Page 1. CONTENTS AND PURPOSE 1.The World Bank Group 2.Regional Banks for Development Financing...

CONTENTS AND PURPOSE

1. The World Bank Group2. Regional Banks for Development Financing 3. Chosen European Development Banks 4. International Banks’ Development Financing Projects

as a Business Opportunity

purpose: present those IBDF that are important because of the size of their

funds present business opportunities

1. The World Bank Group• the oldest and the only international bank for development financing

with truly global membership• group of five independent international development institutions:• International Bank for Reconstruction and Development - IBRD (1944)• International Development Association – IDA (1956)• International Financial Corporation – IFC (1960)• Multilateral Investment Guarantee Agency – MIGA (1988)• International Center for the Settlement of Investment Disputes – ICSID (1966):

• non-financial institution

• Establishment, objectives and membership:• establishment: Bretton Woods, 1944• objectives: long-term financing of after-war reconstruction and

long-term financing of development of less developed member countries (developing countries and countries in transition)

• membership: IBDF with global membership

Evolution of activities and changing priorities from establishment until now: second half of the 1940s and first half of the 1950s: financing

economic reconstruction of countries that were affected most during World War II

second half of the 1950s: long-term financing of economic development

International Bank for Reconstruction and Development (IBRD)


1960s: financing big industrial and infrastructure objects 1970s:

socio-economic development goals: growth, poverty reduction, securing basic needs of the population

financing integral programs of countryside development, heakth and education projects, securing clean water access, sanitary services, apartment building and urban area development

1980s: project and balance-of-payments financing ecological aspects of economic development

1990s: Washington Consensus poverty reduction programs, institutional capabilities strengthening

and anticorruption programs, programs oriented towards cooperation with the private sector as well as non-government organizations

International Bank for Reconstruction and Development (IBRD)• Capital and voting method:

• capital: 188,6 mia $ (in the middle of 2000), of which less than 1/10 of paid-in-capital

• voting method:• voting power of a country depends on its share in the capital of the

bank• basis: quotas in the IMF

• Organization:• Board of Governors• Board of Executive Directors• Development Committee• President


• Sources of funds:• basic financial source is capital • borrowing in international capital markets• reserves and debt repayments for loans approved in previous

years

• Loans as a prevailing form of the allocation of funds:• terms of the loans: favorable commercial loans, payment term

between 12 and 20 years (3-5 years of principal payment deferral), variable interest rate, unconditional insurance with the borrowing country guarantee

• preferred creditor


• loan types:• project loans• sectoral loans• structural adjustment loans• technical assistance loans• loans for reconstruction

• size and structure of approved loans:• the biggest IBDF that approves loans to developing countries

and to countries in transition

Table 13.1: Loans approved by the IBRD in the period from 1980 – 2000 (mia $) Year Total Year Total Year Total 1980 4.4 1987 11,4 1994 14,2 1981 5,1 1988 11,6 1995 16,9 1982 6,3 1989 11,3 1996 14,5 1983 6,8 1990 13,9 1997 14,5 1984 8,6 1991 11,4 1998 21,1 1985 8,6 1992 11,7 1999 22,2 1986 8,3 1993 12,9 2000 10,9

Source: Bakker, 1996, p. 55 (for the period 1980 – 1993) World Bank Annual Report – various years (for years from 1994 onwards)

Table 13.1: Net financial flows between the World Bank* and its members in 1995 – 2000 (mia $)

Africa East Asia South Asia Europe Latin America Middle East TOTAL

2000 1995

- 2000

2000

1995 -

2000

2000

1995 -

2000

2000

1995 -

2000

2000

1995 -

2000

2000

1995 -

2000

2000

1995-

2000 A .Approved loans

2,2 13,8 3,0 38,4 2,1 16,5 3,0 27,5 4,1 32,3 0,9 7,0 15,3 135,5

B. Gross effective loans

1,9 15,0 3,6 33,8 2,5 15,5 3,7 22,3 6,1 31,6 0,7 7,1 18,5 125,

3

C. Principal payments 1,5 7,0 2,3 15,7 1,9 9,2 1,4 9,1 3,9 25,1 1,0 6,6 12,0 72,7

D. Net effective loans (C – B)

0,4

8,0

1,3

18,1

0,6

6,3

2,3

13,2

2,2

6,5

-0,2

0,5

6,5

52,6

E. Interest payment 0,5 3,8 2,7 13,6 1,0 6,4 1,3 6,7 2,7 14,8 0,6 4,1 8,8 49,4

F. Net transfer (D – E)

-0,1

4,2

-1,4

4,5

-0,4

-0,1

1,0

6,4

-0,6

-8,4

-0,9

-3,6

-2,3

3,2

* IBRD and IDA. Source: The World Bank Annual Report 2000, pp. 147 – 149.


• Structural Adjustment Loans (SAL):• multitude of economic reforms that are supposed to reach

macroeconomic equilibrium in a country through supply side measures

• reasons for the introduction of SAL loans • concepts and basic elements of the SAL loan/program:

• SAL loan– balance-of-payments loan• SAL program– structural reform program

• criteria for accompanying success of implementing SAL programs: drawing in more tranches

• complementarity of/competitiveness between SAL programs and economic stabilization programs

International Development Association (IDA)

• securing financial assistance and/or concessional loans• Founding, objectives, membership and organization:

• establishment: in 1960, as a response to dissatisfaction of politically independent developing countries with the size and the quality of IBRD funds

• objectives and membership: • concessional lending to the least developed developing countries

(criterion: per capita GNP )• two groups of countries (differences in the method of initial

obligatory subscription)• organization: same as IBRD

International Development Association (IDA)• Sources of funds:

• member countries donations, part of the IBRD regular activities income and payments of loans, approved in previous years

• IDA replenishment: regular replenishment of IDA fundsTable 13.1: IDA replenishments

Replenishment Period Amount (mia USD)

Replenishment Period Amount (mia USD)

Beginning 1961 – 1964 0,8 IDA-7 1985 – 1987 9,0 IDA-1 1965 – 1968 0,7 IDA-8 1988 – 1990 12,4 IDA-2 1969 – 1972 1,3 IDA-9 1991 – 1993 14,7 IDA-3 1972 – 1974 2,4 IDA-10 1994 – 1996 18,0 IDA-4 1975 – 1977 4,5 IDA-11 1997 – 1999 19,2 IDA-5 1978 – 1980 7,7 IDA-12 2000 - 2002 11,6 IDA-6 1981 – 1984 12,0 Source: IDA Information Briefs, 1994, p. 2. World Bank Annual Report 2000, pp. 9 and 22.


• Allocation of funds:• funds exclusively in the form of loans, for which a

debtor country guarantee is needed• basic criterion – per capita GNP; depends also on

whether the country has access to funds from other sources or not• mainly poverty reduction projects• repayment period between 35 and 40 years, grace

period for principal repayment is 10 years, only payment of certain administrative costs


• Size and structure of approved loans:Table 13.1: Approved loans by IDA in 1980 – 2000 (mia $)

Year Amount Year Amount Year Amount 1980 1,4 1987 3,1 1994 6,6 1981 1,9 1988 3,4 1995 5,7 1982 2,1 1989 3,6 1996 6,9 1983 2,6 1990 3,8 1997 4,6 1984 2,5 1991 4,5 1998 7,5 1985 2,5 1992 4,8 1999 6,8 1986 3,2 1993 4,9 2000 4,4

Source: Bakker, 1996, p. 55 (period 1980 – 1993) World Bank Annual Report – various years (from 1994 onwards)

Table 13.1: IDA credits by major purpose and by country in 1960 – 1999 (mia $) Purpose Amount Country Amount

Agriculture 31,8 India 26,2 Multisector 14,1 China 9,9 Transportation 13,6 Bangladesh 9,1 Education 11,0 Pakistan 5,5 Electric power and other energy

8,3 Ghana 3,5

Health, nutrition and population 7,8 Tanzania 3,1

Total 115,9 Total 115,9

Source: World Bank Annual Report 1999, pp. 218-222.

International Financial Corporation (IFC)

• Establishment, objectives, membership and organization:• establishment and objectives:

• accelerate economic development of developing countries exclusively by financing private sector projects in these countries

• organization: similar to IBRD and IDA

• Capital and voting method:• capital: fundamental capital – paid-in capital• voting method: voting power depends on the paid-in

capital share

International Financial Corporation (IFC)

• Sources and allocation of funds:• sources of funds: identical to IBRD sources • allocation of funds:

• commercial loans approved exclusively without a country’s guarantee• IFC can finance projects in the form of equity stakes (not more than

35%)

• Size and basic characteristics of activities:• financial placements need to be commercially interesting,

projects need to have a clear development component • usually not more than 25 per cent of the value of the project

2. Regional Banks for Development FinancingFundamental Common Characteristics and Differences Among Regional Banks for Development Financing

• IADB (1959), AfDB (1964), AsDB (1966), EBRD (1990)• common characteristics:

• organizational and financial structure similar to IBRD and IDA

• membership open to developing countries in the region (the only ones eligible to funds) as well as to countries outside the region

• regular financial sources are used for commercial loans • special operations funds are very similar to IDA

European Bank for Reconstruction and Development (EBRD) – Regional Bank for Development of Countries in Transition• Establishment, objectives and membership:

• establishment: Paris, 1990• objectives:

• supporting the transition process from command to market economy and strengthening the private sector in Central and Eastern Europe

• Key differences between EBRD and other three regional development banks:• the only IBDF whose members are other international institutions

and banks, in addition to independent countries• the only IBDF whose political orientation is included in its statute• much more detailed statute

European Bank for Reconstruction and Development (EBRD) – Regional Bank for Development of Countries in Transition

• Capital and voting method:• capital: share of paid-in capital is between 25-30 per cent• voting method: number of votes depends on the share of

the country in bank’s capital

• Organization:• Board of Governors• Board of Directors• President


• Sources of funds and their allocation:• sources of funds:

• financial basis for activities is the bank’s capital; borrowing on international capital markets, reserves, repayments of loans, dividends and capital gains on equity shares

• allocation of funds:• exclusively to countries in transition • state-guaranteed loans: public sector projects • loans without state guarantee: private sector projects• share investments


• Evolution of EBRD activities and key priority changes:• principal activity: financing projects whose goal is to

contribute to efficient process of transition from planned to market economy

• 1991-1994:• financing projects of privatization of state companies, building and

reconstructing infrastructure objects and financing of projects for restructuring the military industry production into production in the absence of wars and war-tensions


• from 1995 onwards:• a more balanced combination of loans and equity financing • efficient financial system, especially the banking sector, is

essential for the success of the overall process of transition• new strategy of activities (1999) is trying to secure a balanced

realization of given objectives, by countries and sectors as well as by types of instruments


• Size and structure of activities:Table 13.1: Analysis of operational activity, 1991 – 2000

1991 - 2000 2000 Amount

( mio €) Share (%)

Amount (mio €)

Share ( %)

A. By country

- Central Europe*; of which - Poland - Other countries

5,9 (2,0) (2,9)

36 (12) (22)

1,0 (0,6) (0,4)

37 (22) (15)

- Southeast Europe** 3,4 20 0,5 19 - Russia 3,4 20 0,6 22 - Other Former Soviet Union countries

3,9 24 0,6 22

Total 16,6 100 2,7 100 B. By sector - Finance 4,8 29 0,8 29 - Manufacturing and commerce 4,8 29 0,8 29 - Infractructure 4,8 29 0,7 27 - Other 2,2 13 0,4 15 Total 16,6 100 2,7 100 C. Alokacija po instrumentih - State guaranteed loans 4,9 29 0,6 22 - Loans without state guarantee 8,1 49 1,3 48 - Share investments 3,3 20 0,6 22 - Other 0,3 2 0,2 8 Total 16,6 100 2,7 100 * Czech Republic, Estonia, Lithuania, Latvia, Hungary, Poland, Slovak Republic , Slovenia ** Albania, Bulgaria, Bosnia and Herzegovina, Croatia, Former Yugoslav Republic of Macedonia and Romania Source: EBRD Annual Report 2000, pp. 21-22

3. Chosen European Development BanksEuropean Investment Bank (EIB)

• significantly bigger than IBRD • reasons for particular treatment:• EIB enables allocation of funds into all member

countries • EIB shareholders are exclusively industrialized countries

from one region • membership is limited to member countries of the EU,

its activities are under strong influence of the EU

European Investment Bank (EIB)

• Establishment, objectives, membership and capital:• Set up under the Treaty of Rome in 1957

• autonomous institution and independent legal entity• objectives:

• strengthening the economic integration of the EU countries • securing economically and socially balanced development of the EU countries

• capital: 6 per cent share of paid-in capital

• Organization:• Board of Governors• Board of Directors• Management Committee and its President • Auditing Committee• Personnel


• Sources of funds and their allocation:• sources of funds:

• most funds from borrowing in the international financial markets, bank’s capital is the basis for activities; repayments of loans and reserves

• allocation of funds:• Internal allocations – exclusively in the form of commercial

loans, repayment term up to 20 years, grace period on principal repayment up to 5 years (financing of infrastructure objects)

• External allocations – mostly in the form of loans with /without state guarantee

European Investment Bank (EIB)• Activities of the bank, size and structure:

Table 13.1: »Internal« and »external« loans of EIB in 2000

Allocation Amount (mia €)

Share ( %)

»Internal« 30,6 85,0 - t ransportation 10,4 28,8 - communications 8,8 24,4 - energy 2,6 7,2 »External« 5,4 15,0 - EU Accession countries 3,0 8,3 - Euro-Mediterranean Partnership 1,2 3,3 - ACP States (Africa, Carribean and Pacific)

0,4 1,1

- South Africa 0,1 0,3 - Asia and Lat in America 0,5 1,4 - Balkans 0,2 0,6 Total 36,0 100,0

Source: Adjusted from EIB Annual Report 2000.


• “internal” allocation:• classical sectoral classification: financing infrastructure objects

in member countries• classification according to priorities:

• financing of trans-European transportation and energy networks• financing small and medium enterprises (SMEs) • financing environment sustainability projects

• EIF – tripartite institution that issues insurance to agents willing to finance trans-European network and SMEs


• “external” allocation:• loans can be used only for technically and economically

competent projects that can be financed according to commercial conditions

• the biggest share is intended for loans to countries in the process of accessing the EU and have an Access Agreement with the EU


Table 13.1: EIB Accession Countries loans provided in 1990 - 2000 Criterium Share (%) A. Allocation by sector - Transportation 46 - Communications 14 - Energy 6 - Environment 17 - Global loans, industry, other 17 Total 100,0 B. Allocation by country - Poland 25 - Czech Republic 20 - Romania 15 - Hungary 13 - Slovak Republic 8 - Slovenia 7 - Bulgaria 7 - Baltic States 5 Total 100,0

Source: Adjusted from EIB Annual Report 2000.

Council of Europe Development Bank (CEDB)• Establishment, objectives and membership:• establishment: IBDF set up by members of the Council of Europe in 1957• objectives: financing of social projects and projects needed for solving

extraordinary circumstances in member countries

• Organization:• Governing Board and Administrative Council• Executive Committee• Governor• Auditing Committee

Council of Europe Development Bank (CEDB)• Sources of funds and their allocation:• sources of funds:

• bank’s capital (about 10 per cent of paid-in capital), borrowing in international financial markets, repayments of loans, approved in previous years, and reserves

• allocation of funds:• commercial forms of lending: state-guaranteed loans (long repayment term and grace

period on principal repayment)

• Size and structure of approved loans:• statutory priorities • new priorities• other fields of action

Council of Europe Development Bank (CEDB)Table 13.1: Sectoral structure of CEDB loans in 1996 – 2000 (mio € and %)

2000 1996 – 2000

Sector Amount (mio €)

Share (%)

Amount (mio €)

Share (%)

A. Statutory priori ties - Aid to refugees and migrants 11 1 51 1

- Aid to vict ims of natural and ecological disasters and disaster prevention

329 17 771 13

B. New priorities - Job creat ion in SMEs and vocational training

362 20 1.228 20

- Social housing 493 27 1.456 24 - Health 119 6 511 8 - Education 73 4 592 10

- Improving liv ing conditions in disadvantaged urban areas

60 3 132 2

C. Other fields of action - Protection of the environment 308 17 989 16 - Rural modernization 44 2 206 3 - Protection of historic heritage 23 1 35 1 - Infrastructure 33 2 133 2 Total 1.855 100 6.104 100

Source: CEDB Annual Report 2000, 2000, p. 25.

4. International Banks’ Development Financing Projects as a Business Opportunity

• only business subjects from member countries of given IBDF can collaborate in the preparation and realization of the projects financed by given IBDF• every contract needs to be made on the grounds of

special rules, usually in the form of an international competitive bidding• reasons for the interest of obtaining projects:

• priority projects – non-payment risk reduction• projects co-financed by IBDF – no non-payment risk• projects that are usually fully analyzed and in which IBDF often

collaborated in the past

Project Cycle• project identification:

• IBDF obtains preliminary information about the project, usually from general and/or sectoral studies about a country

• it ends when the projects obtains the priority project status for the country and IBDF includes it in its enlistment of projects

• project preparation:• IBDF and the country harmonize basic goals of the project • detailed analysis of all key aspects of the project, including

technical-technological parameters, economic-financial characteristics as well as social, environmental and institutional characteristics

Project Cycle• project analysis:

• project analysis by IBDF• precise identification of all types of goods, equipment and

services that will be needed for project realization, as well as definition of procedures according to which these purchases will be made

• financial plan of the projects and all funds required to close the financial construction

• negotiations and project approval:• negotiations about the appraisal report• finalized version of the appraisal report along with all required

accompanying documents goes to the Board of Executive Directors for approval

Project Cycle• project realization and supervision:• borrower is fully responsible for the realization of this

phase

• project assessment:• IBDF usually assesses the achieved results of the

project• primary goal is to compare actual costs and benefits of

the project with the ones anticipated in the appraisal report, and to take into account the experience from the past when preparing and realizing new projects

Sources of Information about Projects

• primary sources of information – obtained with the help of personal contacts and written sources in the country in which the project is supposed to be realized• secondary sources of information about IBDF

projects:• sources in banks themselves• contacts with project team members who are

responsible for the project

Rules and Regulations of IBDF about the Procurement of Suppliers of Goods and Equipment, Works and the Procurement of Consultants• responsibility of the borrower and not IBDF • Procedures for procurements of goods, services and

work:• international competitive bidding • limited international bidding• local competitive bidding• international and local shopping• direct purchase

Rules and Regulations of IBDF about the Procurement of Suppliers of Goods and Equipment, Works and the Procurement of Consultants• forms of co-financing:

• parallel financing – common when the project is co-financed by IBDF and national export agency of a country

• joint financing – every party takes over the financing of an agreed share

• Procedures for procurement of consultants:• main criterion – ability of the consultant to do the assignment

well • full competence of the kreditojemalca• rosters of consulting companies

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