International Financial Institutions UIAMS, Panjab University Chandigarh
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International
FinancialInstitutions
UIAMS,
Panjab
University
Chandigarh
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Definition
IFI
refers
to
financial
institutionsthat
have
been
established
by
morethan
one
country
.
The
most
prominent
IFIs
arecreations
of
multiple
nations,although
some
are
bilateral
financialinstitutions
.
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Introduction
The
purpose
of
these
internationalfinancial
institutions
is
maintainorderly
international
financialconditions
and
to
provide
capital
andadvice
for
economic
development,particularly
in
those
countries
thatlack
resources
to
do
it
themselves
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Which areinternational financial
organizations1) The
world
bank
group
-
internationalbank
for
Reconstruction
andDevelopment
(IBRD)
and
its
three
subsidiaries
–
a) International
Development Association
b) International
Finance
Corporation
c) Multilateral
Investment
Guarantee Agency
(MIGA)
2
)
International
Monetary
Fund
(IMF)
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3) Bank of international Settlements (
BIS)
4) Asian Development Bank
5) African Development Bank
6) European Bank for Reconstruction
and Development
7) Inter
-
American Development Bank
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These
international
organization
obtainfunds
for
the
lending
activities
fromtwo
basic
sources
:
1) The
first
is
contribution
of
capital
thateach
nation
makes
when
it
becomes
amember
2) The
second
source
is
throughborrowings
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The World Bank Group
The world Bank began in 1946 with38 members.
Now the number of members has beenincreased to 184
The world bank and InternationalMonetary Fund ( IMF) were conceived
as twin pillars of the post wareconomic order at a conference ofBritain, America and their war-timesallies at Bretton Woods, in July 1944
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The world bank is a publicly ownedfinancial intermediary ( FI)
For most part it borrows on commercial
terms to finance investments incountries in need.
The IMF is not bank, but a club
Member countries pay a subscriptionand agree to abide by a mutuallyadvantageous code of economic conduct
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IBRD
The objective is to help raisestandards of living in developingcountries by channeling financialresources from developed countries to
the developing world .
The article of agreement of IBRDrequire it to promote private foreigninvestments by means of guarantee or
participations in loan and otherinvestment made by private investors.
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In the development task, bank‟s mainobjectives are to stimulate, support andprovide from its own resources flow of
capital to worthwhile projects andprogrammes in developing countries. Inaddition the Bank group aims to improvethe quality of project planning and insome case to improve the general
economic policies of recipient countries Bank provides technical assistance
mainly in the form of project evaluation.
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Beginning in 1980, the bank started toshift towards policy based loans whichdiffer from standard project loans.These loans are not targeted building
highway or housing complex but atfostering far-reaching structuralreforms, such as end to importrestrictions or the establishment ofmarket prices of agricultural goods.
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Objectives of IBRD
The original objective was to makeloans to develop the war shatteredeconomies of Europe in the SecondWorld War. To promote investment bymeans of guarantee and participationin loans and other investments madeby private investors To provide loans
to big projects To help the poorcountries by providing them loansand information assistance.
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Sources of credit
generation of IBRD Quotas:
The membership of the world is the sameas that of IMF .Members make contribution
in relation to their IMF Quota.Bonds:
The World Bank also sells Bonds in thecapital markets to raise funds
Income:
A very small proportion of the IBRD fundscome from the interest on loans advancedby it.
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These loans are of basic two types:
1 Structural Adjustment Loans
2 Sector Adjustment Loans
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Human development plays a crucial role inthe Bank‟s overall strategy to reducepoverty. Bank focused on
a) Lending and non-lending services to
support population control, healthnutrition and education
b) Efforts to improve the quality of bankservices by working more closely withclients, collaborating with partners and
establishing a human developmentnetwork to strengthen the bank‟s ability toprovide quality services
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International Development Association (IDA)
The money lent under the IBRD label israised through bond sales in the market.Borrowers pay interest rate on the basis
of market rate of interest IDA loans, however, are much more
concessional. These resources are notraised through borrowing, but throughsubscriptions from rich membercountries.
IDA loans are offered only to poorestcountries.
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IMF
Establishment:
It was the outcome of Wood Agreementsigned by 44 major countries of the worldin July 1944 in USA .
Organization: It is an autonomous bodyand is affiliated to UNO. Themanagement of Fund is under control oftwo bodies:
a)Board of governor,
b)Board of Executive directors
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IMF (International
Monetary Fund) a Board of governor :
it formulates the general policies of theFund
b Board of Executive directors :
it is responsible for the day to dayactivities of the Fund .
Membership:
All those counties which agree to subscribeto Funds Article of Agreement are eligibleto Funds Membership. The membership ofFund has risen from 44 nations to183now
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Quotas:
Each member has to contribute a
quota to fund. The size of the quotadepends upon the national incomeand share in international trade ofthat country. The quota is made up of75% in the country's currency and
25% in gold.
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Functions of IMF Maintaining exchange stability among the
members countries
Borrowing: The credit facility has beenraised up to 45% of one‟s quota over a threeyears period.
Correcting Balance of Payment (A balance ofpayments (BOP) sheet is an accountingrecord of all monetary transactions betweena country and the rest of the world. Thesetransactions include payments for thecountry„ s exports and imports of goods,
services) Interest charges : It charges interest on the
credit provided to member countries
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Continue.. Technical Assistance it helps the members
by providing the services of specialist andexperts in concerned fields.
Compensatory Finance Scheme : if amember is facing difficulty in receipt of
export credit, the IMF can give loan tomember with few conditions.
The extended Fund Facility : For theassistance of correcting the balance ofpayments of the member countries,introduced in 1974 by IMF8)
The Supplementary Financing Facility:This scheme was introduced in 1979 inorder to give long term loans to lessdeveloped counties
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Increasing international monetary co-operation.
Promoting the growth of trade.
Promoting exchange rate stability.
Establishing a system of multilateralpayments member countries
Building reserve base Funding facilities.
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ADB
Established on December4,1966 withan authorized capital of 58 billiondollars. The purpose of its formationwas to lend funds, promote investment
and provide technical assistant to thecountries mainly in Asian region.
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Functions
Provide loans to low income countries
Promote investments in private as well
as in public sector. Help the member counties in foreign
trade
It provides technical assistance forpreparation, financing and executionof development projects
It also helps the UNO in variousprojects
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IFC
IFC was set up with the objective ofproviding capital for private enterprisesin order to encourage the development of
local capital markets and promote foreignprivate investments in developingcountries.
IFC does not require a governmentguarantee
Its functions are like that of investmentbanks. It can participate in privateventures , providing up to 25 % of thecapital
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MIGA ( MultilateralInvestment Guarantee
Agency) MIGA was created in 1988 by 42 world
bank member countries specifically toencourage foreign private investments
MIGA insures investors in developingcountries against losses caused by theoutbreak of war or civil disturbance orby acts of government, such asexpropriation or imposition of
restrictions on transfer of currency ofprofits
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