Financial Sector Development Fund to focus on microfinance, access to finance: ADB

By Asma Azmi

Microfinance Focus, March 8, 2010: The Asian Development Bank (ADB) has reiterated that the Financial Sector Development Partnership Fund will focus both on access to finance and microfinance areas, which are essential to its overall strategy to achieve financial infrastructure and capacity building, besides technical assistance to developing countries in Asia.

The Financial Sector Development Partnership Fund of ADB has raised $1.56 million in funding from the government of Luxembourg recently, in addition to $2.2 committed in 2006 when the fund was set up. The latest contribution – its fourth – raises Luxembourg’s total assistance to the ADB-administered fund to $3.85 million equivalent.

ADB has plans to expand the fund into a multi-donor facility for which all developing member countries of ADB are eligible. Interested financing partners will be approached later on this year, ADB officials informed Microfinance Focus. When contacted, ADB has emphasized that access to finance and microfinance will be among the high priority areas.

The interventions would be focused, selective and confined to areas where ADB and staff can show comparative advantage over other development partners.Financial sector development is one of the five Pillars in ADBs Long Term Strategy 2020. The overall impact through ADB’s financial sector support would aim at ensuring better access to finance by unprivileged groups; improved financial social services; and better financial market governance.

Technical assistance inputs, advisory work and capacity building activities will become an essential ingredient in ADB’s future support to the sector, especially where the overall goals of inclusive growth and poverty reduction can be enhanced.

In 2006, ADB established the Multi-donor Finance Sector Development Partnership Fund to finance Technical Assistance operations, components of investment projects, and stand-alone grant-financed activities. It was set up as a multi-donor fund so that other donors can join in future.

“The past and present generous support from Luxembourg will help continue our current technical assistance work plans and pave the way to an expanded fund supported by the ADB donor community,” said Tadashi Kondo, Head of ADB’s Office of Co-financing Operations.

The overall impact through ADB’s financial sector support would aim at ensuring better access to finance by unprivileged groups, improved financial social services and better financial market governance. The initial phase of the fund has been successful and funds are fully committed.

Activities supported by the Fund include: Strengthening of the Pension System in Mongolia; Reform of State-owned Enterprises and Facilitation of Corporate Governance in Vietnam; Financial Sector Program Implementation in Cambodia; Strengthening of Regulation and Governance in Indonesia. The fund has raised a commitment of  $3,370,000 from ADB, DMC governments and the Korean government.

Demand is growing for grant financing to support financial sector activities in ADB’s DMCs, particularly in the light of the financial and economic crises. A recent in-house survey among Regional and Private Sector Operations Departments has shown an initial demand of nearly $30 million for financial sector TA supporting the annual business plans between the years 2009-11.

ADB is currently planning to expand the Fund into a multi-donor financial sector TA, advisory and capacity building Trust Fund. The Fund would have an option to be developed into a Financing Partnerships Facility (FPF) in line with the similar existing ones in the water and clean energy sectors. The initial target for the size of the Fund would be $ 30-40 million and would depend on the eventual donor interest.

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