INTERNATIONAL FINANCIAL INSTITUTIONS AND MARKETS

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AFRICAN DEVELOPMENT BANK (AFDB)

The African Development Bank was established on
august 4, 1963 and became operational in 19666
when a meeting of 33 African Heads of State in Khartoum, Sudan, consensually agreed to establish an
African bank.

The bank‘s headquarters is in Abidjan Coted’voire with
representative offices in London and Nairobi. Membership

of the ADB was drawn from independent African States and
non-African countries. However, 2/3 of the Bank capital is
reserved for African countries, the Chairman of the Bank
and at least 2/3 members must ratify major decisions of the
bank.

FUNCTIONS OF THE AFDB


  • Preparation of projects feasibility study that ca
  • Mobilizing funds within and outside Africa resource to finance development projects such as agriculture manuracturing and water Supply.
  • contribute meaningfully to economic developier and larger markets for African countries.
  • Promotng investment in public and priIvate capital projects.
  • To make economies of member countries
  • Complimentary and bring orderly expansion in foreign trade.

OBJECTIVES OF THE AfDB

AtDB Was established to contribute to the economic
development of the member nations, individually and Jointy.

To use the resources at its disposal to stimulate and
finance investment projects and programmes that are
related to the economic and social development of its
members given priority to projects which concern

several members.

TO promote investment in Atrica or private and public
capital project or contribute to economic development
or social progress of its member states.

Using resources at its disposal to Tinance investment
projects and programmes of its members.

Undertaking or participating in the selection, study
and preparation of projects, enterprises and activities
contributing to development.
Its gives long term loans o runas tO member countries
for exap

mple social assistance.

The bank also guarantees governnent for the pur pose
of assisting industrial proJects or Programmes.

ORGANISATION STRUCTURE AND MANAGEMENT


The management of the day-tO-day affairs of the bank is the
responsibility of the nine members 50ard of Directors who
are elected by the Governors Tor a period or 3 years,and thèy
can be re-elected. The president holds oltice Tor 5 years and
can also be re-elected.

The bank has a Board of Governors, a Board of Directors
which consists of Governor and an alternate Governor
appointed by each member state of the bank, who exercises
the voting power to which that member state is entitled.

AfDB OPERATIONAL POLICIEs


For any institution or undertaking in the territory of any
member as well as for international or regional agencies or

institution concerned with the development of Africa.

It may not finance a project if the government object does
not require seeking a Government guarantee.

The bank provides financing only when no alternative
sources are available on similar term.

It operates a loan on investment policy which conforms t
roles of international and regional financial organizations

with certain modifications and adoption of specific Atrica

Conditions. Loans from AfDB are considered pureiy
priority Dasis with projects that demonstrate desires ror
help scoring high ratings on the priority scale.

The projects must have the greatest impact upo
economy of member states.
Makes the economy of AfDB member states
Complementary.
Brings about the orderly expansion of their foreign
trade

Intrastructure: Highways, communication, irrigation project, flood control, erosion control, power
generation.
Social project: Education, health and regional training.
Co-operation with national development bank and
corporation for use in their economy. It also helps in
the establishment of development bank and the
development-oriented institutions.
Technical assistance: The AfDB helps in preparation of
loan application to itself and other bodies, evaluation
of development plans and Seting up of development
bank.

AfDB SOURCES OF FUNDS


The sources of funds for African Deveropment Bank include:

Ordinary sources romSuoscription borrowing
operational funds trepayiees income from loans
and guaranteeS.

Other funds
Resources contributed to the special fund
Borrowing for the purpose of the special fund

i.Income derived from operation of any special fund

ii. Mobilizing of resources from member states
iv. Loans and bonds from international capital markets
V. Bad debts recovered from previous loans
VI. nvestment writen off
VIl. Income on investment activities
viil. Subscriptions from outside Africa
ix. Loan from multilateral institutions 1BRD, IFC, and IMF

Miscellaneous incomes

Special aids and gifts from member nations
Associations such as IDA, NTE, ADF
institutions.

XIl. Investments from other Regional Development

xii. Special aids and gifts from multilateral financial

AFRICAN DEVELOPMENT FUND


It was established on November 29,1972 with the agreement
Signed by the AtDB and 1 5 non Atrican countries.

FUNCTIONSs

It operates a soft loan window of the AfDB
It grantS loan on concessionary term and witnou
interest or paltry interest service charge of 0./5%
low return projects.
s oans have maturities extending to fifty yca
including 10years moratorium grace period.

ADF SOURCES OF FUNDS

i. Operational funds generated through co-financing
projects with donors.
il. Capital subscriptions of the menmbe m its lending
iii Other sources: Incomes generated Troesactivities

iv. Loans from other international banks

NIGERIAN TRUST FUD (NTF)


The Ni was established in February 1976 by the AtDB and
the Federal Government ot Nigeria and administered by the
AfDB. It was established at the height/peak of Nigeria’s oil
boom. Its initial capital was $80m and later increased too
$250m in 1993.

OBJECTIVES

  1. To contribute more effectively towards economiC and

sOCial progress of those member countries with
relatively less economic endowment.
o provIde concessionary loans to the less endowed
African countries.

SOURCES OF FUNDS

Repayment of loans
Small net income generated from operations

.
2
OPERATIONS OF NTF

  1. Provision of long term financing like agricultural

development, health, transport and water supply.
NTF loans range from15 to 25 years with 5 years grace
period.

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2.

It charges loW terest of 4% on loans with
commitment fee or 0./5% per annum.
The NTF was recentuy re constructed in order to broaden its scope from its traditional project
finance intra-Atrican trade and private cto
development.

ceiend

le and PTvate Sector

INTERNATIONAL MONETARY FUND (IMF)
The IMF was established by the Bretton Woods Agreement
1944 and fully became operational in March 1947.

O8JECTIVES OF THE IMF
i, It promotes international cooperation among member

countries by establishing permanent institution.

ii. Encourages member cOuntries to avoid competitive

devaluation of their currenciees.
It assists member nations in promoting exchange rate
stability for effective maintenance of orderly exchange
relations among member countries.

i.

V. It ensures prohibition pt exchange control restriction
vi. It ensures expansion and growth of trade aiming at
VIl.t aSSists member countries faced with persistent

on current account transaction.
improving the standard of living of the people.
balance ot payments problems.

Functions of the IMF (Regulatory, financial a
consultative)

Keguiatoy runctions: It serves as a guardian Or d
set up by its article
In ts tinanclal aspect, it functions as an ageny
resources available for short term to med
loans to neip meet balance of payments
member countries nce of payments deficits

ii. In its consultative aspect.

international cooperation and a source o ance
technical assistance to its member

IMF SOURCES OF FUNDS

Quotas and subscription every member of the Fund is
required to subscribe to the funds an amount
equivalent to its quota which is expressed isSDRS.
Quotas are used to determine the voting power/rights
of a member.
Borrowings of hard currencies from its member
COuntries General Agreement to Borrow (GAB).

Borrowings from 11 industrialised countries

IV.Interest income generated from operations

Loan repayments

LENDING PROCEDURES OF IMF

I he fund’s resources are available to the members
under the following policies and facilities namely
Tranche facilities: First Credit Tranche, Upper Credit


Extended Fund Facility
Permanent tacility
Temporary faciity
Enhanced Adjustment facility
Enlarged Access Policy
Stand-by Arrangement
Buffer stock

A. TRANCHE FACILITY
ranche policies of the fund relate to the modus operandi of

its purchases and sales or curencies. A member can

withdraw on the fund by purchasing the currencies o
other member countries with its own currency, thereh

resulting in an increase in the funds holdings of th he

member’s currency and decrease the holdings of the
countries that are purchased.

EXTENDED FUND FACILITY
Established in 1974 to provide assistance to members

B.

to meet their Balance of payments deficits for longer
periods and in amounts larger in relation to quotas
than the normal credit tranche polices. A country
suffering from serious payments imbalance relating to
structural maladjustments in production, trade and
prices is required to implement a comprehensive set of
Corrective policies and may apply for this facility.

Permanent FacilitY

his comprises of compensatory finance, buffer stock
finance and extended fund facility.

This facility was designed to extend Funds financial
resources to member countries suffering from balance
of payments problem in terms of fluctuations
receipts from exports.

To assist in financing contributions to bufrer
drrangements when members who are in due nec
Tavourable balance of payments reasons undertan

tock

such arrangements.

o meet principles of intergovernmental relato
For structural maladjustments in productio,
prices.

Ennanced Adjustment Facility: Resources are pro
on favourable terms to low income countries Su ufferin
from 1ong term balance of payments problems
support of medium term balance of payments,
support of medium term macro economic a
structural adjustment programmes.

d.

Enhanced Structural Adjustment Facility: Just like the
Enhanced Adjustment Facility, a policy framework
paper and detailed programmes are prepared annually
and arrangements such as bench marks, semi-annual
pertormance and a mid-year reviews are made.

e.

f. Enlarged Access Policy: It is used to augment

resources available under the stand by and extended
arrangements

Extended Fund Facility: is a medium term programme
aimed at structural reforms.

IMF MANAGEMENT


The constitution of the Fund provides for a Board of
Governors who runs the affairs of the Fund. The membership
of the board consists of the finance Ministers or Central bank
Governors of the member countries. The body only meets
once a year at the annual meetings, leaving the day. to: day
management of the Fund to an Executive Board .Each
member’s subscription determines its borrowing rights.
nowever, its weighted voting 1s different from the voting
pattern of the United States of America. Countries with the
dlance of payments deficit need not use gold nor their
currencies for settlement Dut are allotted SDR’s
proportion to their quotas in the Fund. Prior to 1974,
value of SDR was defined in terms of gold but now expresse
in 16 national currencies.

n
the
Ssed

SPECIAL DRAWING RIGHTS AND THE IMF

Itis an international reserve asset
t represents a major innovation ot the IMF to helo
alleviate the problem of international liquidity.
To buy convertible Currency rom other participants in
exchange for international settlement.
It is the principal reserve asset in the international
monetary system.
It reflects the currency holdings trom the members’
quota contributions and the purchase and sale of
these currencies under the arrangement,
A book keeping transaction which creates additional

reserve asset for the use of member states.
it is a book entry special drawing account
It is an unconditional use.

It is freely used by the country for meeting balance of

payments deficits
Proportion of quotas rather than gold or the use O

rrencies.

SDR IS credited to countries which hold more than the

t is a voting right/veto power for the Western
Changes in economic importance of the counta
Designed in gold but value is in terms of basket tof 16

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cumulative allocation.
countries decision making proces
Concerned.

national currencies.

IMF CONDITIONALITIES
The fund has set of rules and guidelines tor
cOuntry making use of Fund’s resources

enerally required to carry Out an economic policy programme aimed
at achieving a vlable balance of payments positions Over di
approplate period of time. This requirement is known ds
“conditionality and it reflects the principle that balance o
paymentS rinancing and adjustment must go hand in nand
(IMF1982).

It includes the following

Devaluation of currency
Cut in subsidies/removal of subsidies
Trade liberalization

Wage freeze
Cut in public expenditure

EXport promotions/liberalization
Adjustment of producer’s prices

Review of industrial incentives and policies

Cessation of non statutory transfer to state

governments
Reduction of grants, subventions and loans to
parastatals
Strengthening of the operational efficiencyof revenue
External debt management/servicing of debts
Privatization and commercialization
Deregulation of interest rates
Simplification and rationalization of customs tariffs
structure

The World Bank Group

International Bank for Reconstruction and
Development (18RD)

nternational Finance Corporation (IFC)
. International Development Association (1DA)

INTERNATIONAL BANK FOR RECONSTRUCTION AND
DEVELOPMENT (1BRD)

The International Bank for Reconstruction and Development

(1BRD), otherwise known as worid Bank was established
July 1945 at the Bretton Woods Conterence of 1944.
became operational in June 1946 and had its headquarters in
Washington DC in the United States of America.
membership has risen from 44 members at inception to 178
as at December 1992.

in

ts

OBJECTIVES OF IBRD

To assist developing countries in raising the standards

of living of their citizenry.
Soft loans and technical assistance are provided in
terms of personnel.
To assist in the reconstruction and development of the
territory of members by tacilitating investment of
capital for productive purposes.
To promote long range growth in international trade
TO promote foreign private investment

.

ii.

iv.

LENDING PRINCIPLES OF 1BRD

The bank considers the availability of natural
resources, the existing productive plant capacity to
exploit the resources and operate the plant, as well as
the countrys past debt record.
The bank lends for specific projects which are
economically and technically sound and of hign
priority nature.
The bank lends only to enable a country to meet tne
toreign exchange content of any project cost an
expected to mobilize its domesticresources.
The bank does not expect the borrowing country t
spend the loan in a particular country.
tencourages the borrowers to procure machinery an
goods for banks financed projects in the cheapes
possible market consistent with satisfacto
pertormance.

with

sthe bank‘s policy to maintain regular contdco
borrowers to keep in touch with financial a
economic development in borrowing countries,
5ove any problem which may arise in the technical an
administrative field.
tlends for projects that its self sustaining, viable self
Tinancing that has direct bearing on the day to day

vil.

activities of the people.

MANAGEMENT

The operational structure of the bank consists of six
regional offices at the bank‘s headquarters in Eastern Africa.
West Africa, Asia, Europe, the Middle East, North Africa,
Latin America and Caribbean. Each office is responsible for
the planning and supervising, the execution and
development assisted programmes of the bank within its
assigned countries.

OPERATIONS OF THE IBRD

The 1BRD funds projects like agriculture, education,
telecommunications, transportation, iron and steel,
health care delivery, water supply housing.
Urbanization control and planning, pollution and
waste management, electricity generation, forestation
and erosion control, etc.
1BRD draws on the expertise and support of
complementary world bodies like Food and
Agricultural Organization (FAO), World Health
Organisation (WHO), United Nations Fund for
Population Activities (UNFPA), World Trade
Organisation (WTO) International Labour
Organisation (LO) etc.
1BRD 1oans have maturities of up to 30 years and they
carry interest rates much lower than what obtains in
the international market or domestic market.

The projects in Nigeria among others so far include
Lagos Ibadan Expressway
The Kainji Dam in Kogi State
Most roads in Lagos State Metropolis
Aba Cluster project

iv.

d.

0.

SOURCES OF FUNDS
i. Capital subscriptions by member countries.
l.

Sale of securities.
Net earnings from operations.
Flow of repayments on its loans.

V.

INTERNATIONAL FINANCE CORPORATION (IFC)
The IFC is an affiliate of the World Bank, which was
established in 1956 as a result of the World Bank deficiency
in private projects not backed up by government guarantee.

However, the IFC exists primarily to make private projects
receive greater financing advantages.

OBJECTIVES OF IFC
.

To assists in financing the establishment,
improvement and expansion of productive private
enterprises of member countries.
To seek and bring together investment opportunities,
domestic and private capitals and experienced
management.
To stimulate and help create conditions conductive tor
the flow of domestic and foreign private capitals into
productive investment in member countries.

1.

i.

LENDING PROCEDURES

The IFC makes its investment in partnership W
private investors from the capital exporting count
in which the enterprise is located.

The minimum investment the IFC have in an enterpise

1S Dxed as $100,000 or its equivalent but no uppe
limit.

The enterprise eligible for loans should De
predominantly industrial and contribute to the
economic development of the country concerned.

il.

OPERATIONS OF IFC

The IFC fund is directed at productive private economic
activities related to manufacturing, mining,
agricultural and other small scale industrial activities.
The corporation finances private capital projects Dy
granting loans ranging from 5 to 15 yeas.
By means of equity holdings. Equity holdings of IFC in
any one company shall not exceed 25% of total equity
shares of such company.

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ii.

SOURCES OF FUNDSs

capital subscriptions by members
Loans from international capital markets
Loans from lBRD

iii.

INTERNATIONAL DEVELOPMENT ASSOCIATION (DA)
International Development ASsociation (DA) also an affliate
of the World bank, was established in 1960. Its purpose was
to grant soft loans to underdeveloped countries which may
not be able to meet the stringent requirements of the IBRD
loans application screening exercise, but have viable
economiC projects with high potentials. 1DA’S loan is called
“Credit.

OBJECTIVES OF IDA
i. To foster economic and financial cooperation among

memberS.
ii. To improve productivity and raise standards of living of
iil. To provide foreign exchange for less developed
iv. To provide loans at little or no interest rate for projects

i. Toi

eloped countriehange for lesS develoP
devete

less

countries on multilateral basis.
in developing countries that are not feasibly financed.

LENDING PROCEDURES

The funds used by the IDA, called credit comes in the
form of subscriptions, general replenishments from
more industrialized and developed members and
transrers Trom net earnings of the lBRD.
TDA credits are made to governments only.
1OA provides soft loans of ten years grace period with
fifty years repayment period and of no interest.
Its loans can be repaid in the currency of the member
country.
The project must contribute to the productivity
capacity of the borrowing country. Examples of such
projects are water supply, urban development,
housing, slum clearance, education, sanitation and
health tacilities

.
ill.

IV.

OPERATIONS OF IDA

The 1DA mainly finances infrastructural facilities
relating to power supply roads, etc
Loans are made to the poorer developing countries
with an annual per capital gross product of S730 of
ess.
1DA assistance is for government at no interest.
Projects which are slow revenue yielding.
Projects that are capital intensive and have long lite wil
attract heavy burden in interest paYment
DA loans carry low interest rates with long maturities
up to S0 Years with 10 years moratorium grace
periods.

ii.
V.

Vi.
viLong gestation periods for projects which de
Vil. Annual service fee of 0.75% is charged on the disburse

repayable in local currencies.

portion of each credit.

sOURCES OF FUNDS

The IDA’s finances come through:
Contributions from 21 wealthiest countries of the

world.
Interest free loan from financial institutions and
countries.
Net incomes from operations.

ii

THE BANK FOR INTERNATIONAL SETTLEMENTS (BIS)
At inception in 1930, the Bis was founded by Britain, France,
Germany, Belgium and Italy. Today, membership includes
the Western and Eastern Europe, the USA, Japan, Canada,
Australia and South Africa.

It is an international financial institution with headquarters
in Basle, Switzeriand. Being the oldest international
institutions, it commenced operation on May, 17, 1930.

FUNCTIONS

t promotes the co-operation of Central banks and
fulfills the function of a central bank for Central Banks.
It is both a bank and an international organization
intended to serve as the focal point for co-operation
among Central banks
It helps Central banks to manage their external
reserves.
It offers services that facilitates meeting of Central
banks and surviving committees, both regular and
adhoc, which foster international cooperation and

mutual understanding
It carries out economic research and stabilization work
for better understanding of international market and
the interaction of national monetary policies.

EUROCURRENCY MARKET
The term Eurocurrency means any urrency or one country
that is held in another country, apart from tne country of its
origin. Furthermore, Eurocurrency connotes the externally
held currencies of deposits denominated and held in another
country other than the country of issue. For example, USA
Dollar denominated account in a bank in Britain is part of
Eurocurrency and is regarded as Eurodollar

The banks in which Eurocurrency are deposited are called
Eurobanks An institution’s arrangement or Market for
dealing in foreign currencies is known as “Eurocurrency
market or ‘offshore currency market. The Eurocurrency is
usually in the form of time deposits or a certificate of
deposit.

Popular Eurocurrency markets are found in UK, France,
Belgium, Singapore, the USA, Bahamas, Luxembourg and
Japan.

EUROBOND
Eurobond is a method of raising long term fund in the
international capital market outside the country in
whose currency the bonds are denominated.
They are issued directly by the borrower in bearerro
The interest payments are not subject to withholaing
taxes.

There is secondary market and the currency controu
convertible.

Bonds are usually issued in US dollar, Swissfranc,
Pounds sterling etc
Cost of issue is low, easy to arrange and simple
It attracts higher rates (yields).

PARIS CLUB OF CREDITORS
It is an informal group of credit countries with no permanent
members who meet to negotiate debt rescheduling for
borrowing countries. Such debts are usually guaranteed by
various Export Credit Agencies of the creditor countries.
The club rose from an attempt by a few countries that in
1956 were having difficulties in rescheduling their individual
loans to Argentina. Since the city of Paris provided the forum
for the meeting and subsequent similar meetings, the cartel
of creditors became known as Paris club of creditors.

LONDON CLUB OF CREDITORS
The Club is a cartel of international commercial banks which
handles private debts and other commercial debts and
operates strictly on commercial terms. They are thus stricter
in terms than Paris club of creditors. The Londdon Clubs debts
are largely private trade debt.

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