral, including Japan Fund for Poverty Reduction, or multilateral (other than
ADB) funding source, will be named in the PDS only once the funding is confirmed.
For small-scale TA projects, the PDS will be posted upon TA approval.
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the first tranche of an MFF will be posted upon completion of loan fact-finding, and for each
subsequent tranche upon completion of fact-finding for such tranche. If no fact-finding mission is
held, the PDS will be posted upon receipt by ADB of the signed periodic financing request for
the tranche. The responsible project officer will update the PDS at least twice a year,9 at the end
of the first and the third quarter,10 and whenever necessary, to reflect activities and issues,
progress toward outcome, and implementation progress.
10.
If ADB terminates its involvement in a sovereign project or program, either before or
after approval of the project or program, the corresponding PDS will include the date of
termination and a statement indicating the reason for the termination. The PDS for a terminated
project will remain on the ADB website for 12 months following termination.
11.
Project data sheet for nonsovereign projects. The initial PDS for a nonsovereign
project will be posted on the ADB website after ADB has determined that the project is likely to
be presented to the Board, but no later than 30 calendar days before the date of Board
consideration. The PDS for projects classified as category A for environmental safeguard
purposes will be posted on the ADB website at least 120 calendar days before Board
consideration. The responsible project officer will update the PDS at least twice a year, on 31
March and 30 September (footnote 10), and whenever necessary, to reflect status of
development objectives, implementation progress, and status of operation/construction.
12.
If ADB terminates its involvement in a nonsovereign project, either before or after
approval of the project, the corresponding PDS will include the date of termination and a
statement that ADBs involvement was terminated. The PDS for a terminated project will remain
on the ADB website for 12 months following termination.
b.
Translation of Project Data Sheets
13.
DER will translate the PDS for all loan and grant projects, and project preparatory TA
projects, for which the concept papers are approved on or after the effective date of the policy,
into the relevant national language(s) of the country concerned.11 The translated versions will be
posted on the ADB website at the following key milestones: (i) for sovereign projects, (a) within
6 months after approval of the concept paper; and (b) within 6 months after loan or grant
approval; and (ii) for nonsovereign project preparatory TA projects, within 6 months after
approval of the project preparatory TA; and (iii) for nonsovereign loans and grants, within 6
months after the PDS has been posted for the first time on the ADB website. Where a narrative
version of the PDS exists, this will be translated into the relevant national language(s) of the
country concerned instead of the computer-generated PDS. The resident mission or project
team will make the translated PDS and the narrative versions, if any, available in-country using
appropriate channels.
10
11
For MFFs, it is sufficient to update only the PDS for the respective tranches, unless the PDS of the facility needs
to be updated, i.e., in case of a major change, and when the facility will be completed.
There will be at least a 3-month period between the initial PDS posting and the posting of the first update.
In countries where English is widely spoken, the PDS will only be translated on request.
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c.
Information to Affected People and Other Interested Stakeholders
14.
To facilitate dialogue with affected people and other interested stakeholders, including
women, the poor, and other vulnerable groups, the project team will work closely with the
borrower or client to ensure that (i) information about sovereign and nonsovereign projects and
programs (including environmental and social issues) is disseminated to them in a manner,
form, and language(s) understandable to them and in an accessible place; and (ii) feedback on
the proposed project design is actively sought and responded to, and a project focal point is
designated for regular contact with affected people and other interested stakeholders. During
preparation of the project concept paper, the operations department will involve relevant
departments. Among others, DER will participate in determining the communication needs that
will allow stakeholders views to be adequately considered in the project design. Review of
project communication needs will continue at each stage of project or program preparation,
processing, and implementation. The operations department will ensure that the project or
program design allows for stakeholder feedback during implementation. The project team will
also ensure that relevant information about major changes to the project and likely impacts is
also shared with affected people and other interested stakeholders.
15.
To support the requirements in para. 14, the project team will assist DMC governments
and private sector clients in developing a project or program communications strategy for the
project cycle. This will be an integral part of consultation and participation by affected people
and other interested stakeholders. Such a strategy would help borrowers and clients to involve
affected people in the design and implementation of ADB-assisted activities, and increase
involvement of grassroots and civil society organizations in the development process by
detailing how to engage in dialogue with affected people and broaden public access to
information. The communications strategy will not be a separate document, but will be reflected
in the project administration manual and other project documents, such as the consultation and
participation plans that form part of the project safeguard documents. At a minimum, relevant
project documents will specify (i) the types of information to be disclosed; (ii) the mechanisms
for public notice, including language and timing; and (iii) who is responsible for implementing
and monitoring of information disclosure and dissemination. The project focal point will also be
included in the documentation, once appointed by the borrower or client.
d.
Project Safeguard Documents
16.
ADBs environmental and social safeguard requirements on information disclosure to
affected people are the same for sovereign and nonsovereign projects.
17.
The borrowers and/or clients are required to engage with affected people and other
stakeholders through information disclosure, consultation, and informed participation in a
manner commensurate with project risks and impacts. The project team will work closely with
the borrower or client to ensure that relevant safeguard information, including information from
the documents mentioned in paras. 1820, is provided to affected people in a timely manner, in
an accessible place, and in a form and language(s) understandable to them. This information
from the borrower and/or client can be made available as brochures, leaflets, or booklets in
language(s) understandable to the affected people. For illiterate people, other suitable
communications methods will be used.
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18.
Environment. In accordance with the requirements under the Safeguard Policy
Statement, ADB will post on its website the following documents submitted by the borrower
and/or client:12
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
a draft environmental impact assessment (EIA) report for an environment

category A project, at least 120 days before Board consideration;
a draft EIA report for an environment category A subproject under a sector
project or a financial intermediary project, at least 120 days before approval of
the subproject;
a draft EIA report for an environment category A tranche of an MFF, at least 120
days before approval of the periodic financing request;
a draft strategic environmental assessment for an environment category A
program, at least 120 days before Board consideration;
a draft, or, if available, final initial environmental examination (IEE) for an
environment category B project, upon Board approval of the project;13
a draft environmental assessment and review framework,14 if required, before
appraisal;15
the final or updated EIA or IEE, upon receipt thereof by ADB;16
environment monitoring reports, and corrective action plans, if any, prepared
during project implementation, upon receipt thereof by ADB;
in case of a major project change classified as environment category A, a new or
updated EIA, at least 120 days before approval of the change; and
in case of a major project change classified as environment category B, a new or
updated IEE, upon receipt thereof by ADB.
19.
Resettlement. In accordance with the requirements under the Safeguard Policy
and/or client (footnote 12):
(i)
(ii)
(iii)
(iv)
(v)
12
13
14
15
16
17
a draft resettlement plan and/or resettlement framework,17 as required, before

appraisal (footnote 15);
a draft resettlement plan for a resettlement category A subproject under a sector
project or a financial intermediary project, before approval of the subproject;
a draft resettlement plan for the first tranche of an MFF, before appraisal
(footnote 15);
a draft resettlement plan for each tranche after the first tranche of an MFF, before
Managements consideration of the periodic financing request;
the final or updated resettlement plan, upon receipt thereof by ADB (footnote 16);
ADB. 2010. Safeguard Review Procedures. Operations Manual. OM F1/OP. Manila.

For the first tranche of an MFF, the IEE, if required, must be posted on the website upon Board approval of the
MFF, and for subsequent tranches, upon approval of the related periodic financing request.
Disclosure of an environmental assessment and review framework is also required for an MFF.
If an appraisal mission is not proposed, the document will be posted before the Management Review meeting, or
the first staff review meeting for sovereign projects, or before the final Investment Committee meeting for
nonsovereign projects, as applicable.
This also applies to all MFF tranches.
Disclosure of a resettlement framework is also required for an MFF.
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(vi)
(vii)
resettlement monitoring reports, and corrective action plans, if any, prepared

during project implementation, upon receipt thereof by ADB; and
in case of a major project change, new or updated resettlement plans, upon
receipt thereof by ADB.
20.
Indigenous peoples. In accordance with the requirements under the Safeguard Policy
and/or client (footnote 12):
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
a draft indigenous peoples plan (IPP) and/or draft indigenous peoples planning
framework,18 as required, before appraisal (footnote 15);
a draft IPP for the first tranche of an MFF, before appraisal (footnote 15);
a draft IPP for each tranche after the first tranche of an MFF, before
Managements consideration of the periodic financing request;
a draft IPP for an indigenous peoples category A subproject under a sector
project or a financial intermediary project, before approval of the subproject;
the final or updated IPP, upon receipt thereof by ADB (footnote 16);
indigenous peoples monitoring reports, and corrective action plans, if any,
prepared during project implementation, upon receipt thereof by ADB; and
in case of a major project change, new or updated IPPs, upon receipt by ADB.
21.
Existing facilities. For projects involving facilities that already exist or are under
construction before ADBs involvement, and if an upgrade or expansion of the facilities is not
foreseen, the environment and/or social audit report (including a corrective action plan, if
required) prepared by the borrower or client constitutes the EIA, IEE, resettlement plan, and/or
IPP. Such audit reports will be posted on the ADB website in accordance with the requirements
in paras. 1820 for posting of the EIA, IEE, resettlement plan, and/or IPP.
22.
Country safeguard systems. In accordance with the requirements under the Safeguard
Policy Statement for the application of country safeguard systems in ADB-supported projects,
ADB will post on its website:
(i)
(ii)
(iii)
for public comment, the draft equivalence and acceptability assessments at the
national, subnational, sector, or agency level, upon completion;
the final equivalence and acceptability assessment reports, upon completion; and
updated assessments to reflect changes in country safeguard systems, if any,
upon completion.
23.
Disclosure related to acceptability assessments at the project level will follow the usual
safeguard document disclosure process undertaken for project preparation and referred to in
paras. 1820.
e.
24.
18
Initial Poverty and Social Analysis
The initial poverty and social analysis for a sovereign project or program will be posted
Disclosure of the indigenous peoples planning framework is also required for an MFF.
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on the ADB website as a stand-alone document upon approval of the project or program
concept paper. For nonsovereign projects, the initial poverty and social analysis will be posted
on the ADB website upon completion of the credit approval process.
f.
Technical Assistance Reports and Documents Produced Under

25.
TA reports will be posted on the ADB website upon approval by the relevant authority
(Board, President, or Vice President). For project preparatory TA projects up to $1.5 million, the
TA report appended to the concept paper for the project will be posted on the ADB website
upon approval of the concept paper.19
26.
Final consultants reports generated from a TA project20 will be posted on the ADB
website upon completion. As policy and advisory TA and capacity development TA may cover
sensitive matters, the government concerned will be given the opportunity to object to disclosure
of final reports produced under such TA. Consistent with the policys presumption in favor of
disclosure, any redaction or withholding of such documents will be based on the exceptions in
para. 63.
g.
Report and Recommendation of the President and Supporting

Documents
27.
Reports and recommendations of the President (RRPs) for sovereign projects will be
posted on the ADB website at the same time the RRP is circulated to the Board, subject to the
concurrence of the member country concerned (simultaneous disclosure). During loan and/or
grant negotiations, the borrower will be requested to confirm whether it consents to such
simultaneous disclosure of (i) the RRP; and (ii) the supporting (linked) documents to the RRP,
including the project administration manual, or facility administration manual for MFFs,
describing implementation details, and the framework financing agreement for MFFs. The
countrys consent will be reflected in the minutes of loan and/or grant negotiations. If the country
does not consent to such simultaneous disclosure, the RRP will be posted on the ADB website
upon approval of the RRP by the Board. This requirement for simultaneous disclosure will apply
to ADB projects and programs for which loan negotiations are conducted on or after the
effective date of the policy. Supporting documents (other than legal agreements, disclosure of
which is described in para. 28) will be disclosed as stand-alone, electronically linked documents
at the same time that the RRP is posted on the ADB website.21 Updates to any supporting
documents will be posted on the ADB website upon completion. An abbreviated version of the
RRP for nonsovereign projects will be posted on the ADB website upon Board approval; this
version will exclude confidential business information and ADB's assessment of project or
transaction risks.
19
20
21
ADB. 2011. Technical Assistance. Operations Manual. OM D12. Manila.

This para. refers to grant-financed TA.
ADB. 2010. Processing Sovereign and Sovereign-Guaranteed Loan Proposals. Operations Manual. OM D11.
Manila.
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g.
Legal Agreements
28.
All legal agreements22 for sovereign projects,23 including all tranches of MFFs, entered
into on or after the effective date of the Public Communications Policy will be posted on the ADB
website upon their signing, after removing any confidential information identified as falling within
the exceptions to disclosure in para. 63 at the time of negotiations. ADB may disclose on
request draft legal agreements if the borrower consents. If the legal agreements are amended,
ADB will post such amendments on its website within 2 weeks of their effectiveness, after
removing any information identified as falling within the exceptions to disclosure in para. 63 at
the time of negotiations.
29.
Legal agreements for sovereign projects entered into between 1 January 1995 and 1
September 2005, and any amendments to such agreements, will be made available on request,
after any confidential information contained in such agreements and amendments, and specified
as such by the government concerned at the time of negotiation of such agreements and
amendments, has been removed.
30.
For legal agreements for sovereign projects and amendments to them entered into by
ADB before 1 January 1995, ADB will seek the consent of the government concerned before
making such documents available, when requested. Unless the government concerned informs
ADB of its objection to disclosure of such documents within 30 calendar days of ADBs request
for consent, ADB will make such agreements available to any requester within 60 days of the
request for the agreement.
h.
Audited Project Financial Statements
31.
ADB will post on its website annual audited project financial statements for sovereign
projects for which the invitation to negotiate is issued on or after the policy effective date. The
procedures for the disclosure of annual audited project financial statements will be discussed
and agreed with each borrower and made part of the legal agreement for each project.
i.
Major Changes
32.
Documents submitted to the Board for approval related to a major change of a project
will be posted on the ADB website upon approval of such a change. For nonsovereign projects,
an abbreviated version will be posted on the ADB website, excluding confidential business
information.
j.
Progress Reports on Tranche Releases of Policy-Based Loans and

Grants
33.
Progress reports on tranche releases of policy-based loans and grants will be posted on
the ADB website upon Board or Management approval of the reports.
22
23
This would include loan agreements, project or program agreements, grant agreements, guarantee agreements,
and financing agreements.
Legal agreements for nonsovereign projects, including commercial cofinancing agreements, are not disclosed.
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k.
Framework Financing Agreement under Multitranche Financing

Facility and Annual Reports
34.
For each MFF, the framework financing agreement will be posted on the ADB website at
the time of disclosure of the RRP for the MFF. The annual report on MFF operations will be
posted on the ADB website upon circulation to the Board.24
l.
Completion Reports
35.
Project, program, MFF, and TA completion reports will be posted on the ADB website
upon circulation to the Board. The completion report for a nonsovereign project (called an
extended annual review report) will be posted on the ADB website upon circulation to the Board
in a redacted form excluding commercially sensitive and confidential business information.25
3.
Other Information Pertaining to Projects and Programs

a.
Independent Evaluations
36.
A list of independent evaluations planned by the Independent Evaluation Department
(IED) will be posted on the ADB website. This list is based on a 3-year rolling work program
approved by the Board.
37.
All independent evaluation reports will be posted on the ADB website upon circulation to
Management and the Board except for IED annual evaluation reports, which will be posted on
the ADB website upon discussion by the Boards Development Effectiveness Committee (DEC).
For evaluations of nonsovereign operations, a redacted version will be posted on the ADB
website upon circulation to Management and the Board, excluding commercially sensitive and
confidential business information.
38.
For evaluation reports discussed by the DEC, the chairs summary of the DEC meeting
will be posted on the ADB website upon its final circulation to the Board. Management
responses to independent evaluations and IED comments on the Management response, if any,
will be posted at the same time.
b.
Cofinancing Information
39.
A summary of projects requiring cofinancing will be posted on the ADB website.
Information on official cofinancing of projects, if any, such as major terms and conditions, will be
available in respective TA reports or RRPs posted on the ADB website. ADB will make available
on request cofinancing agreements for such official cofinancing, including project-specific
cofinancing agreements, framework agreements, and trust fund agreements between ADB and
any bilateral or multilateral cofinancier, unless the cofinancier objects.
24
25
ADB. 2010. Multitranche Financing Facility. Operations Manual. OM D14. Manila.

ADB. 2011. Project Performance Management System. Operations Manual. OM J1. Manila; and ADB. 2011.
Independent Evaluation. Operations Manual. OM K1. Manila.
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c.
Anticorruption Information
40.
Annual reports of ADBs Office of Anticorruption and Integrity (OAI) and reports of
project procurement-related reviews conducted by OAI will be posted on the ADB website upon
their completion. OAIs reports will be redacted to remove information that falls under exceptions
to presumed disclosure in para. 63. OAI will post on the ADB website a list of (i) debarred
entities that have breached their sanction; (ii) debarred parties that have violated ADBs
Anticorruption Policy (1998, as amended to date) for a second or subsequent time; (iii) debarred
parties who cannot be contacted despite reasonable efforts; and (iv) parties debarred pursuant
to ADBs agreement with other multilateral development banks on cross-debarment.
4.
Policies and Strategies
41.
A list of safeguard, sector, and thematic policies and strategies to be developed or
reviewed over the following 12 months will be posted on the ADB website on a rolling basis.
Plans for consultations, including any anticipated face-to-face meetings with external audiences,
will be posted on the ADB website upon completion of such plans. At least one consultation draft
of such policy or strategy paper will be posted on the ADB website. Working papers and final
proposals of policies and strategies that have undergone a public consultation process will be
posted on the ADB website at the same time that they are circulated to the Board (simultaneous
disclosure). This requirement will apply to working papers and final proposals of such policies
and strategies that are circulated to the Board on or after the effective date of the policy. Other
policy or strategy papers will be posted on the ADB website upon their approval or
endorsement. A chairs summary for each policy or strategy approved or endorsed by the Board
at a formal Board meeting will be posted on the ADB website upon its final circulation to the
Board.
5.
Operational Rules and Procedures
42.
The Operations Manual sections (bank policies and operational procedures), the Project
Administration Instructions, and staff handbooks on ADB operations will be posted on the ADB
website upon their issuance to staff.
6.
Other Information
a.
43.
The following information and documents will be posted on the ADB website:
(i)
(ii)
26
Procurement
a listing of business opportunities for each sovereign project being prepared for
ADB financing, from project identification through approval by the Board;
the borrowers procurement plan for a project as part of the project administration
manual,26 detailing (a) each contract for goods, works, and consulting and other
services required to carry out the project during the first 18 months; (b) the
See para. 27 for timing of disclosure of RRPs and supporting documents, including the project administration
manual.
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(iii)
(iv)
(v)
(vi)
proposed methods of procurement for each contract; and (c) the applicable ADB
review procedure;
the borrowers updates to the procurement plan (at least annually over the
duration of the project);
all invitations issued as specific notices by executing agencies and ADB to
express interest, to prequalify, or to bid for international competitive bidding
procurement and consulting assignments;
all contract awards entered into ADBs books of account, detailing the name of
the contractor, a description of the contract, the contract award amount financed
by ADB, and the name of each competing bidder; and
in respect of ADBs institutional procurement, invitations to submit bids or
proposals, and contract awards for major procurement exercises.
b.
Country Performance Assessment of Asian Development Fund

Recipient Countries
44.
For each country with access to Asian Development Fund resources, an annual country
performance assessment, including numerical performance ratings, will be posted on the ADB
website upon its completion. The guidelines for country policy and institutional assessments will
also be posted on the ADB website upon their completion.
c.
Annual Report, Economic Data and Research
45.
ADBs Annual Report, as well as the Asian Development Outlook, the Asian
Development Outlook Update, and Key Indicators containing economic and social data,
analyses, and forecasts will be posted on the ADB website upon their completion. An extensive
catalog of online books, conference papers, periodicals, reports, studies, and technical briefs
containing research, reports, and analyses will also be posted on the ADB website.
d.
46.
Administrative and Other Information
The following documents and information will be posted on the ADB website:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
the Agreement Establishing the Asian Development Bank (The Charter);

the by-laws of ADB;
the Rules of Procedure of the Board of Governors of the Asian Development
Bank;
the Rules of Procedure of the Board of Directors of the Asian Development Bank;
the Agreement Between the Asian Development Bank and the Government of
the Republic of the Philippines Regarding the Headquarters of the Asian
Development Bank;
host country agreements between ADB and its member countries, subject to
concurrence of the member country concerned;
the list of ADBs members, their subscribed capital, and voting power;
ADBs organizational structure;
the list of members of the Board of Governors;
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(x)
(xi)
(xii)
(xiii)
the list of members of the Board of Directors and their voting groups;
the list of committees of the Board of Directors and their members;
the list of members of ADB Management and senior staff; and
contact information for each of the above.
47.
The summary proceedings of ADBs annual meetings, including decisions taken by the
Board of Governors and the statements of the governors, will be posted on the ADB website
within 60 calendar days of each annual meeting. Other resolutions of the Board of Governors
adopted after the effective date of the policy will also be posted on the ADB website, if the
Board of Directors authorizes disclosure. Authorization regarding such disclosure will be sought
by ADB at the time of recording votes of resolutions of the Board of Governors.
48.
The work program and budget framework for each fiscal year will be posted on the ADB
website upon discussion by the Board.
49.
The results of country classification of DMCs will be posted on the ADB website upon
approval by the Board.
50.
ADB will post on its website (i) the provisional schedule of items for Board consideration
for the forthcoming 3 weeks on a rolling basis;27 and (ii) the minutes of each regular Board
meeting, upon approval of those minutes by the Board and no later than 60 calendar days after
the Board meeting.
51.
Reports of Board committees to the full Board will be posted on the ADB website if the
committee so recommends and the Board approves.
52.
ADB will disclose on request verbatim transcripts of formal Board meetings held on or
after the effective date of the policy with respect to any agenda item specified in the request.
Such transcript for the specified agenda item will be disclosed in its entirety 10 years after the
date of its creation, provided it does not contain or refer to any information that falls within the
exceptions in para. 63. Requests for transcripts are treated following the provisions in paras.
7275.28 After such request has been received and after confirming that the 10-year time limit
for withholding the information has lapsed, the Office of the Secretary (OSEC) will provide the
document to the department(s) involved in the relevant Board meeting. The department(s) will
then inform OSEC and the Public Information and Disclosure Unit (InfoUnit) in DER whether any
of the information contained in the transcript falls under any policy exception. OSEC will
determine based on consultations with all concerned whether the requested transcript can be
disclosed.
e.
Financial Information
53.
The audited financial statements for ADBs ordinary capital resources and Special Funds
will be posted on the ADB website before each annual meeting.
27
28
This provision only applies to regular Board meetings.

Transcripts of Board meetings are not redacted. If a transcript for the specified agenda item contains information
that falls under any exception, it is not disclosed. In cases where two agenda items are discussed together, they
will be treated as one agenda item for the purpose of this policy.
OM Section L3/OP
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OPERATIONS MANUAL
54.
The following will be posted on the ADB website upon approval by the Board:
(i)
(ii)
(iii)
(iv)
Managements discussion and analysis of ADB's ordinary capital resources and

Special Funds, including financial data on each of the funds;
unaudited condensed quarterly financial statements;
the annual report on loan servicing of DMCs; and
the budget of ADB for each fiscal year.
55.
ADB will post on its website any documents related to public offerings when the laws or
regulations governing the financial market concerned require that they be filed with a
government agency.
f.
Employment Information
56.
ADB will post on its website (i) ADBs basic salary structure; (ii) the methodology used to
determine Management and staff salary levels and benefits; (iii) annual base salaries of
Management and Board members; and (iv) ADBs broad objectives and strategy in recruiting,
placing, redeploying, and retaining staff. Descriptions of positions for staff recruitment will also
be posted on the ADB website at least 2 weeks before a position is expected to be filled. Each
decision of ADBs Administrative Tribunal will be posted on the ADB website upon the tribunals
notification to the Secretary to post a decision.
g.
Information Produced under the ADB Accountability Mechanism
57.
ADB will post on its website information produced under the Accountability Mechanism
as provided in the Accountability Mechanism policy and its related Operations Manual section,
as amended from time to time.
h.
Information Related to Asian Development Fund Negotiations
58.
Generally, ADB posts on its website information related to negotiations for ADF
replenishments and midterm reviews. Nonfinancial discussion papers for donors meetings will
be posted on the ADB website upon circulation of such discussion papers to the donors. The
chairs summary will be posted on the ADB website following each meeting. The donors report
will be posted on the ADB website upon endorsement by the Board.
i.
Other Documents Presented to the Board
59.
Documents circulated to the Board for information or approval not cited in the Public
Communications Policy will be posted on the ADB website, unless Management informs the
Board otherwise and the Board agrees.
7.
Exceptions to Presumed Disclosure
60.
The exceptions to ADBs presumption in favor of disclosure of information are set forth in
paras. 63 (list of exceptions) and 67 (negative override). The list of exceptions is based on a
determination by ADB that the harm disclosure might cause to specific parties or interests
OM Section L3/OP
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OPERATIONS MANUAL
outweighs the benefit of disclosure.

61.
If a document (or part of it) subject to posting on the ADB website is not posted because
the information contained in the document falls under an exception, the document or the
information removed from it will be referenced on the website,29 unless citing the document or
the removed information would itself violate an exception. If part of the information contained in
a document to be provided upon request falls under an exception, such information will be
removed from the document and the requester will be informed of the reason of such removal
(footnote 28).
62.
ADB is not required to comply with, or respond to, repeated or unreasonable requests
for information on the same subject from the same person, organization, or group if ADB has
provided such information after a previous request or has given reasons why it cannot provide
the information.
a.
Current Information
63.
Any information concerning ADB-assisted projects, programs, policies, strategies, and
general operations held by ADB for 20 years or less from the date such information was
produced by, or provided to, ADB is considered current information. Subject to the provision in
para. 65, ADB will not disclose the following information:
Deliberative and Decision-Making Process
29
30
(i)
Internal information that, if disclosed, would or would be likely to compromise the

integrity of ADBs deliberative and decision-making process by inhibiting the
candid exchange of ideas and communications, including internal documents,
memoranda, and other similar communications to or from governors and their
alternates, Board members, directors advisors, members of Management, ADB
staff, and ADB consultants.
(ii)
Information exchanged, prepared for, or derived from the deliberative and

decision-making process between ADB and its members and other entities with
which ADB cooperates that, if disclosed, would or would be likely to compromise
the integrity of the deliberative and decision-making process between and among
ADB and its members and other entities with which ADB cooperates by inhibiting
the candid exchange of ideas and communications, particularly with respect to
policy dialogue with DMCs.
(iii)
Proceedings of the Board of Directors30 with the exception of verbatim transcripts
The reference to the removed document or information would be made on the relevant web page, which would
still include the title of the removed or redacted document.
For the purpose of this policy, proceedings of the Board of Directors refers to proceedings of the Board of
Directors and of Board committees, and comprises all statements made or filed during Board meetings or
committee meetings and records regarding such meetings, such as verbatim transcripts, minutes of committee
meetings, and memoranda or other communications between ADB Management, departments, or the Secretary
and the Board, in all formats, including electronic.
OM Section L3/OP
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OPERATIONS MANUAL
(as provided in para. 52), minutes of Board meetings (para. 50), and chairs
summaries of certain Board meetings (paras. 6 and 41).
Information Provided in Confidence
(iv)
Information provided to ADB in confidence by a member or international

organization and that, if disclosed, would or would be likely to materially prejudice
ADBs relations with that party or any other member.
(v)
Information (including proprietary information) provided to ADB by a party, which,

if disclosed, would or would be likely to materially prejudice the commercial
interests, financial interests, and/or competitive position of such party or another
party that was the source of the information,31 or any confidential business
information (information covered by a confidentiality agreement or nondisclosure
agreement that ADB has entered into with clients and/or other related parties).
(vi)
Information provided to ADB in confidence, alleging fraud, corruption, or other

violation of ADBs Anticorruption Policy, or misconduct, except to the extent
permitted by and in accordance with ADB staff rules and rules on investigations,
as well as the identity of the party making such allegation (whistleblower), unless
the whistleblower consents to disclosure of his or her identity.
Personal Information
(vii)
Personal information relating to Board members, directors advisors, members of

Management, and ADB staff and consultants, as disclosure of such information
would or would be likely to compromise the legitimate privacy interests of the
person concerned. This includes terms of employment, performance evaluations,
and personal medical information of Board members, directors advisors,
members of Management, and ADB staff and consultants; information relating to
staff appointment and selection processes; personal communications; and
information relating to proceedings of internal conflict resolution and appeal
mechanisms and information related to investigations, except to the extent
permitted by the staff concerned or staff rules and Board of Directors rules and
regulations.
Financial Information
(viii)
31
Financial information that, if disclosed, would or would be likely to prejudice the

legitimate financial or commercial interests of ADB and its activities, or financial
information to which capital and financial markets may be sensitive. This may
include estimates of ADBs future borrowings, financial forecasts, data on
individual investment decisions for ADBs treasury operations, credit
assessments, analyses of creditworthiness, credit ratings, and risk assessments
of its borrowers and other clients.
For example, a bidder in a procurement process.
OM Section L3/OP
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OPERATIONS MANUAL
(ix)
Financial information that if disclosed would or would be likely to prejudice the

ability of a member to manage its economy.
Security and Safety

(x)
Information that, if disclosed, would or would be likely to endanger the life, health,
safety, or security of any individual, or safety or security of ADB assets, or to
prejudice the defense or national security of a member.
Legal or Investigative Matters

(xi)
Any information subject to attorneyclient privilege (including communications to

or from ADB counsel or its external legal advisors); information relating to any
investigation of alleged fraud, corruption, or misconduct, except to the extent
permitted by and in accordance with ADBs rules on such investigations; or any
information that, if disclosed, would or would be likely to materially prejudice an
investigation or the administration of justice or violate applicable law.32
Internal Audit Reports and Trust Fund Audit Reports

(xii)
(a) Internal audit reports prepared by ADBs Office of the Auditor General,33 as
such reports may contain sensitive information about internal systems, which
could be exploited by third parties to the detriment of ADB; and (b) certain audit
reports of ADBs external auditors on ADB-administered trust funds, where the
public disclosure of these reports would violate the applicable auditing
standards.34
b.
Historical Information
64.
Any information concerning ADB-assisted projects, programs, policies, strategies, and
general operations held by ADB for more than 20 years from the date such information was
produced by, or provided to, ADB is considered historical information. Historical information,
other than information relating to Board proceedings, will be disclosed upon request,35 except
for information that falls within the exceptions listed in para. 63 (iv)(vii), (ix)(xi), and (xii)(b).
32
33
34
35
This may include restrictions imposed by securities and banking laws, and copyright laws.
Audit opinions and audited financial statements disclosed to the public as part of ADBs Annual Report are not
covered by this exception.
Certain trust fund financial statements are prepared in accordance with donors accounting requirements (which
may be different from the accounting standards generally accepted in the US) and are audited in accordance
with auditing standards generally accepted in the US (which are applicable to ADB). Such auditing standards
limit disclosure of financial statements prepared in accordance with accounting standards other than those
generally accepted in the US and the associated audit opinion to those who have a specified interest in the fund,
i.e., contributors and those responsible for managing and/or administering the fund.
Proceedings of the Board will be disclosed in accordance with the provisions in paras. 6, 41, 50, and 52.
OM Section L3/OP
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OPERATIONS MANUAL
c.
Public Interest Override (Positive Override)
65.
Notwithstanding the policy exceptions in para. 63, external stakeholders may request
ADB to override such policy exceptions in the public interest. The Public Disclosure Advisory
Committee (PDAC) will consider such requests. ADB may disclose requested information if it
determines that the public interest in disclosing the information outweighs the harm that may be
caused by disclosure. Any recommendation of the PDAC to disclose or deny such information
will require the approval of the Board for Board records and the President for other documents.
66.
However, the public interest override provision will not apply if ADB has given an
express legal commitment to a party to keep such information confidential and not to disclose
such information, unless such party consents.
d.
ADBs Prerogative to Restrict Access (Negative Override)
67.
ADB also reserves the right not to disclose, under exceptional circumstances,
information that it would normally disclose if it determines that such disclosure would or would
be likely to cause harm that outweighs the benefit of disclosure. This prerogative may be
exercised only by the Board.
B.
68.
All departments and offices will be responsible for implementing the Public
Communications Policy. DER will bear overall responsibility for its implementation and
consistent application. DERs InfoUnit will provide advice to all ADB departments and monitor
the disclosure requirements of the policy. DERs web team will work with the InfoUnit,
operations departments, and other offices in posting documents and improving the information
search functions of the ADB website. Staff from operations departments and resident missions
will play a key role in communicating with project-specific stakeholders, and in ensuring the
disclosure requirements are met (paras. 14, 15, and 17). They will work with the borrower or
client, which should provide focal points in project areas to provide information to and dialogue
with affected people about the project (para. 14). Project focal points may use the ADB website
to access project and country-related information, and to disclose such information to interested
parties using locally and culturally appropriate delivery mechanisms.
69.
Public Disclosure Advisory Committee. The PDAC will interpret, monitor, and review
the disclosure requirements of the policy. The PDAC will be composed of the managing director
general (serving as chair), the principal director of DER, the secretary, and the general counsel.
It will report directly to the President. The PDAC will convene as needed to review requests for
information that have been denied by other ADB departments or offices. It has the authority to
uphold or reverse decisions to deny access to information, with the exception of decisions by
the Board to restrict access (negative override). The PDAC will also consider requests for
disclosure in the public interest of information covered by a policy exception (public interest
override). The InfoUnit will provide secretariat support to the PDAC. The PDAC will review and
endorse the annual report on the Public Communications Policy assessing the implementation
of the disclosure requirements under the policy. The annual report will include a summary of
OM Section L3/OP
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OPERATIONS MANUAL
refusals to provide information to the public, as well as any recommendations for changes to the
policy and its related Operations Manual section, or the organizational structure supporting
ADBs public disclosure of information.
70.
Independent Appeals Panel. The Independent Appeals Panel (IAP) will consider
appeals alleging that ADB violated the policy by restricting access to information that it would
normally disclose under the policy. The IAP will have three members nominated by the
President and approved by the Board. The members could comprise (i) a representative of a
DMC with adequate experience in freedom of information matters; (ii) an expert on access to
information, independent of any government; and (iii) an expert on access to information in a
commercial setting. The IAP has the authority to uphold or reverse PDAC decisions to deny
access to information. It has no authority to consider appeals on any decision made by ADB
under paras. 65 and 67 (public interest override and negative override). The IAP members will
be engaged to work on an intermittent basis and only when called upon to consider an appeal of
a decision made by the PDAC. To the extent possible, the IAP will hold its deliberations by
telephone, e-mail, and/or video link. OSEC will provide secretariat support to the IAP.
C.
Procedures for Accessing Information

1.
Proactive Disclosure
71.
The ADB website will be the primary vehicle for proactively disclosing information and
documents as required in the Public Communications Policy. Other means of proactive
disclosure of information and documents (e.g., information to support a consultation process)
will be used by ADB as well as borrowers and clients, depending on the intended recipient or
audience, and the intended purpose for disclosing the information.
2.
Requests for Information
72.
All requests for information and documents must be made in writing (e-mail, mail,
internet feedback form, or fax). Requests may be directed to ADBs InfoUnit: (i) by mail at Asian
Development Bank, 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines; (ii) by email to disclosure@adb.org; or (iii) by fax to +63 2 636 2649. Requests may also be directed to
the resident mission, representative office, or department or office concerned. Requests may be
submitted to ADB in English or in any of the official or national languages of ADBs members.
Requests for current information should indicate with reasonable specificity the information that
is being sought, to enable ADB, within a reasonable period of time, to locate the information.
Requests for historical information (para. 64) must identify the specific information requested;
blanket requests for access to historical information will not be accepted.
73.
The operations department or office concerned will determine whether a document
contains information that may not be disclosed in accordance with the policy exceptions set out
in para. 63 and will consult with the borrower, client, or cofinancier, as appropriate, on whether
disclosure of the requested information would or would be likely to cause any harm to their
interests. When certain information in a document falls under any policy exception, the
department concerned will either withhold the document or remove the confidential information
OM Section L3/OP
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OPERATIONS MANUAL
before disclosing the document, while leaving reference to the removed material (with the
reason for its removal). The InfoUnit will provide guidance to ADB staff on the policy as
necessary.
3.
Time Limits for Responses to Requests
74.
Requests for information will be handled by the department or office that receives the
request, or the InfoUnit in consultation with other departments concerned. If a department other
than DER handles the request, it will promptly copy the InfoUnit of the request and its
response(s) to the requester. The department concerned or the InfoUnit, as the case may be,
will acknowledge receipt of a request within 5 working days of receiving the request. The
department concerned or the InfoUnit, as the case may be, must then inform the requester as
soon as a decision has been made, and, in any event, no later than 20 working days after
receiving the request.36 This period may be extended in the case of a request for historical
information, if the information requested is difficult to retrieve. In its response, the department
concerned or the InfoUnit, as the case may be, will either provide the requested information or
the reasons why the request has been denied, indicating the particular provision(s) in the policy
that justifies the refusal, and, as applicable, the harm that could be caused by disclosing the
information. The InfoUnit will post on the ADB website a list of requests reviewed, and the
corresponding decisions, i.e., fulfilled or denied, with the reason for the latter.
75.
Each response denying a request for information must be discussed with the InfoUnit
before it is sent (as denials of requests could possibly be appealed to the PDAC or the IAP).
4.
Appeals
76.
All appeals to the PDAC (first stage of appeal) or the IAP (second stage of appeal) must
be submitted in writing within 90 calendar days of the decision to deny the request for
information. Appeals to the PDAC may be submitted: (i) by mail addressed to the PDAC through
the InfoUnit at Asian Development Bank, 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila,
Philippines; (ii) by e-mail to disclosure@adb.org; or (iii) by fax to +63 2 636 2649. Appeals to the
IAP may be submitted: (i) by mail addressed to the IAP through OSEC at Asian Development
Bank, 6 ADB Avenue, Mandaluyong City, 1550 Metro Manila, Philippines; (ii) by e-mail to
iap_secretariat@adb.org; or (iii) by fax to +63 2 636 2481. Appeals received beyond the 90-day
period for filing an appeal will be deemed out of time and will not be considered. All appeals
should be set out in a brief letter and contain the following:
(i)
(ii)
a description of the information originally requested, and

an explanatory statement that sets out the facts and the grounds that support the
requesters claim that ADB violated the policy or that the public interest override
(para. 65) applies.
77.
The InfoUnit (for the PDAC) or the IAP secretariat (for the IAP) will notify requesters if
the appeal is dismissed (i) for a failure to file within the required time, (ii) for a failure to provide
36
If ADB uses its prerogative not to disclose information it would normally disclose (negative override), this time
line will not apply. In that case, ADB will submit the matter to the Board for final decision.
OM Section L3/OP
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OPERATIONS MANUAL
sufficient information that would reasonably support the appeal, or (iii) because the PDAC or the
IAP do not have authority to consider the matter being appealed. The InfoUnit or the IAP
secretariat, as the case may be, will notify the requester of the decision and provide the
requested information, or the reasons for denial, as the case may be. ADB will post on its
website a list of all appeals received, and the decision taken in each case. The list will be
updated upon issuance of a decision.
a.
First Stage of Appeal: Public Disclosure Advisory Committee
78.
When a request for information is denied, the requester will be informed of the right to
file an appeal to the PDAC. If the appeal is based on the public interest override set out in para.
65, the provisions of para. 81 will apply. The PDAC will acknowledge receipt of an appeal within
5 working days. It will convene as soon as possible to consider the appeal. In reviewing
appeals, the PDAC will consider the policy exceptions specified in para. 63. The PDAC will
notify the requester of ADBs decision in writing, giving the reasons, as soon as a decision has
been made and, in any event, no later than 20 working days after receiving the appeal.
b.
Second Stage of Appeal: Independent Appeals Panel
79.
If the PDAC upholds the initial decision to deny a request for information, the requester
may file an appeal to the IAP through OSEC. The IAP will consider whether ADB violated the
policy by restricting access to information. OSEC will, on behalf of the IAP, acknowledge receipt
of the appeal within 5 working days, with a copy to the ADB department or office that took the
initial decision to deny the request. The relevant department will submit to the IAP, through
OSEC, a statement explaining which exception applies and why. If disclosure of the information
requested would affect a legitimate interest of a third party (such as a borrower, client,
cofinancier, or individual in relation to personal information), the relevant ADB department will
promptly inform the third party of the appeal, and the third partys right to state its reasoned
objection, if any, to disclosure of the information. Any statements by ADB or third parties must
be filed with OSEC in writing (preferably by e-mail) within 3 weeks of the IAPs
acknowledgement of the appeal. Upon request of a third party, based on special circumstances,
the IAP may decide to extend the period for a third party to file a statement. In reviewing
appeals, the IAP will consider the appeal, opposing statements, if any, and the policy
exceptions. It will have the authority to uphold or reverse the relevant decisions of the PDAC,
and its decisions will be final. The IAP will be required to consider all appeals within 45 calendar
days after receiving the appeal. In case the IAP members cannot reach a unanimous decision,
the decision will be taken by majority vote.
D.
Procedures regarding Negative Override and Public Interest Override

1.
Negative Override
80.
In exceptional cases, ADB may decide not to disclose documents that would normally be
disclosed, if such disclosure would or would be likely to cause harm that outweighs the benefit
of disclosure. In that case, the matter will be referred to the Board for decision. The following
procedures apply in such situations:
OM Section L3/OP
Page 21 of 22
OPERATIONS MANUAL
(i)
(ii)
2.
If a request for information has been made, and the receiving department or any
other relevant office, in consultation with the InfoUnit, the Office of the General
Counsel, and other relevant departments or offices, finds that no exception to
disclosure applies but that releasing the information could cause severe harm,
the relevant department refers the matter to the PDAC. If the PDAC agrees with
the assessment of the potential harm and finds that an exceptional situation has
occurred that warrants nondisclosure, the PDAC will prepare a decision paper
and recommend to the President circulation of that paper to the Board. The
Board will decide whether or not to exercise its prerogative not to disclose the
relevant document (negative override). The exceptional circumstances and the
harm that could be caused by disclosure should be explained in the paper to be
submitted to the Board. The decision of the Board will be final. The InfoUnit will
post the decision of the Board on the ADB website, and will notify the requester
of the decision upon its issuance by the Board.
If no request for information has been made, but ADB is required under the
Public Communications Policy to post certain information on its website, the
disclosure of which could cause severe harm in the view of the department or
office concerned in consultation with the InfoUnit, the Office of the General
Counsel, and other relevant departments, the relevant department refers the
matter to PDAC. The same procedures as set out under (i) above will apply.
Public Interest Override (Positive Override)
81.
A requester, whose request for information is denied based on any of the policy
exceptions in para. 63, may file an appeal to the PDAC if he or she finds that disclosure of the
information is warranted in the public interest. Such appeal should specify the circumstances
that would warrant an override of the policy in the public interest. The PDAC will acknowledge
receipt of the appeal within 5 working days. If necessary, the PDAC may, through the InfoUnit,
seek further details from the requester in support of the appeal. The InfoUnit will request the
relevant operations and/or other departments or offices to explain in writing to the PDAC
whether disclosure of the requested information would or would be likely to cause harm and if
so, what harm. For Board records, the PDAC will prepare a paper and recommend to the
President its circulation to the Board, attaching the request and summarizing the applicable
policy exception(s), the public interest case made by the requester, and the potential harm of
disclosure. For documents other than Board records, the PDAC will prepare a recommendation
paper for consideration of the President, attaching the request and summarizing the applicable
policy exception(s), the public interest case made by the requester, and the potential harm of
disclosure. Decisions by the Board and the President, as the case may be, to disclose or deny
such information will be final. If the President made the decision in accordance with para. 65,
the PDAC will notify the requester as soon as the decision has been made and in any event no
later than 20 working days after receiving the appeal. If the Board made the decision in
accordance with para. 65, the PDAC will notify the requester upon the Boards decision. The
InfoUnit will post the final decision on the ADB website.
OM Section L3/OP
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OPERATIONS MANUAL
E.
Monitoring and Reporting
82.
ADB will monitor the implementation of the Public Communications Policy and evaluate
its impact. ADB will post on its website an annual report showing the monitoring results.
83.
ADB allows stakeholders to raise issues, access information, and engage with ADB in
implementing the policy. ADB will not disclose the names of individuals or groups that raise
concerns about the implementation of the policy.
F.
Policy Review
84.
ADB will conduct a comprehensive review after a period of time, not to exceed 5 years
from the effective date of the policy. The review will engage interested individuals and
organizations.
Basis:
This OM section is based on OM Section L3/BP and the documents cited

therein.
Compliance:
For inquiries:
Questions may be directed to the InfoUnit, Department of External

Relations.
2 April 2012
This supersedes OM Section L3/OP
Prepared by the Department of External Relations


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OPERATIONS MANUAL

BANK POLICIES (BP)

The Graduation Policy1

Scope of the Policy

Graduation from ADF

Graduation from Regular ADB Assistance

Application of the Policy

Afghanistan, Bhutan, Cambodia, Kiribati, Kyrgyz Republic, Lao Peoples

Armenia, Azerbaijan, Bangladesh, Georgia, India,4 Marshall Islands,

Cook Islands, Peoples Republic of China, Fiji, Indonesia, Kazakhstan,

Relationship between Graduated DMCs and ADB

Currently with no access to ADF.

This OM section is based on

This OM section is subject to compliance review.

Questions may be directed to the Director of the Operations Planning and

This supersedes OM Section A1/BP

Prepared and issued by the

This supersedes OM Section A1/OP

Prepared and issued by the

COUNTRY PARTNERSHIP STRATEGY

This OM section is based on:

This OM section is subject to compliance review.

Questions may be directed to the Director of Strategy, Policy and Interagency

This supersedes OM Section A2/BP

Prepared and issued by the

COUNTRY PARTNERSHIP STRATEGY

Preparation of the Country Partnership Strategy

Country Partnership Strategy Initiation

Initiating Paper and Meeting

Country Consultations: Strategy Formulation Mission

Informal Board Seminar

Management Committee Meeting

Country Partnership Strategy Endorsement

Indicative Rolling Country Operations Business Plans

Country Partnership Strategy Retrospective Stocktaking

Roles and Responsibilities

This OM section is based on OM Section A2/BP and the documents cited

This OM section is subject to compliance review.

Questions may be directed to the Director of the Strategy, Policy, and

This supersedes OM Section A2/OP

Prepared and issued by the

See OM Section D2 (Lending and Grant Policies [Asian Development Fund]).

The Scope of the Policy

The PBA Allocation Formula

Extra Formula Allocations

Disaster and Emergency Needs

Absorptive Capacity Considerations

Weakly Performing Countries

See OM Section D7 (Disaster and Emergency Assistance).

To demonstrate country ownership, the project must be partially financed from

Distribution of project benefits. Projects covering more countries will be given

Leveraging external resources. Projects with larger shares of external financing

Supporting institutional and policy harmonization. Projects supporting deeper

Consolidating earlier gains. Projects that build on previous successful regional

In addition, consideration will be given to ensuring wide geographical distribution of

See OM Section B1 (Regional Cooperation and Integration).

ADF Grants Framework

Subregional Pool and Loan Savings and Cancellations

ADF Hard-Term Facility

This OM section is based on:

This OM section is subject to compliance review.

Questions may be directed to the performance-based allocation focal point,

See OM Section D2 (Lending and Grant Policies [Asian Development Fund]).

Prepared and issued by the