ADB offers its sovereign and sovereign guaranteed borrowers a loan product—the Flexible Loan Product (FLP)—that carries a floating lending rate consisting of a specified standard 6-month floating reference rate and an effective contractual spread fixed over the life of the loan, and a maturity premium, where applicable. An FLP loan has market-based features that provide a transparent basis for borrowers to compare the terms of ADB loan products with those of other lenders and to be amenable to efficient intermediation by ADB on the best possible terms (endnote iii).

General covenants are standard assurances and undertakings that ADB obtains from all borrowers in respect of ADB-financed projects. They include obligations to repay the loan and assurances that specific ADB policies are adhered to, such as ADB policies on anticorruption and procurement. Project-specific covenants are those assurances and undertakings that ADB considers necessary or desirable to obtain from the borrower for a specific project, taking into account particular features of the project. Such covenants may cover matters such as environmental and social safeguards, procurement, gender and development, 6 sector performance, financial measures; and mitigation of project-specific risks.

Stand-alone policy-based lending. Stand-alone PBL provides budget support and is packaged as a single or multi-tranche loan to support structural reforms in a particular sector. Reform programs can be short or medium-term. Where relevant, links to other programs financed by ADB or other development partners should be clearly established. PBLs should normally be used to improve the policy and institutional environment for enhanced sector efficiency and for higher returns on investment (footnote 3). Where policy adjustments are required in a particular sector over an extended period, a succession of stand-alone PBLs may be considered to sustain the reform process (endnote i).

The results of the financial due diligence and the identified risks to the financial management capacity, the project’s financial viability or sustainability, and the entity’s financial sustainability should be reported along with recommended mitigation measures in the project documents (e.g., the report and recommendation of the President, the project administration manual, the risk assessment and risk management plan, technical assistance report, and other technical assistance or knowledge partnership documents). Financial covenants for monitoring the risks and the agreed mitigating measures should be incorporated in the legal agreements in consultation with the project counsel from the Office of the General Counsel, as appropriate and to the extent appropriate.

The borrower is responsible for implementing the project, monitoring its progress, evaluating results on completion, and meeting the contractual obligations as set out in the legal agreements. The borrower will maintain acceptable financial management arrangements that provide reasonable assurance that the proceeds of any loan made, guaranteed, or participated in by ADB are used only for the purposes for which they were granted and comply with financial covenants incorporated in the legal agreements. 10 The borrower will furnish periodic progress reports with financial information as agreed in the project administration manual.