SMU BBA6 BB0030 ROLE OF INTERNATIONAL FINANANCIAL INSTITUTIONS

ASSIGNMENT PROGRAM	BBA
SEMESTER	6
SUBJECT CODE & NAME	BB0030 ROLE OF INTERNATIONAL FINANANCIAL INSTITUTIONS

Q1. How has India benefited from International Development Association? Ans. The International Development Association (IDA) is an international financial institution which offers concessional loans and grants to the world's poorest developing countries. The IDA is a member of the World Bank Group and is headquartered in Washington, D.C., United States. It was established in 1960 to complement the existing International Bank for Reconstruction and Development by lending to developing countries which suffer from the lowest gross national income, from troubled creditworthiness, or from the lowest per capita income. Together, the International Development Association and International Bank for Reconstruction and Development are collectively generally known as the World Bank, as they follow the same executive leadership and operate with the same staff. The association shares the World Bank's mission of reducing poverty and aims to provide affordable development financing to countries whose credit risk is so prohibitive that they cannot afford to borrow commercially or from the Bank's other programs. The IDA's stated aim is to assist the poorest nations in growing more quickly, equitably, and sustainably to reduce poverty. The IDA is the single largest provider of funds to economic and human development projects in the world's poorest nations. From 2000 to 2010, it financed projects which recruited and trained 3 million teachers, immunized 310 million children, funded $792 million in loans to 120,000 small and medium enterprises, built or restored of 118,000 kilometers of paved roads, built or restored 1,600 bridges, and expanded access to improved water to 113 million people and improved sanitation facilities to 5.8 million people. The IDA has issued a total $238 billion USD in loans and grants since its launch in 1960. Thirty six of the association's borrowing countries have graduated from their eligibility for its concessional lending. However, eight of these countries have relapsed and have not re-graduated. India is currently benefiting from concessional finance from the bank. It is the largest taker and is the largest beneficiary of International Development Association (IDA) and we have had a very good and fruitful relationship. As countries evolve there will be the debate on the mix of concessional and non concessional finance. I would still say that in this world it is beginning to get a little more blurred. That is because financing from international markets is no longer at very high rates compared with an IBRD loan there is a variable rate that is 1%. The debate will be informed by a couple of factors; one is GDP per capita, which is a necessary condition but definitely not a sufficient one. The other is the access to international capital, also sometimes seen in terms of credit ratings. Another one is debt sustainability. The important thing is the vulnerability of a country. We have seen countries with very high GDP per capita but no access to international markets. The overall pot of concessional finance is certainly under stress, which also has to be kept in mind. At this stage we are implementing the IDA 16 period that will conclude in 2014 and expectation is that India will benefit in excess of $5 billion. It will remain the largest beneficiary. Q2. What are the types of assistance given by The International Finance Corporation? Ans. The International Finance Corporation (IFC) is an international financial institution which offers investment, advisory, and asset management services to encourage private sector development in developing countries. The IFC is a member of the World Bank Group and is headquartered in Washington, D.C., United States. It was established in 1956 as the private sector arm of the World Bank Group to advance economic development by investing in strictly for-profit and commercial projects which reduce poverty and promote development.  The IFC's stated aim is to create opportunities for people to escape poverty and achieve better living standards by mobilizing financial resources for private enterprise, promoting accessible and competitive markets, supporting businesses and other private sector entities, and creating jobs and delivering necessary services to those who are poverty-stricken or otherwise vulnerable. Since 2009, the IFC has focused on a set of development goals which its projects are expected to target. Its goals are to increase sustainable agriculture opportunities, improve health and education, increase access to financing for microfinance and business clients, advance infrastructure, help small businesses grow revenues, and invest in climate health. The IFC is owned and governed by its member countries, but has its own executive leadership and staff which conduct its normal business operations. It is a corporation whose shareholders are member governments which provide paid-in capital and which have the right to vote on its matters. Originally more financially integrated with the World Bank Group, the IFC was established separately and eventually became authorized to operate as a financially autonomous entity and make independent investment decisions. It offers an array of debt and equity financing services and helps companies face their risk exposures, while refraining from participating in a management capacity. The corporation also offers advice to companies on making decisions, evaluating their impact on the environment and society, and being responsible. It advises governments on building infrastructure and partnerships to further support private sector development. The corporation is assessed by an independent evaluator each year. In 2011, its evaluation report recognized that its investments performed well and reduced poverty, but recommended that the corporation define poverty and expected outcomes more explicitly to better-understand its effectiveness and approach poverty reduction more strategically. The corporation's total investments in 2011 amounted to $18.66 billion. It committed $820 million to advisory services for 642 projects in 2011, and held $24.5 billion worth of liquid assets. The IFC is in good financial standing and received the highest ratings from two independent credit rating agencies in 2010 and 2011. The IFC provides loans, equity investment advice, and technical assistances to private businesses in developing countries. The IFC lends to the private sector and does not accept host government guarantees on its loans. Since its founding, IFC lending has reached more than $49 billion in its own fund and $24 billion in syndication for 3,319 companies stretching through 140 developing countries. In FY 2008, its new commitment was $7.4 in its own fund and $3.3 billion in loan syndications. IFC’s equity portfolio was $11 billion as of the beginning of FY09. It has been consistently profitable since 1956.  Lending products: The IFC provides services such as guarantees, quasi-equity, and equity financing, risk management products, and advisory activities. However loans – as a financing tool – represent the majority of the Corporation’s portfolio. Loans usually have the following characteristics: ·         Terms amortizing with final maturities of up to 12 years; ·         Currencies in major convertibles such as the U.S. dollar, Euro, Swiss Franc, or the Japanese Yen; ·         Fixed or variable interest rates; ·         Pricing that reflects the market conditions along with country and project risks. A-Loans indicate loans from IFC account, and B-loans are syndicated loans from participating private banks.  The IFC sets limits on its total own account debt and equity financing on projects in order to ensure participation of investors and lenders within the private sector. The IFC lends up to 25 percent of the total estimated project cost for new projects. Under special circumstances, the percentage can be up to 35 percent in small projects but not the single largest shareholder. However with expansion projects, IFC may also provide up to 50 percent of the project cost when its investment is less the 25 percent of the total capitalization of the project company.   An equity investment in a company conditions financing to not exceed 35 percent of the company’s total share capital and IFC not serve as the single largest shareholder. Three percent is the IFC maximum investment in a single obligor. Also equity with quasi-equity investments in a single obligor should stay under 3 percent while straight equity investments under 1.5 percent of the total Corporation’s net worth plus general reserves.  Q3. In what way has the Asian Development Bank assisted India? Give current information also. Ans. India joined ADB at its founding in 1966 and since lending operations began in 1986, the world’s largest democracy of 1.2 billion people has undergone dramatic changes. Growth rates have climbed steadily from under 3% in the 1970’s to over 8% in fiscal year 2010, as the government carried out major economic reforms. But while the past four decades have seen a significant reduction in absolute poverty and the emergence of a burgeoning middle class, vast numbers of people still remain poor, and the country needs to address the challenge of ensuring that growth is inclusive. The goal of ADB’s current partnership with India is to help ensure the benefits of a fast expanding economy are shared by all, and that the growth is made environmentally sustainable, amidst increasing pressure on natural resources. Past support: ADB’s early assistance was focused on support for national programs in sectors including transport, energy and urban infrastructure development. While it remains committed to providing support in these sectors, ADB has also been widening the scope of its assistance into areas such as agribusiness infrastructure, water resource management, climate change resilience, and tourism development. It has also begun to shift its operations to assist individual states, particularly states which are economically lagging behind. Expanding the use of renewable energy, including solar power and providing assistance to deepen public-private partnerships for infrastructure development, are also important parts of the ongoing India-ADB partnership. ADB has also helped India foster closer economic ties with its South Asian neighbors, including by assisting with a cross-border energy project exchanging power with Bangladesh. Between 1986 and 2010, ADB has supported over 150 projects across eight sectors and across over 20 states of the country. In 2010, new highs were set for loan approvals and the performance of projects and programs in ADB’s broad portfolio of activities. Contract awards and disbursements also reached record levels. At the end of 2010 cumulative lending assistance had reached over $24 billion. Development gains in India have been achieved in many areas, with primary school enrollment rates likely to meet, or even exceed, this key 2015 Millennium Development Goal (MDG). However the country needs to keep pushing hard in progress other key MDG indicators and continue to address structural changes to ensure growth is inclusive and sustainable. Future progress: Looking forward, ADB’s focus will be on helping India meet the goals of its current five year economic development plan, which includes improving the delivery of essential services to the poor, building up the rural economy, balancing growth with protection of the environment, and reducing development gaps between states, regions, sectors, and genders. Earlier in 2011, a new three-year country business plan was signed that will see ADB provides India with lending assistance of $6.25 billion for 2012-2014. This assistance will be targeted across a broad range of areas, including the continued rollout of infrastructure in states and rural areas where the need is greatest. Creating an environment for small businesses and the private sector to flourish, along with tackling daunting climate change and other environmental challenges are also high on the agenda. Given India’s huge funding needs and ADB’s limited resources, ADB will need to increasingly explore ways to attract private sector finance, and to this end it will continue to support the government’s public-private partnership program for infrastructure development.