The true cost of concessional loans : on-lending practices at the Asian Development Bank

This study of Asian Development Bank (ADB) water supply and sanitation projects in Bangladesh, India and Nepal finds that ADB concessional loans for water supply and sanitation projects are being lent and re-lent by intermediaries at increasing interest rates and reach end borrowers at relatively high rates of interest. Poor users can often not afford to connect to services because projects are forced to impose high tariffs to be able to repay the loans. The ADB lends money to central governments, normally to the Ministry of Finance, public and private enterprises. Typically these loans are on-lent twice before they reach the final borrower, a lower level of government or users. Each time loans are on-lent, interest rates are raised and the period for repayment reduced. To ensure that concessional lending actually benefits the poor, WaterAid calls on the ADB and governments to: promote prudent debt management; increase transparency on debt profiles and lending terms and implications; ensure local government and citizens’ participation in decisions on borrowing and tariffs; build capacity of local governments to design local projects; initiate debt relief on ADB loans; and stop turning grants into loans.