Swedish “innovative” guarantee loan funding to Asia

Despite increased economic growth in Asia, two-thirds of the world’s poorest people live here. In order to stimulate innovative projects to reduce poverty, Sida has issued a guarantee of 1.3 billion SEK (approx. 155 million USD) to the Asian Development Bank (ADB). The guarantee will enable the ADB to increase its lending to new projects that will focus on inclusive growth, the environment and climate.

The guarantee is part of the Strategy for Sweden’s Regional Development Cooperation in Asia and the Pacific region 2016-2021, managed by the Embassy of Sweden in Bangkok. ADB is a regional development bank with Sweden as one of its non-regional member states. It supports developing countries, mainly through favourable loans, to reduce poverty and improve the living conditions and quality of life in these countries.

“ADB is an important regional actor in terms of investments in better and sustainable infrastructure, environment and climate, agriculture and water supply. Thanks to this guarantee, Sweden increases its opportunity to support and influence the ADB when they now develop their operations to strengthen their focus on inclusive development and poverty reduction”, says Staffan Herrström, Ambassador of Sweden to Thailand.

In Asia, there is deep and widespread poverty and growing inequalities between and within countries despite the recent rapid economic growth. Its strong economic growth has partly taken place at the expense of the environment, sustainability and human rights.

“The guarantee is a new and innovative method to leverage development cooperation funds. It enables the ADB to increase its lending for poverty reduction and gender equality. We look forward to support and cooperate with ADB in this work”, says Anne-Charlotte Malm, Head of Development Cooperation, Embassy of Sweden in Bangkok.

ADB’s strengthened focus on inclusive growth and inclusive business means that the pace accelerates to get more people out of poverty. The aim is primarily to increase lending to projects, such as increasing access to electricity in rural areas, building roads that connect to markets, health clinics and schools and to supporting entrepreneurship, particularly of women, in sustainable agriculture and energy services, such as charging mobile phones via solar cells.

Another important feature is that the people it is benefitting will be directly involved in the planning and implementation of the projects.
The guarantee agreement with Sweden effectively insures a part of ADB’s existing project portfolio. It reduces the risk level of the Bank’s total loans and makes it possible to expand its lending.

The guarantee amounts to 1.3 billion SEK (approx. 155 million USD) enhancing leverage by enabling the ADB to increase its lending with about 500 million USD (approx. 4.25 billion SEK) over ten years. The enhanced leverage is very much made possible by the low risk of the guaranteed project portfolio and Sweden’s high credit rating, i.e. AAA.

The agreement with the ADB entered into force on 1st October 2016 and ends in 2026.