The Asian Development Bank's (ADB) Board of Directors has approved a Microfinance Risk Participation Program, marking ADB's first large scale private sector microfinance initiative.

ADB said that the program will allow it to partner with financial institutions that actively lend to microfinance institutions (MFIs) in ADB’s developing member countries, and to share the default risk on underlying MFI loans.

The proposed program will support the expansion of lending to MFIs, in turn enabling increased provision of financial services to the underserved.

Under the terms of the program, ADB will typically assume up to 50% of the default risk on loans made to MFIs, in aggregate up to a maximum of $250m.

ADB director general of Private Sector Operations Department Philip Erquiaga said this program will allow microfinance institutions to expand lending to segments of the population who currently lack access to funds.

"Under this arrangement, commercial financing institutions which are developing microfinance operations will be able to achieve greater lending scale without overextending their risk exposure," Erquiaga added.