A&O Shearman guides Asian Development Bank in delivering a first-of-its-kind structure to unlock at least USD500 million in new concessional education funding

The instrument will enable at least USD500m in new concessional education funding – a significant contribution to IFFEd’s USD1.5 billion commitment – to enhance better access to education globally, supporting the world’s children and youth most in need. 

The A&O Shearman team advised on the first-of-its-kind structure under which IFFEd will support a synthetic portfolio which references a part of ADB’s sovereign loan exposure and provide grants which comprise 10% of each education loan made by ADB.  It is an innovative arrangement which enables ADB to increase its lending capacity with a four-times leverage ratio delivered by the IFFEd instrument, whilst lowering the borrowing cost for ADB’s developing member countries (DMCs).

Through this structure, IFFEd and ADB will unlock significant capital to address the education crisis in lower-middle-income countries (LMICs). These LMICs are known as the “missing middle” where they are no longer eligible to receive grants but cannot afford non-concessional financing – forcing a difficult decision of where to invest, exacerbated by limited domestic financing.  In these countries, more than 50% of students are not able to read simple text by age ten despite attending school, and graduates do not have the skills to find jobs, leaving employers unable to fill vacancies.

Scott Neilson, A&O Shearman partner, commented: “Our involvement in supporting ADB on this mandate is another example of where we have been brought in to help our clients innovate to deliver a positive social outcome. The IFFEd initiative frees up ADB’s balance sheet to provide a significant boost to education and skills development for underprivileged children and youth worldwide. Investing in education and skills development in LMICs aligns with our firm's dedication to fostering long-term socioeconomic growth and stability, which are essential cornerstones of sustainable development.”

Ten countries in Asia and the Pacific have been approved by the IFFEd Board as eligible for IFFEd financing: Bangladesh, India, Mongolia, Pakistan, Papua New Guinea, Philippines, Sri Lanka, Timor-Leste, Uzbekistan, and Vietnam.

The A&O Shearman team was led by partner Scott Neilson with support from Gina (Xue) Wang and Jiran (Mieke) Liu.

Footnote

[1] IFFEd is a sovereign-backed Swiss foundation under the purview of the United Nations, launched in 2022 to invest in education and skills in LMICs. https://www.un.org/en/transforming-education-summit/IFFEd