The Asian Development Bank has signed an agreement with the Swedish International Development Cooperation Agency (SIDA) on a risk-transfer scheme under which SIDA will guarantee $155 million out of ADB’s $455 million basket of five loans to India, a first for a sovereign loan portfolio for any multilateral development bank, the ADB announced Monday.
The Manila-based lender said the pilot guarantee arrangement with SIDA will increase the bank’s lending capacity by an estimated $500 million over a 10-year period and is being eyed by other multilateral development banks as a way to increase capital amid expanding financing needs for development goals.
Risk-transfer agreements pass specified risks from one party to another in return for a fee. The guarantee by SIDA, which has a triple-A credit rating, for ADB’s clean energy loans to India, whose credit rating is triple B-, will improve the portfolio’s risk profile and reduce capital held in reserve to cover guaranteed loans.
“This is an innovative arrangement that allows us to release extra financing to support our operations,” said ADB President Takehiko Nakao.
He called it a significant breakthrough that will serve as a precedent for development banks looking to help countries meet their sustainable development goals and meet their climate change agreements.
Ulrika Modeer, Sweden’s state secretary for international development and an ADB governor, said the guarantee increases the ADB’s capacity to lend and invest in poverty reduction, the environment and climate change.
The arrangement became effective on Oct. 1 and runs until the end of 2026.
ADB Vice President Diwakar Gupta said while the bank’s capital has recently increased, there is no urgency to create headroom. “It’s a good starting point for us to gain experience on how we can do more of this kind of transfers,” he said.