International

Financial
Institutions
UIAMS,
Panjab University
Chandigarh
Definition
IFI refers to financial institutions
that have been established by more
than one country.
The most prominent IFIs are
creations of multiple nations,
although some are bilateral financial
institutions.

Introduction
The purpose of these international
financial institutions is maintain
orderly international financial
conditions and to provide capital and
advice for economic development,
particularly in those countries that
lack resources to do it themselves
Which are
international financial
organizations
1) The world bank group- international
bank for Reconstruction and
Development (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 obtain
funds for the lending activities from
two basic sources:
1) The first is contribution of capital that
each nation makes when it becomes a
member
2) The second source is through
borrowings
The World Bank Group
The world Bank began in 1946 with
38 members.
Now the number of members has been
increased to 184
The world bank and International
Monetary Fund ( IMF) were conceived
as twin pillars of the post war
economic order at a conference of
Britain, America and their war-times
allies at Bretton Woods, in July 1944
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The world bank is a publicly owned
financial intermediary ( FI)
For most part it borrows on commercial
terms to finance investments in
countries in need.
The IMF is not bank, but a club
Member countries pay a subscription
and agree to abide by a mutually
advantageous code of economic conduct

IBRD
The objective is to help raise
standards of living in developing
countries by channeling financial
resources from developed countries to
the developing world .
The article of agreement of IBRD
require it to promote private foreign
investments by means of guarantee or
participations in loan and other
investment made by private investors.

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In the development task, banks main
objectives are to stimulate, support and
provide from its own resources flow of
capital to worthwhile projects and
programmes in developing countries. In
addition the Bank group aims to improve
the quality of project planning and in
some 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 to
shift towards policy based loans which
differ from standard project loans.
These loans are not targeted building
highway or housing complex but at
fostering far-reaching structural
reforms, such as end to import
restrictions or the establishment of
market prices of agricultural goods.
Objectives of IBRD
The original objective was to make
loans to develop the war shattered
economies of Europe in the Second
World War. To promote investment by
means of guarantee and participation
in loans and other investments made
by private investors To provide loans
to big projects To help the poor
countries by providing them loans
and information assistance.
Sources of credit
generation of IBRD
Quotas:
The membership of the world is the same
as that of IMF .Members make contribution
in relation to their IMF Quota.
Bonds:
The World Bank also sells Bonds in the
capital markets to raise funds
Income:
A very small proportion of the IBRD funds
come from the interest on loans advanced
by it.
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These loans are of basic two types:
1) Structural Adjustment Loans
2) Sector Adjustment Loans

Human development plays a crucial role in
the Banks overall strategy to reduce
poverty. Bank focused on
a) Lending and non-lending services to
support population control, health
nutrition and education
b) Efforts to improve the quality of bank
services by working more closely with
clients, collaborating with partners and
establishing a human development
network to strengthen the banks ability to
provide quality services
International Development
Association (IDA)
The money lent under the IBRD label is
raised 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 not
raised through borrowing, but through
subscriptions from rich member
countries.
IDA loans are offered only to poorest
countries.
IMF
Establishment:
It was the outcome of Wood Agreement
signed by 44 major countries of the world
in July 1944 in USA.
Organization: It is an autonomous body
and is affiliated to UNO. The
management of Fund is under control of
two bodies:
a)Board of governor,
b)Board of Executive directors
IMF (International
Monetary Fund)
a)Board of governor :
it formulates the general policies of the
Fund
b)Board of Executive directors :
it is responsible for the day to day
activities of the Fund .
Membership:
All those counties which agree to subscribe
to Funds Article of Agreement are eligible
to Funds Membership. The membership of
Fund has risen from 44 nations to183now

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Quotas:
Each member has to contribute a
quota to fund. The size of the quota
depends upon the national income
and share in international trade of
that country. The quota is made up of
75% in the country's currency and
25% in gold.

Functions of IMF
Maintaining exchange stability among the
members countries
Borrowing: The credit facility has been
raised up to 45% of ones quota over a three
years period.
Correcting Balance of Payment (A balance of
payments (BOP) sheet is an accounting
record of all monetary transactions between
a country and the rest of the world. These
transactions include payments for the
country s exports and imports of goods,
services)
Interest charges : It charges interest on the
credit provided to member countries

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Technical Assistance it helps the members
by providing the services of specialist and
experts in concerned fields.
Compensatory Finance Scheme : if a
member is facing difficulty in receipt of
export credit, the IMF can give loan to
member with few conditions.
The extended Fund Facility : For the
assistance of correcting the balance of
payments of the member countries,
introduced in 1974 by IMF8)
The Supplementary Financing Facility
:This scheme was introduced in 1979 in
order to give long term loans to less
developed counties
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Increasing international monetary co-
operation.
Promoting the growth of trade.
Promoting exchange rate stability.
Establishing a system of multilateral
payments member countries
Building reserve base
Funding facilities.


ADB
Established on December4,1966 with
an authorized capital of 58 billion
dollars. The purpose of its formation
was to lend funds, promote investment
and provide technical assistant to the
countries mainly in Asian region.

Asian Development
Bank
This was emerged as a result of the
Economic Commission For Asia and
Far East held in Manila in December
1963
It was decided that the capital
formation in the developing countries
is not possible through domestic
savings only and capital should be
made available to the low income
countries by establishing a bank

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 for
preparation, financing and execution
of development projects
It also helps the UNO in various
projects

IFC
IFC was set up with the objective of
providing capital for private enterprises
in order to encourage the development of
local capital markets and promote foreign
private investments in developing
countries.
IFC does not require a government
guarantee
Its functions are like that of investment
banks. It can participate in private
ventures , providing up to 25 % of the
capital
MIGA ( Multilateral
Investment Guarantee
Agency)
MIGA was created in 1988 by 42 world
bank member countries specifically to
encourage foreign private investments
MIGA insures investors in developing
countries against losses caused by the
outbreak of war or civil disturbance or
by acts of government, such as
expropriation or imposition of
restrictions on transfer of currency of
profits
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MIGA membership is divided into two
categories
1) Category 1 ( developed/ industrialized
countries)-19
2) Category 2 ( developing countries)-121
MIGA does not provide guarantee in
Category 1 member countries
A guarantee from MIGA is particularly
attractive for commercial banks in
countries such as France or Spain, as
these banks will not then need to make
special provisions for developing countries.


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