Cheaper Finance, Faster Delivery: ADB’s Project Support Lending Targets Infrastructure Gaps

ADB’s Project Support Lending offers flexible, lower-cost financing to help governments prepare, implement, maintain and strengthen development projects throughout their life cycle. The mechanism could accelerate delivery, mobilise private and development finance, and improve infrastructure sustainability, but its success depends on strong governance, safeguards and accountability.

The Asian Development Bank (ADB) is positioning Project Support Lending (PSL) as a flexible financing tool to help developing member countries turn project plans into bankable, implementable and sustainable investments. The approach, presented by ADB and involving its Strategy, Policy, and Partnerships Department (SPD) and Strategy, Policy, and Business Processes Division (SPBP), addresses a familiar development challenge: projects can secure financing but still suffer from weak preparation, procurement delays, limited implementation capacity and inadequate maintenance. PSL responds by financing activities throughout the project cycle, from feasibility studies and engineering design to implementation, operation and maintenance (O&M), post-disaster recovery and evaluation.

Cheaper Financing, Faster Project Delivery

For governments facing tight budgets and large infrastructure needs, PSL offers potentially attractive financing terms. PSL financed from ADB's ordinary capital resources (OCR) carries a contractual spread of SOFR plus 30 basis points, along with any applicable rebate or surcharge, and has no commitment charge. The document compares this with regular OCR lending at SOFR plus 50 basis points, together with applicable rebates or surcharges and a commitment charge.

That represents a 20-basis-point difference in the contractual spread. As a simple illustration, 20 basis points on $100 million equals approximately $200,000 per year, although actual borrowing costs depend on outstanding balances and applicable loan terms.

The larger benefit may come from getting projects ready earlier. PSL can finance feasibility studies, bidding, detailed engineering designs, safeguard assessments, surveys, construction supervision and capacity building. Governments can therefore complete critical preparatory work before implementation, potentially accelerating contract awards, disbursement and delivery while reducing the risk of delays and cost overruns.

PSL is also flexible in scale. It can support one project or several projects and can operate within a single sector or across multiple sectors, depending on a country's needs and project pipeline.

Financing the Full Life of Public Infrastructure

Unlike financing instruments that focus mainly on construction, PSL follows projects throughout their life cycle. During preparation, it can finance detailed engineering and pilot testing. During implementation, it can support construction supervision and project-management consultants. It can then cover O&M, post-completion capacity building and impact evaluation. Following disasters, reconstruction and rehabilitation of damaged assets can also be supported.

This approach is important for governments because the development value of infrastructure depends on what happens after construction. Roads, water systems, energy facilities and other public assets require continuous maintenance to deliver reliable services.

PSL can also provide supplementary technical assistance equal to 2% of an OCR-financed PSL, capped at $2 million. The support can strengthen government systems for procurement, planning, oversight and public-investment capacity. It is a one-time incentive for the first PSL in a particular sector in a developing member country.

For policymakers, this creates an opportunity to combine infrastructure investment with institutional reform rather than treating capacity building as a separate exercise.

New Space for Development Partners and Private Capital

International development partners could use PSL-supported projects as a platform for cofinancing. ADB specifically identifies the mobilisation of cofinancing as a benefit, allowing governments to combine resources to meet larger development financing needs.

Private-sector stakeholders could also find opportunities across the project cycle. Consulting firms can participate in feasibility studies, safeguards and engineering design, while contractors and service providers may find opportunities in pilot works, construction supervision, rehabilitation and O&M.

Public-private partnerships (PPPs) are another important area. PSL can finance the preparation of PPP projects when ADB is engaged as transaction adviser. It can also finance availability payments for O&M services under PPP concession contracts, potentially creating opportunities for long-term private participation in infrastructure services.

However, stronger private-sector participation also requires safeguards. Governments will need transparent procurement, sound project appraisal and careful allocation of risks between public and private partners. Faster project preparation should not come at the cost of environmental, social or financial scrutiny.

Greater Flexibility Must Come with Stronger Accountability

PSL includes several provisions designed to prevent financing procedures from slowing projects. Under advance contracting, eligible goods, works, services and consulting services can be procured before financing is finalised, subject to ADB policies. Eligible expenditures incurred generally up to 12 months before the PSL signing date can receive retroactive financing of up to 20% of the PSL financing amount.

That means a $100 million PSL could theoretically provide up to $20 million in retroactive financing, subject to eligibility. For a $500 million facility, the equivalent ceiling would be $100 million.

PSL also provides refinancing and revolving options. Proceeds from a subsequent project can refinance an earlier standalone PSL used for preparation or implementation. For eligible OCR- or concessional-OCR-financed facilities, principal repayments from completed subprojects can be reused for new eligible subprojects.

For governments, the next step should be to connect this financial flexibility with measurable results. Procurement time, contract awards, disbursement rates, project completion, cost overruns, maintenance performance and asset condition could be tracked systematically. Development partners can support stronger institutions and cofinancing, while businesses can respond to better-prepared investment pipelines.

PSL's real test will therefore not be how much money is borrowed, but whether it produces better-prepared projects, faster implementation, stronger public institutions and infrastructure that continues delivering development benefits long after construction ends.