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FINANCIAL INTERMEDIATION LOANS AND POLICY-BASED LOANS

FINANCIAL INTERMEDIATION LOANS

Description

11.1 Financial intermediation loans (FILs)[1] seek to help achieving the following 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.

11.2 Development finance institutions (DFIs) and participating financial intermediaries (PFIs) are autonomous financial intermediary entities authorized by the borrower to receive loans either directly from ADB or through the borrower for passing on the loan amount to the final beneficiaries as subloans.

11.3 FILs are relent by DFIs and PFIs to sub-borrowers such as small- and medium-sized industries, enterprises, or individuals for eligible subprojects.

Free Limit

11.4 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 intermediary's appraisal of projects and advise on appraisal techniques and methodology.[2]

Disbursement Procedures

11.5 Under FILs, ADB provides funds to eligible DFIs and PFIs for on lending, at the financial intermediary's credit risk, to final borrowers (sub-borrowers) for eligible subprojects. Disbursement arrangements and funds flow under FILs should be provided in the PAM, as they are determined with project-specific considerations.

11.6 Direct payment, commitment,[3] and reimbursement [4] procedures may be used, as appropriate (Chapters 7-9).

11.7 ADB may approve the use of the imprest fund procedure (Chapter 10) under FILs. The advance to the imprest account should not exceed 6 months' estimated cash flow required for payments to be made to sub-borrowers for eligible subprojects. The imprest account may be maintained in a separate bank account, or separate account of DFIs or PFIs with fiduciary arrangements acceptable to ADB.

11.8 ADB may approve the use of the statement of expenditures (SOE) procedure (Chapter 9)[5] to spare the borrower, DFI, or PFI the trouble of attaching voluminous documentation for numerous and small amounts of individual payments for subloans to WAs. The SOE ceiling for the nonsubmission of full supporting documentation is, in principle, the free limit agreed for the FIL. An SOE ceiling other than the agreed free limit may be approved on a case-by-case basis. The SOE form for this purpose is shown in Appendix 9C.

11.9 If an individual payment amount exceeds the SOE ceiling, appropriate supporting documents (e.g., invoices for subproject, subloan agreement) should be submitted to ADB.

  • [1] ADB. 2003. Financial Intermediation Loans. Operations Manual. OM D6/BP. Manila.
  • [2] ADB. 2003. Financial Intermediation Loans. Operations Manual. OM D6/OP. Manila (para. 7).
  • [3] For instance, direct payment (or commitment letter) to sub-borrowers may be used for paying subproject expenditures incurred.
  • [4] For instance, reimbursement to EA, DFI, or PFI may be used if EA, DFI, or PFI has already paid subloans.
  • [5] Formerly, the simultaneous authorization and withdrawal (SAW) procedure was also used. The use of the SAW procedure, if so stipulated in a loan agreement, is not superseded by the revision of this handbook.
 
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