The Bank Group financial products

The African Development Bank Group (hereafter ‘AfDB’ or ‘Bank Group’) provides financing from its own ordinary resources and from resources made available by external parties. Ordinary resources are channeled through one of the three legally independent financing windows of the Bank Group namely the African Development Bank (ADB or the Bank), the African Development Fund (ADF or the Fund) and the Nigeria Trust Fund (NTF).

African Development Bank (ADB) Window
To finance African Development Bank operations, in addition to paid-in capital and internally generated resources, the Bank mainly borrows on the international capital markets, backed by its AAA investment-grade credit rating. This enables the ADB to provide non-concessional financing at attractive pricing levels to eligible sovereign countries, public sector entities and private sector entities across Africa, at very competitive levels. The ADB provides loans, guarantees, equity, trade finance and derivative-linked financial solutions to its clients.

African Development Fund (ADF) Window
The African Development Bank administers the resources of other entities under special agreements. In this respect, ADB administers the resources of the African Development Fund (ADF), the Bank Group's concessional window. Created in 1972, the Fund's resources are replenished periodically by donor countries, usually on a three-year basis, as well as through annual contributions from the African Development Bank's net income. The Fund provides highly concessional financing, specifically concessional loans and grants as well as guarantees to eligible sovereign and sovereign-guaranteed entities, in low-income countries.

Nigeria Trust Fund (NTF)
The Nigeria Trust Fund constitutes the third independent legal entity operational under the Bank Group. The NTF is a special fund administered by the Bank, whose resources are provided by the Federal Republic of Nigeria. The Board of Directors of the Bank conducts the general operations of the NTF under the terms of the Agreement Establishing the Nigeria Trust Fund as signed by the Bank and the Government of Nigeria. The NTF also makes use of the Bank's offices, staff, organization, services and facilities, and reimburses the Bank for its share of administrative expenses for such use. This lending window offers concessional loans and grants to eligible clients.

Other Trust Funds and Special Funds
The ADB, ADF and NTF constitute the main financing windows of the Bank Group. However, in addition, the African Development Bank administers several special funds and trust funds. These trust fund and special funds mobilize supplemental financing from development partners in line with the African Development Bank Group’s goals of promoting the economic development and social progress of African countries. In such cases, the African Development Bank receives resources from its external partners in the form of trust funds that may be either single donor or multi-donor in nature. These resources are treated separately from the Bank Group's statutory funds, and essentially provide additional concessional financing alongside ADB, ADF or NTF funding or can be deployed in some cases on a standalone basis. The Bank also acts as executing agency for various global funds and administers co-financing facilities set up with key partners hosted by the AfDB.

Only self-sustaining companies and institutions backed by realistic financial projections can benefit from the Bank Group's financial products. Ultimately, these instruments can be tailored to the client's needs, provided that each product feature has a clearly articulated rationale, developmental and strategic value for the Bank, and ensures financial viability (e.g. profitability). The Bank Group provides its financial instruments to clients to i) promote the efficient use of resources; ii) promote African shareholding in commercial enterprises; iii) play a catalytic role in attracting other investors and lenders to financially viable projects, entities and organizations; and iv) promote new investment activities and ideas.

Menu of AfDB financial products and services

 

Loan instruments
Loan products are offered by both the ADB and ADF financing windows, but to different types of customers and on very different terms. The Bank Group's loan products are characterized as either sovereign and sovereign-guaranteed loans or non-sovereign guaranteed loans. Sovereign-guaranteed loans are called the Fully Flexible Loan (FFL). These are loans provided to the government of a state or to a government-guaranteed entity benefiting from a 100% full-faith guarantee from the central government, including multinational institutions if they are guaranteed by one or more African countries. The Bank Group also offers non-sovereign-guaranteed loans, through the Fixed Spread Loan (FSL) product. These are loans provided to public sector entities on a standalone basis without a sovereign guarantee from the country or any borrowing entity of the Bank Group. or b) private sector entities in any African country, provided they meet specific eligibility criteria. Private sector loans can also be provided in various African local currencies on a case-by-case basis.

Guarantees
The Bank Group offers two types of guarantee products: i) guarantees designed to protect the beneficiary against political risks emanating from the government or its sub-entities called the Partial Risk Guarantee (PRG); and ii) guarantees designed to protect the beneficiary against debt service defaults by the applicant called the Partial Credit Guarantee (PCG).

Equity
The Bank window provides equity and quasi-equity (the latter being products with both debt and equity characteristics) to eligible commercial enterprises. The Bank can make equity and quasi-equity investments in four types of organization: i) private companies and financial intermediaries, in particular investment companies; ii) public sector companies (including public financial institutions) in the process of privatization; iii) regional and sub-regional institutions with non-sovereign guarantees; and iv) special purpose vehicles or PPPs appropriately structured for project financing. The ADB window can also provide venture capital both to established companies undertaking expansion, modernization, or diversification, and to start-ups (in the latter case, mainly through indirect stakes in private equity funds or a "fund of funds" approach).

Risk Management Products (RMPs)
The ADB window offers risk management products to its borrowers. These risk management products include interest rate swaps, currency swaps, commodity swaps and interest rate caps and collars. These products are available to ADB borrowers at any time during the life of their loans, but only in respect of their outstanding obligations to the Bank. Risk management products allow ADB-eligible borrowers to hedge their exposure to market risks, enabling them to optimize their debt management strategies.

Trade Finance Products
The Bank’s Trade Finance Program (TFP) was approved by the Board of Directors in February 2013, with the key objective of reducing the trade finance gap in Africa by complementing the activities of private sector players and regional Development Finance Institutions (DFI) already active in the market. The TFP was established with a global exposure limit of USD 1 billion and initially for a period of 4 years. In September 2016 the Board of Directors approved the revised TFP business plan to make the provision of trade finance facilities a standard business activity of the Bank. The Bank’s TFP is currently available exclusively under the ADB private sector financing window and provides four complementary financing and risk mitigation instruments: (i) Risk Participation Agreement (RPA); (ii) Trade Finance Line of Credit (TFLOC); (iii) Soft Commodity Finance Facility (SCFF), and (iv) Transaction Guarantee (TG).

Syndications and Co-Financing Services
The African Development Bank (AfDB) offers a variety of syndication and co-financing services designed to mobilize resources for projects across Africa, leveraging both its reputation and its role as a multilateral development institution.

Syndication Services
The AfDB facilitates syndication through several mechanisms aimed at attracting private sector participation in financing projects. The two primary syndication structures offered by the AfDB are:

1. A/B Loan Structure: In this arrangement, the AfDB acts as the Lender-of-Record, providing a portion of the loan (A-Loan) from its own resources while syndicating the remaining portion (B-Loan) to other financial institutions. B-Loan participants benefit from the AfDB's Preferred Creditor Status (PCS), which reduces the risk associated with lending to projects in Africa, making it more attractive to potential lenders.
2. Parallel Loan Structure: Under this structure, the AfDB acts as the Mandated Lead Arranger (MLA) and coordinates with other financial institutions to provide financing. Each lender in a parallel loan structure maintains its own loan agreement with the borrower, allowing for flexibility in accommodating the policies and requirements of various lenders, including Development Finance Institutions (DFIs).

Co-Financing Services
The AfDB also manages several co-financing arrangements that enable it to collaborate with other institutions and funding sources to provide comprehensive financing solutions. Key co-financing facilities include:

1. Accelerated Co-Financing Facility for Africa (ACFA): A co-financing agreement with the Japan International Cooperation Agency (JICA) aimed at providing financing to selected African countries on comparable or better terms.
2. Africa Growing Together Fund (AGTF): A special fund established with the People’s Bank of China, providing co-financing for both sovereign and non-sovereign projects.
3. EU-Africa Investment Platform (AIP): An investment facility with the European Commission, blending EU grants with loans or equity from public and private financiers, including the AfDB, to finance development projects.

The AfDB's syndication and co-financing services are crucial in mobilizing the necessary capital to fund large-scale projects across Africa, ensuring that these projects are both viable and aligned with the continent's development goals.

A brochure which provides a comprehensive summary of the different financial products offered by the African Development Bank Group is available here. Please contact [email protected] for more information.