An Assignment on Asian Development Bank (ADB) Course Code: FIN 421 Course Title: Financial Markets and Institutions Submitted by: Golam Rabbani Rasha Level-4, Semester-2 Session: 2017-18 Faculty of Business Administration Submitted to: Dr. Md. Hasan Uddin Professor Department of Finance and Banking Faculty of Business Administration Patuakhali Science and Technology University & Md. Sabbir Hossain Assistant Professor Department of Finance and Banking Faculty of Business Administration Patuakhali Science and Technology University Date of Submission: February 23th, 2023 Patuakhali Science and Technology University, Dumki, Patukhali-8602. A Brief Introduction on Asian Development Bank The Asian Development Bank (ADB) is a regional development bank established in 1966 to promote economic and social development in Asia and the Pacific. It is headquartered in Manila, Philippines and has 68 member countries, of which 49 are from the Asia-Pacific region and 19 are from other parts of the world. ADB's mission is to reduce poverty in the region by improving the quality of life of people, and to promote sustainable and inclusive economic growth. How the Asian Development Bank Works The Asian Development Bank provides assistance to its developing member countries, the private sector, and public-private partnerships through grants, loans, technical assistance, and equity investments to promote development. The ADB regularly facilitates policy dialogues and provides advisory services. They also use co-financing operations that tap official, commercial, and export credit sources while providing assistance. Membership in the ADB is open to members and associate members of the United Nations Economic Commission for Asia and the Far East. It's also open to other regional countries and non-regional developed countries that are members of the U.N. or of any of its specialized agencies. ADB's financial position, condition, and goals As a multilateral development bank, the Asian Development Bank (ADB) plays a critical role in financing and promoting sustainable economic growth and poverty reduction in the Asia-Pacific region. Here are some key details about the ADB's financial position, condition, and goals: 1. Financial position: As of 2021, the ADB's total capitalization is approximately $220 billion, including paid-in capital from member countries and accumulated earnings. Its lending capacity is currently around $35 billion per year. In 2020, the ADB approved a total of $31.6 billion in loans, grants, and investments across various sectors and countries. 2. Financial condition: The ADB's financial condition is generally considered to be strong and stable, with high credit ratings from major rating agencies such as Moody's, Standard & Poor's, and Fitch. The bank's financial sustainability is underpinned by its conservative lending policies, diversified portfolio, and strong capital base. 3. Financial goals: The ADB's financial goals are aligned with its overall mission to promote sustainable and inclusive economic growth and reduce poverty in the region. This includes supporting the implementation of the United Nations' Sustainable Development Goals (SDGs), particularly in areas such as infrastructure development, climate change mitigation and adaptation, gender equality, and social inclusion. 4. Financial products and services: The ADB provides a range of financial products and services to support its development objectives, including loans, grants, guarantees, technical assistance, and equity investments. These products are designed to meet the diverse needs of its borrower countries, from small-scale rural development projects to large-scale infrastructure investments. The ADB has been responsible for major projects in the region and raises capital regularly through the international bond markets. The ADB also relies on member contributions, retained earnings from lending, and the repayment of loans for the funding of the organization. 5. Sources of revenue: The ADB generates revenue primarily through interest income from its lending operations, as well as from fees and commissions for its financial products and services. It also earns income from its equity investments and from its Treasury operations, which include borrowing and investing in global capital markets. Overall, the ADB's financial position, condition, and goals reflect its commitment to sustainable development and poverty reduction in the Asia-Pacific region. While the bank faces ongoing challenges and uncertainties, it has a strong track record of supporting economic growth and social progress in the region, and is well-positioned to continue doing so in the years to come. Shareholders of ADB The ADB has 68 shareholding members, 49 from the Asia-Pacific and 19 from the Organization for Economic Cooperation and Development (OECD). The membership is divided into nonborrowing and borrowing shareholders. As non-borrowing shareholders, the United States and Japan have majority ownership of the bank, at 15.6 percent each. Although the United States and Japan have the same stake in the bank, Japan has a key voice in the bank’s operational direction. Moreover, Japan is the largest contributor to ADB funds, such as the Asian Development Fund (ADF), committing more than $12 billion since the fund’s inception. ADB members fund the ADF under periodic replenishments, which provide grants to 15 lower-income member countries of the ADB. The largest borrowing shareholders of the ADB are China (6.4 percent), India (6.3 percent), and Indonesia (5.4 percent). There are 40 borrowing shareholders, and they contribute approximately 33.2 percent of the ADB’s total subscribed capital as of December 31, 2018. Financial Products and Services offered ADB offers several financial products and services to support its member countries' development needs. Its main lending instrument is the Asian Development Fund (ADF), which provides concessional loans and grants to its lower-income member countries. ADB also offers loans, guarantees, and equity investments through its Ordinary Capital Resources (OCR), which supports its higher-income member countries. In addition, ADB provides technical assistance and advisory services to help its member countries design and implement development projects. Financing Provided by the Asian Development bank The ADB provides both private financing and sovereign (public) financing. Private sector efforts focus on projects that help promote private investments in the region that will have significant development impact and will lead to accelerated, sustainable, and inclusive growth. Public-sector financing provides funding for member countries with flexibility in determining how they can achieve development goals. In 2021, the ADB committed nearly US$13.5 billion to help its developing member countries address the impacts of the COVID-19 crisis and address vaccination needs, and has mobilized a further $12.9 billion in co-financing from partners. Through a $9 billion Asia Pacific Vaccine Access Facility, or APVAX, announced in December 2020, the ADB provided funding for vaccine procurement, logistics, and distribution. The total private financing portfolio consisted of $14.2 billion at the end of 2021. In terms of sovereign financing, ADB's portfolio stood at $104 billion by the end of 2021, consisting of 713 loans, 392 grants, 915 TA projects, one guarantee, and 1 equity investment. Sectors of ADB Here's a detailed description of each sector of the Asian Development Bank (ADB): 1. Infrastructure Development: ADB's infrastructure development sector includes projects related to transportation, energy, water supply, and urban development. The bank provides financing for the construction, rehabilitation, and upgrading of infrastructure, as well as support for policy and institutional reforms to improve infrastructure development. ADB's financial products and services in this sector include loans, grants, and technical assistance. It also partners with other development organizations to leverage additional resources for infrastructure projects. The bank generates profits through the interest and fees it charges on its loans, and by investing its capital in various financial instruments. ADB has more than 30 offices and branches in the Asia-Pacific region, and its infrastructure development projects have a wide geographic scope. In recent years, ADB has placed a greater focus on sustainable infrastructure development and has committed to supporting the development of clean energy projects and green infrastructure. Some of ADB's recent achievements in the infrastructure development sector include the completion of the Kandadji Dam project in Niger, the launch of the Green Energy Finance Initiative, and the approval of a loan to improve urban services in Uzbekistan. 2. Regional Cooperation and Integration: ADB's regional cooperation and integration sector aims to promote economic cooperation and integration among its member countries. This includes support for regional trade agreements, transport and communication networks, and cross-border energy and water supply projects. ADB's financial products and services in this sector include loans, grants, and technical assistance to support regional cooperation and integration initiatives. The bank also supports research and policy development to improve regional integration. ADB generates profits in this sector through the interest and fees it charges on its loans. It also partners with other development organizations and regional initiatives to leverage additional resources for regional cooperation and integration projects. ADB has a number of offices and branches dedicated to regional cooperation and integration, including the Central and West Asia Department and the South Asia Department. In recent years, the bank has placed a greater emphasis on supporting regional connectivity and has launched several initiatives to improve cross-border infrastructure and trade facilitation. Some of ADB's recent achievements in the regional cooperation and integration sector include the signing of a loan agreement to support the construction of a cross-border railway between Uzbekistan and Afghanistan, the launch of a technical assistance project to improve regional trade in Southeast Asia, and the establishment of the South Asia Subregional Economic Cooperation Operational Plan. 3. Social Development: ADB's social development sector focuses on improving education, health, and reducing poverty in the region. The bank provides financing for programs that aim to improve social services and increase access to education and healthcare. It also supports policies and institutional reforms to improve social development outcomes. ADB's financial products and services in this sector include loans, grants, and technical assistance to support social development initiatives. The bank also partners with other development organizations and civil society groups to leverage additional resources for social development projects. ADB generates profits in this sector through the interest and fees it charges on its loans. It also invests in various financial instruments to generate additional revenue. ADB has a number of offices and branches dedicated to social development, including the East Asia Department and the Pacific Department. In recent years, the bank has placed a greater focus on supporting inclusive growth and gender equality, and has launched several initiatives to improve access to education and healthcare for women and marginalized groups. Some of ADB's recent achievements in the social development sector include the approval of a loan to support the expansion of an education program in Bangladesh, the launch of a gender equality initiative in the Pacific, and the completion of a healthcare project in Nepal. Criticism associated with ADB While the Asian Development Bank (ADB) is widely recognized for its positive contributions to economic development and poverty reduction in the Asia-Pacific region, there are also some criticisms and concerns about its operations. Here are five potential downsides of the bank: 1. Conditionality of loans: One criticism of the ADB is that its loans often come with strict conditions and policy prescriptions that borrower countries must follow. These conditions may prioritize free market reforms and privatization, which some argue may not be the most appropriate or effective policies for certain countries or contexts. 2. Environmental and social impacts: Some ADB-funded projects have had negative impacts on the environment and local communities. For example, there have been concerns about the impact of some infrastructure projects on biodiversity and local ecosystems, as well as displacement of communities due to land acquisition or resettlement. 3. Limited accountability and transparency: Some critics argue that the ADB's decisionmaking processes are not transparent enough, and that affected communities and civil society organizations are not adequately consulted or included in project planning and implementation. There have also been concerns about the bank's limited mechanisms for accountability and redress for communities affected by ADB-funded projects. 4. Focus on economic growth over social equity: The ADB's emphasis on economic growth and infrastructure development has sometimes been criticized for prioritizing economic growth over social equity and inclusive development. Some argue that this focus may perpetuate existing inequalities and leave marginalized groups behind. 5. Risk of debt distress: As with any financial institution, there is a risk that borrowing countries may become over-indebted and experience debt distress as a result of taking out loans from the ADB. While the ADB has policies and mechanisms in place to address debt sustainability, some have expressed concerns that borrowing countries may become overly reliant on loans and struggle to repay them in the future. Countermeasures for Criticism It's worth noting that the ADB has taken steps to address some of these concerns, such as by implementing stronger environmental and social safeguards and increasing transparency and accountability. However, these potential downsides highlight the importance of ongoing monitoring and evaluation of the ADB's operations and impacts. Asian Development Bank (ADB) has taken several steps in recent years to address some of the criticisms and concerns about its operations. Here are some examples: 1. Strengthening safeguards: The ADB has implemented stronger environmental and social safeguards in its lending policies, aimed at minimizing the negative impacts of its projects on affected communities and the environment. These safeguards include requirements for social and environmental assessments, stakeholder engagement, and grievance mechanisms. 2. Increased transparency and accountability: The ADB has taken steps to increase transparency and accountability in its decision-making processes, including by publishing more project-related information and inviting public feedback. It has also established an independent accountability mechanism, the Compliance Review Panel, to address complaints related to ADB-funded projects. 3. Expanding partnerships: The ADB has expanded its partnerships with other development organizations, civil society groups, and private sector actors to improve the effectiveness and sustainability of its projects. This has included working with local communities to design and implement projects that better meet their needs. 4. Investing in inclusive and sustainable development: The ADB has increasingly focused on supporting projects that promote inclusive and sustainable development, such as through investments in renewable energy, healthcare, and education. It has also launched initiatives to address gender inequality, promote regional cooperation, and support small and medium-sized enterprises. 5. Addressing debt sustainability: The ADB has established policies and guidelines to address debt sustainability concerns among borrowing countries, including assessing the macroeconomic and fiscal risks of its lending operations. It has also provided technical assistance to help countries manage debt and promote sustainable economic growth. These steps demonstrate the ADB's commitment to improving its operations and addressing the concerns and criticisms that have been raised. However, the effectiveness of these measures will depend on their implementation and ongoing monitoring and evaluation. In summary, the Asian Development Bank is a regional development bank that aims to promote economic and social development in Asia and the Pacific by providing financing, technical assistance, and other forms of support to its member countries. It focuses on infrastructure development, regional cooperation and integration, and social development, and is committed to promoting sustainability, addressing climate change, and ensuring gender equality and social inclusion in its operations.
