Previously we have seen in detail about institutional finance in India and the last unit has dealt in depth with other financial institutions. We have also seen about the various regulations and challenges faced by the financial institutions at both the national and state level.
In this unit let us take a look at Financial Institutions on an International level, the relationship of our country with each of them, the functions and even the areas where they have succeeded and failed
Previously the Gold standard was in use where the various member countries fixed their rates of exchange in terms of gold and observed the rules of the gold standard. Following the world wars which led to considerable strain on the international economic system the gold standard was abandoned completely by 1936. This gave rise to fluctuations in the exchange rates and an unpleasant effect on the economy. This in turn led to countries undervaluing their currencies and introducing their own exchange controls so as to protect their own interest as well as movement of large capital from another which worsened international finance even more.
Such difficulties led to many countries realising the need for international co-operation so as to avoid chaos and confusion in the field of international finance. This requirement gave rise to the Bretton Woods Conference which was the International Economic and Monetary Conference held at Bretton Woods New Hampshire in the USA during the month of July in 1944. It was at this conference where the 'Keynes Plan' proposed by Lord Keynes of England and the White's Plan proposed by Dr H. D. White of England led to the creation of two international financial institutions the IMF and IBRD as well as the General Agreements in Tariff and Trade (GATT) which lasted till 1993 and was replaced by the World Trade Organisation.(WTO)
During 1945-1951 there were significant changes in the external financial relations of India. Two things that stand out during this time include India's inclusion into the two Bretton Woods Institutions the IMF and IBRD as well as finalization of quite a few agreements about the usage of the sterling balances that had built up. The Reserve Bank had a key part in both. Efficient leadership was provided by the Bank Governor as the head of the Indian Delegation at Savannah on March 1946 where the inaugural meeting of the Board of Governors of the IMF and IBRD was held. Sir Chintaman Deshmukh played a key part in those formative years towards the safeguarding of India's interests and the establishment of strong international monetary co-operation as he was the Governor for India on the Boards of Governors for the two institutions. Other Bank officers served as staff members or as Executive Board members. The efficient negotiation for settling sterling balances ended up in India getting full value for war-time accumulation of these balances.-
Other significant events in the field of external finance include a considerable increase in exchange control towards which end an inclusive Act was instituted in 1947 as well as devaluation of the rupee with regards to the United State dollar in September 1949.
The World Bank is made up of the IBRD and IDA and comes under the World Bank Group. The World Bank Group was established on December 27th 1945 and along with the World Bank consists of three more international institutions namely International Centre for Settlement of Investment Disputes (ICSID), International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA)
The ICSID was instituted so as to settle international investment disputes and ensure good flow of international private investment caused by non-commercial risks on the 14th of Oct 1966. It plays a key part in the international investment and economic development sector.
http://icsid.worldbank.org/ICSID/images/head_About_US.gif
http://icsid.worldbank.org/ICSID/images/spacer.gif
MIGA on the other hand is an international financial institution instituted in the year 1988 whose main aim is to encourage foreign direct investment (FDI) in developing nations so as to induce and support economic growth, diminish poverty and ensure the betterment of the lives of the people. It serves around 177 countries.
C:\Users\JSI-05\Desktop\World Bank.png
Source: JSI Ventures
Another bank of note on the international scene is the Asian Development Bank (ADB) a regional development bank the serves the Asia-Pacific region and their main aim is to aid the economic development of Asian countries. It was instituted in the year 1966 on the 22nd of August and now has a membership of 67 countries.
Source: http://rbidocs.rbi.org.in/rdocs/content/PDFs/89652.pdf
http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=ShowHome&pageName=AboutICSID_Home
MIGA on the other hand is an international financial institution instituted in the year 1988 whose main aim is to encourage foreign direct investment (FDI) in developing nations so as to induce and support economic growth, diminish poverty and ensure the betterment of the lives of the people. It serves around 177 countries.
C:\Users\JSI-05\Desktop\World Bank.png
Source: JSI Ventures
Another bank of note on the international scene is the Asian Development Bank (ADB) a regional development bank the serves the Asia-Pacific region and their main aim is to aid the economic development of Asian countries. It was instituted in the year 1966 on the 22nd of August and now has a membership of 67 countries.
Source: http://rbidocs.rbi.org.in/rdocs/content/PDFs/89652.pdf
http://icsid.worldbank.org/ICSID/FrontServlet?requestType=CasesRH&actionVal=ShowHome&pageName=AboutICSID_Home
Self-Assessment Questions
The Gold standard was completely abandoned by
1936
1935
1937
1938
The World Bank and the .World Bank Group are one and the same
True
False
ICSID was established to _______________ and ___________.
MIGA serves _________ countries.
13.3 International Monetary Fund (I.M.F)
The IMF is an international institution whose main aim is to advance international monetary co-operation, ease trade expansion and aid the member countries to increase employment and help in the betterment of its economic conditions. It is basically a bank which means to aid member countries through supply of short term loans to get them through temporary problems in their payment balance
IMF- Aims:
Advance international monetary co-operation so as to solve international monetary problems
Guarantee stable exchange rates and prevent devaluation of currencies
Eradicate exchange controls
Support international trade through removal of exchange restrictions
Institution of multilateral trade and payments system
Supply short term loans to help member countries to tide them over temporary problems when it comes to payment balance
Help the member countries especially the developing or underdeveloped countries in their development and help them achieve a stable economic growth
IMF- Membership:
Initially the IMF was functioning with 44 members all of whom were part of the United Nations Organisation and were present at the Bretton Woods Conference. It has grown to include 185 members now. New members can be admitted at any time at the IMFs discretion and in case any member nation violates the IMF rules and regulations their membership can be voided by the fund.
Organisation and Management
The IMF is a self-governing (autonomous) organisation with its headquarters in Washington, USA. It is affiliated to the United Nations Organisation
The IMF is managed by a Board of Governors which is the highest authority of the fund comprising of one Governor and one alternative Governor, a Board of Executive Directors, a Managing Director and other staff. The Board of Governors are in charge of the important decisions such as quota revisions, new member admissions, executive directors elections and decision of the par values of the member countries' currencies. They meet annually in Washington
The Board of Executive Directors is made of 22 directors and is involved in the everyday management of the IMF, they also meet every day at Washington. Six of the 22 directors are appointed by the six countries with the maximum quotas in the funds capital namely the USA, UK, West Germany, France, Japan and Saudi Arabia. The remaining 16 are elected by the member countries with one member being appointed by the board itself to be the Managing Director, Chairman of the Board of Directors and Head of the Staff of the Fund or in other words the CEO. The Staff comprising of 1500 members are made of both administrative and professional personnel
Resources:
Capital or subscriptions provided by the member nations as per their quotas (25 percent of their quotas) as part SDRs or currencies.
Borrowings from any source and has a General Agreement to Borrow (GAB) with 11 industrial countries in times of in times of international liquidity crisis
IMF- Functions:
Regulatory Functions- It ensures that its principles are followed
Financial functions- which consists of loans to member countries only to meet temporary deficits and neither for meeting fundamental disequilibrium in payment balance nor for relief and reconstruction purposes. This loan will be provided at the IMFs discretion to the eligible country and the required foreign currency must be available with the fund. The loans may be repaid through repurchase procedure by means of SDRs and foreign currencies by the borrowing member to get back its own currency. This is done annually and nearly half of the fund borrowed that year along with of the half of the monetary increase and when there is monetary decrease half of that is deducted from the amount. This repurchase is done so as to ensure constant replacement of Funds resources, monetary increase sharing of the member nation with the fund, to avert no demand currency pile up and to limit the use of the funds resources.
Maintenance of stable exchange rates towards balanced growth of multilateral trade
To get rid of exchange control and other exchange restrictions
Handling of scarce currencies
Advancement of International liquidity which means the financial resources and facilities available for settling deficits and include gold stocks, foreign currencies and credit facilities from central banks of the member nations, the financial facilities supplied by IMF through different plans and fundsraised by countries in international markets
Special Drawing Rights (SDRs)
SDR plan was set up in 1970. SDR is also called paper gold (internationally accepted paper money) and is an international reserve asset that was created by IMF to handle international liquidity crisis and is a book entry in the special drawing account and is handled only by the Special Drawing Account while the General Drawing Account handles currency holdings, quotas and subscription and purchase and sale of currencies to name a few. SDR valuation is subject to Standard Basket Valuation (which means that it is valued in terms of 16 currencies)
SDR is used to handle:
Designated Transactions
Transactions by agreement and
Transactions in the General account nowadays
Achievements and Failures of the IMF
Achievements:
Advancement of international Monetary Co-operation and consultation
Avoidance of competitive exchange devaluations thereby contributing to exchange stability
Removal of multiple exchange rates
Eradication of exchange control and other restrictions
Advancement of international liquidity
Failures:
Adapting a weak and passive policy when it comes to fixing exchange rates
Failure to bring about free convertibility of currencies
Failure in declaring the scarcity of USD when it happened
IMF and India
India along with being one of the founder members of the organisation is also one of its biggest subscribers being next only to the six countries with the maximum quotas. The original subscription was 300 million dollars and after many revision it now stands at 2200 million SDR out of which 550 million SDR has been contributed in gold and USD and the rest in rupees.
India has been granted loans many times by the IMF, the 100 million USD during 1948-49 repaid by 1956-57 and 200 million USD (which was given in 3 instalments) in Feb 1957 to meet the deficit due to the development programmes to name a few instances.
Some of the benefits that India received from the fund include
Financial assistance now and then to meet the deficits which has helped the Indian economic development
Skilled advice in the five-year plan financing
Indian economic assessment by the fund's specialists
The IMF membership has helped it to become a member of the World bank for development purposes
Increase in India's significance in the international field due to its permanent seat in the Board of Executive Directors of IMF
Through the IMF India has played a part in international monetary co-operation
The Indian rupee has become independent from pound sterling following the institution of IMF.
Source: Banking theory law and practice by b.s Raman pg 794-808
Self-Assessment Questions
IMF headquarters is in
Florida
New York
Washington
Seattle
SDR also called paper gold is an international reserve asset
True
False
The Staff comprising of 1500 members are made of both _________ and ________ personnel
SDR is used to handle _______, ___________ and___________.
13.4 International Bank for Reconstruction and Development (IBRD)
As the very name of the financial institution implies it was created for the reconstruction of the European countries torn apart by wars and to encourage the development of under-developed countries across the globe. It into existence due to the Bretton Woods conference and is younger than the IMF. It was instituted in December 1945 and commenced operations from June 1946.It is also known as the World Bank.
Need for the institution of IBRD
Some people may wonder why IBRD was needed when IMF was in place. But as we have seen the IMF supplies only short term loans when the backward and developing nations like Africa and South America and the economies affected by war required long term financial support. Therefore an international financial institution which can supply long term financial assistance on liberal terms was needed and this is where IBRD came into play.
IBRD-Aims:
Aid in the reconstruction of the economies ravaged by war as well as help in the development of backward countries through provision of long-term investment loans on reasonable terms
Encourage private foreign investment through the repayment of loans made by private foreign investors
To direct international investment into productive channels
Encourage multilateralism in international trade through provision of untied loans and allowing the borrowing countries to use the loan proceeds in buying equipments and good from any country they want
Encourage long-term stable growth of international trade and the maintenance of balance in the payment balance of member nations through persuasion of foreign investments so as to increase the productive resources of the member nations, evasion of over-lending which leads to one sided development of a few countries
Aid in the progress of economic development and the enhancement of standard of living of the populace of the member nations.
IBRD Membership:
Only members of the IMD can obtain membership in IBRD. Initially at the date of formation, 31st Dec 1945 only 44 members were there. At present it consists of 185 members. Membership can be withdrawn by giving due notice to the World Bank stating so. And in case a member violates the rules of the bank it ceases to be a member.
Resources:
The funds are made up of share capital from the members, reserves and loans raised through sale of bonds of the member nations
Capital - Initially the authorised capital was 10 billion dollars, which was divided into 1, 00, 000 shares of 1, 00, 000 dollars each which was made available for the member nations based on their economic strength. The called-up capital amounts to 20 percent of the shares face value out of which 2% is payable by each member nation as gold or USD and 18% is payable in its own national currency
Reserves- This refers to the significant amount raised from its profits which amounts to 1,916 million dollars
Raised Loans- This is done through sale of bonds in order to increase the financial resources and are willingly subscribed as they have the guarantee of all member countries
Organisation and Management:
The management is handled by the Board of Governors, the Board of Executive Directors, the President and his staff, the Advisory council and the Loan Committees.
Board of Governors-It is the ultimate authority of the bank and meets once annually. It consists of 1 Governor and one alternate Governor (who takes over in case of the Governor's absence) chosen by each member nation. The Governor's voting right is associated with the subscribed capital of the country that he is from and his time in office is 5 years.
Board of Executive Directors-The Board of Governors has handed over most of its power to the Board of Executive directors who are in charge of the day to day management to ensure the maximal effectiveness. It meets once a month and is the authorizing authority for the loans provided by the bank. It is made of 21 members out of which 6 are of the biggest stakeholders and the remaining 15 from the remaining member countries and their time in office is 2 years
President- He is chosen by the Board of Executive Directors and is chosen from outside. He acts as the ex-officio chairman of the Board of Executive Directors and has no other vote except that of a deciding vote. He is the Chief executive of the Bank and conducts the day to day business of the Bank with the other officials that he has appointed. He also makes suggestions to the Board of Executive Directors on loans and other policy matters
Advisory Council- It is selected by the Board of Executive Directors and has 7 members who represent banking, trade, industry, agriculture and labour. It meets at least once annually and advises the bank on general policy
Loan Committee-They are formed on an as and when basis to inspect loan applications and advice the Bank on the suitability of granting loans to the member nations. It consists of 2 Bank representative and one representative chosen by the country applying for the loan.
IBRD-Functions:
Supplying loans- It provides untied long term loans for certain development projects like agriculture, irrigation, power, water-supply, industry, education and transport to name a few. They are normally granted to the Central Banks or the Governments of the member nations only for specific fruitful projects that meet the banks requirements and even then only if the member nation is capable of paying back the loan which can be used only on that particular project. Occasionally loans are granted to private undertakings though only with the backing of the Government or the Central Bank of the country it belongs to. The loans are of three types- it is either made out of its own funds or out of borrowed funds or through guarantee of loans by Private Investors.
Supplies Technical assistance by providing expert advice on economic development programmes and also offers short term to the particular country's officers towards the implementation of development projects by means of the Economic Development Institute (established 1956)
Other functions- In addition to the above they also settle disputes between member countries.
Achievement and Failures of the IBRD:
Achievements:
It has increased its initial limited financial resources substantially through various means which in turn helps it to serve its member countries better
It has played a key role in the economic development of many developing countries through its fund provision
It has promoted private foreign investments through provision of guarantees.
Along with financial support it has also provided technical support to member countries so as to resolve their economic problems
It has also helped in the settlement of disputes between member countries successfully.
Failures:
The share of developing countries in IBRD has decreased significantly
The IBRDs financial resources are insufficient to meet the rising demands of the member nations
There has been a discrimination by the IBRD when it comes to providing financial assistance to its members with the Western European Countries getting more than those countries of African or Asian origin
The rate of interest charged is very high
The insistence of the World Bank on the repaying capacity ahead of financial assistance is not good for the backward and developing countries
IBRD and India:
India is one of the founding members and is also one of IBRDs biggest borrowers. Both public and private sector financial assistance has been provided and out of the total amount provided 42 percent was towards the transport sector, 38 percent for industries, 17 percent for electricity and the remaining was towards agriculture and other areas. It has helped in settling the Indo-Pakistan Canal water dispute. Some of the projects helped by IBRD are:
Transport development and improvement
Expansion of Tata and Indian Iron and Steel companies
Development of private coal sector industry and
Various power projects.
But after the inclusion of China into IBRD in 1990 India's share of financial assistance has reduced and now receives around 5% of the World Bank's total assistance
Source: Banking theory law and practice by B.S Raman pg 809-817
Self-Assessment QuestionsIBRD started its operation from.
1945
1946
1944
1947
To get membership in IBRD, IMF membership is needed.
True
False
At the beginning the IBRD had __________ and now has ______
IBRD resources are _____________, ________________ and __________.
13.5 International Development Association (I.D.A)
The International Development Association was instituted in Sept 1960 as a subsidiary of the World Bank and is to assist the World Bank in its operations. Need for the Institution of IDA:
The stipulations of the World Bank for the granting of loans are not in favour of the backward, developing and under-developed countries with the rate of interest more than 8% and extent of time available for loan repayment is also short as they are only around 15-20 years. Other constraints include the repayment currency being the same as the borrowed currency and several economic development projects do not receive financing from the World Bank as they cannot meet the high rates. So as to overcome all these difficulties the IDA was established to supply soft loans to backward member countries so as to finance economically sound development projects. Thus the IDA is also known as 'Soft Loans Window' of the World Bank.
IDA-Aims:
Assist the World Bank in the supply of loans to developing countries for projects which are not eligible for financing from World Bank as they do not provide quickly and directly to the borrowing nations productive capacity
Supply of development loans on very liberal terms to its member nations
Encourage economic development improve the standard of living of under-developed countries and augment productivity.
IDA Membership:
Only those members who are members of the World Bank can obtain membership in IDA. The total number of IDA members today is 185 and the members are classified into 2 groups namely part I made of the advanced countries of the world now containing 22 members and part II members which are the less developed countries. This partition is done to determine the capital contributions
Resource:
The initial capital of the IDA was 100 million dollars which was raised from its members which was raised to 1, 118.82 million dollars by the 30th of June 1980. The resources are in the form of
Capital contributions- with the part I nations pay theirs entirely in gold or convertible currency and the part II nations pay in 10% gold or convertible currencies and the remaining 90% in their own national currency, the latter half which cannot be used without the particular country's permission; and
Replenishments- from industrially advanced member countries.
Management:
The IDA is managed by the Board of Governors, Board of Executive Directors, the Chairman and other officers of the World Bank. In other words it falls under the jurisdiction of the World Bank management.
IDA Functions:
To provide loans to either the Governments, or to public and private enterprises of the member nations. Unlike the World Bank the IDA does not require Government guarantee for private enterprises. The loans are granted for high priority development projects without any expectations on the revenue returns. The loans are for very long periods with the repayment starting after 10 years and subsequently 10% of the principal is to be repaid annually for 10 years and 3% repaid annually over the last 30 years. The loans are also on very liberal terms with no interest and only a service charge of 1% every year.
The IDA credit approval requires certain measures and they are
Poverty test
Performance test and
Project test
The working of IDA- an assessment
The IDA continues to play a major role in the economic development of under- developed countries. And it has managed to flow funds beautifully from the developed countries to the less developed ones. Over 70% of its resources have been directed to the under-developed countries and by the 30th of June 1981 around 1, 080 credits of 24 billion dollars have been directed to about 75 under developed nations. In spite of the increase in resources, the funds are still inadequate to meet the increasing demands of the member countries. The experts have advised some important steps and they are
IDA should charge a nominal interest of 1.5-2% on the loans that it grants, as along with increasing the resources it also gives countries a sense of responsibility to use the borrowed funds in a productive manner
The system should raise supplementary resources from its members
Economically developed countries should be encouraged to direct at least a portion of their funds through IDA
IDA and India:
India is a part II member of the IDA and has a subscription of 40.35 million dollars. 10% of this has been paid as convertible currency and the remaining as rupee currency. India is the largest beneficiary and has received around 40% of the total credit. By the 30th of June 186 about 170 credits amounting to 13.8 billion dollars have been granted.
Source: Banking theory law and practice by b.s raman pg no818-821
Self-Assessment Questions
The IDA was established in
Aug 1960
July 1960
Oct 1960
Sept 1960
The IDA is independent of the World Bank.
True
False
The membership of the IDA falls into 2 categories namely ___________ and _______
13.6 International Financial Institution (I.F.C)
The IFC was established on the July 20 1956 as a associate of the World Bank for financing to private sector companies in under-developed countries.
Need for the institution of IFC
There was a need for an international financial institution to supply risk capital and loan capital without any Government guarantee for private undertakings and the IFC was instituted to meet this need.
IFC-Aims:
Supply funds to prolific private undertakings in connection with private investors without any Government guarantee
Get investment oppurtunities,experienced management and private capital together
Encourage the national and international private flow into lucrative projects in developing countries
IFC Membership:
The membership is open only to the members of IBRD. At the same time not all members of IBRD are members of IFC. At the begining the IFC had only 31 members but by June 30th 1986 the membership has risen to 125.
Resources:
The start-up capital of IFC was 100 million dollars which has risen now and then to meet the rising demands. By june 30th 1984 the capital was 5, 442 million dollars. Its resources are
Capital subscription- the capital subscription of the members shouldbe more or less to their capital subscription in the World Bank. The subscriptions are to be paid as gold or USD
Borrowing of funds from World Bank
Sale of bonds- this is done to raise additional funds in the open market
IFC Management:
It is handled by the Board of Governors and Board of Executive Directors of the World bank along with its own President and other officials. The President is incharge of the day to day functions.
IFC Functions:
The main function of the IFC is to supply finance to private enterprises of the member countries epecially the under-developed countries through loans or debenture subscription or equity share subscription. The rate of interest depends upon the risk involved and ranges from 5-7%. . The loans are for working and block capital and range from 5-15 years.
The working of IFC- an assessment:
IFC has played a very important role in financing private sector undertakings in the member nations. As on June 30 1984 400 loans of 2,670 million dollars have been provided to private undertakings in 70 developing countries. The private sector industries include paper, printing and publishing, cement, fertilizer, mining, textiles, chemical, iron and steel and food processing to name a few.
Some of the instances where IFC has fallen short include:
Inadequate financial resources thereby failing to meet the financial requirements fully
The stipulations that come with the financial assistance are too steep thereby many private sector enterprises are unable to avail its services
The rate of interest is very high especially from an under- developed country point of view
There is discrimination in granting financial assistance with the Latin American countries being favoured but as of late African and Asian are being assisted more.
IFC and India
India is the 4th largest subscriber to the IFC with its contribution at 7.5 million USD. The IFC has invested 75 million dollars in 13 private manufacturing industries as on June 30 1980. Some of the assisted industries include textiles, fertilizer, pumps and electric cables to name a few.
Source: Banking theory law and practice by b.s raman pg no822-825
Self-Assessment Questions
The IFC was established to provide financing to the
Public sector
Private sector
Both public and private sector
Neither public nor private sector
IFC financial assistance needs Govt guarantee
True
False
The India is the ________ largest subscriber
13.7 Asian Development Bank (A.D.B)
With the backing of the United Narions Economic Commission for Asia and the Far East (ECAFE) the Asian Development Bank (ADB) was established on Dec 19th 1966 with its headquarters in Mamila in the Philippines. This was due to a need for the institution for a Regional Development Bank in Asia that was made known at the ministerial conferance on Asian Economic Co-operation in Manila in 1963.
Need for the institution of ADB:
There were many different regional banking institutions for other regions like Inter-American Development Bank for Latin America, the African Development Bank for African countries and the European Investment Fund for European countries for example. So in order to meet the requirement for a seperate regional bank in Asia and to supplement its financial resources and functions the Asian Development Bank was instituted.
ADB-Aims:
Organising public and private capital for productive projects
Financing through its own funds the development projects of its member nations
Organising the development plans of various member nations in sucha a manner to ensure optimal resource utilisation
Bringing the economies of member nations complementary to one another so as to develop the flow of foreign trade
Work together with the U.N and its various branches and other international institutions to encourage them towards fund investment in Asian countries
ADB- Membership:
In the beginning the ADb had 32 members, but now the total membership stands at 61. The ADB has two types of members
Regional members which are the member countries within Asia of which there are currently 30 members and
Non-regional members which are mostly the economically advanced western countries and are able to provide investment and these members stand at 31
Resources:
The start-up capital of the Bank was 1,000 million dollars which was raised to 1,100 million with the addition of 2 more member countries. Its resources are
Capital subscription: 60% is to be subscribed by regional members and 40% conribution from non-regional member countries. Only 50% of the subscribed capital is called up which is to be paid in 5 equal annual instalments out of which half is to be in gold or convertible currency and the other half in member currency. The 50% which forms the uncalled capital may be called up by the bank when required
Issual of bonds in the international money markets with due permission of the countries involved and
Special contributions from member nations
ADB Management:
The management of the ADB is handled by a Board of Governors, a Board of Directors, a President, a Vice-President and other staff
The Board of Governors is the ultimate policy maker and power. Each couuntry appoints one Governor and one alternate governor( who plays the role of the Governor in his absence) to be on the board. It has an annual meeting so as to frame the general policy of the Bank
The Board of Directors take care of the general conduct of the bank's business. Its powers are assigned by the Board of Governors. It consists of 10 directors out of which 7 represent regional member countries and 3 represent non regional countries. The period of office is for 2 years with re-election eligibility
The President is the chairman of the Board of Directors and works under the general directio of the same. He is incharge of the day-to-day running of the Bank and has a period of office for 5 years with re-election eligibility
The Vice-President and other staff assist the President
ADB Functions:
The primary function of the bank is to supply financial assisistance to the under-developed or developing Asian countries. It is given to particular private or public enterprises in the form of share sunscription , through loan or through guaranteeing the loans given by others. It is given mainly to meet the foreign exchange costs and are to be repaid in the currency granted. Repaying is to start after the first 10 years and are given for a period of 40 years.
It also supplies technical assistance for the preparation and implementation of the development projects
The working of ADB- an assessment:
The bank has very efficiently enouraged mutual co-operation and complementary efforts by the Asian countries towards their economic development. As on June 30th 1984 financial assistance of more than 29 billion dollars for 394 projects in 29 countries have been provided.
Along with this technical assistance towards the preparation and implementation amount to 26.5 million dollars for 160 projects in 23 member countries as on June 30th 1984.
In spite of the moderate assistance it can be said that that ADB has a bright future.
ADB and India:
India is a member of the ADB and is the second largest subscriber among the regional members with a contribution of 92 million dollars
From the time that ADB started its lending activities in India in 1986 159 soverign loans of 25.3 USD has been approved. And from the start of its nonsoverign operations in 1987 24 nonsoverign projects of 1.9 billion USD have been approved.Since the beginning of its lending operations in India in 1986, ADB has approved 159 sovereign loans amounting to $25.3 billion. As of 31 December 2011, the portfolio included 79 ongoing sovereign loans amounting to $11.9 billion. In addition, 24 nonsovereign projects amounting to $1.9 billion have been approved since the initiation of ADB's nonsovereign operations in 1987. ADB's sovereign lending assistance to India increased from an annual average of about $1.16 billion in 2000-2005 to $1.74 billion in 2006-2011. In 2011, sovereign loan approval reached a record high of $2.3 billion.
Source: http://www.adb.org/sites/default/files/pub/2012/IND.pdf
Banking theory law and practice by b.s raman pg 826-828
Self-Assessment Questions
19. India has received ___________ and _______ loans from ADB
13.8 Summary
Let us recapitulate the important concepts discussed in this unit:
The World Bank Group established on December 27th 1945 consists of International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), International Centre for Settlement of Investment Disputes (ICSID), International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA)
Bretton Woods conference 1944 gave rise to IMF and IBRD
The ICSID was established on Oct 14 19666 to settle international investment disputes and ensure good flow of international private investment caused by non-commercial risks
MIGA was established in 1988 to encourage foreign direct investment (FDI) in developing nations
IMF was established to supply short term loans to get the member nations through temporary problems in their payment balance and advance international monetary co-operation
IBRD was created for the reconstruction of the European countries torn apart by wars and to encourage the development of under-developed countries across the globe. Unlike IMF it supplies long-term loans
The IDA was established in Sept 1960 as a subsidiary of the World Bank and is to assist the World Bank in its operations through provision of soft loans
The IFC was established on the July 20 1956 as an associate of the World Bank for financing to private sector companies in under-developed countries.
The ADB was established in order to meet the requirement for a separate regional bank in Asia and to supplement its financial resources and functions.
13.9 Glossary
Soft Loans: a loan on exceptionally favorable terms, for a worthy project.
Sovereign Loans: a loan by a financial institution to an overseas government, usually of an emerging country.
Non-sovereign Loans: are loans made to public enterprises that meet specific eligibility criteria, without the requirement of a sovereign guarantee by the host government.
13.10 Terminal Questions
1. Explain about the IBRD
2. Describe the Asian Development Bank
3. Write about the World Bank Group in brief
13.11 Answers
1936
False.
Settle international investment disputes and ensure good flow of international private caused by non-commercial risks
177
c)
True
Administrative and professional
Designed transactions, transactions by agreement and transactions in the general account
b)
True
44, 185
Capitals, reserves and raised loans
a)
False
Part I and part II
b)
False
4th
Sovereign and non-sovereign
Answers to terminal questions
As the very name of the financial institution implies it was created for the reconstruction of the European countries torn apart by wars and to encourage the development of under-developed countries across the globe (Refer 13.4)
With the backing of the United NarionsNations Economic Commission for Asia and the Far East (ECAFE) the Asian Development Bank (ADB) was established on Dec 19th 1966 with its headquarters in Manila in the Philippines. (Refer 13.7)
The World Bank Group established on December 27th 1945 consists of International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), International Centre for Settlement of Investment Disputes (ICSID), International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) (Refer 13.2-13.6)
13.12 Caselet
World Bank Assisted Project in India
The Ganga is India's most important river. Its sprawling basin accounts for one-fourth of the country's water resources and is home to more than 400 million Indians - or some one third of India's population. The river's 2,500 km journey from its glacial source in the Himalayas to its enormous fan-shaped delta in the Bay of Bengal traverses five Indian states along the mainstream, enriching huge swathes of agricultural plains, and sustaining a long procession of towns and cities.
As India's holiest river, the Ganga has a cultural and spiritual significance that far transcends the boundaries of its basin. It is worshipped as a living goddess, and since time immemorial, people from across the country have come to the many historic temple towns on its banks to pray and bathe in its waters.
The Government of India has tried in the past to tackle the growing pollution in the Ganga through the Ganga Action Plan. While the program had limited success in cleaning up the river, it suffered from many deficiencies in implementation.
Building on lessons from the past, the Government of India has developed a comprehensive vision for clean-up and conservation of the Ganga, beginning with the establishment of the National Ganga River Basin Authority (NGRBA) in 2009. The NGRBA has the mandate to develop a multi-sectoral program for ensuring that after 2020 no untreated municipal or industrial wastewater will be allowed to flow into the Ganga.
World Bank Support
The World Bank is supporting the Government of India in its efforts to achieve this national goal. It was agreed that the Bank would provide long-term support to the NGRBA Program, which will include developing and strengthening the institutions needed to implement it, and financing priority infrastructure investments.
The $1.556 billion National Ganga River Basin Project, with $1 billion in financing from the World Bank Group, including $199 million interest-free IDA credit and $801 million low-interest IBRD loan, was approved by the Bank's Board of Executive Directors on 31 May 2011 and will be implemented over eight years. The Project will support the National Ganga River Basin Authority (NGRBA) in:
Building up the capacity of its nascent operational-level institutions so that, they can manage the long-term Ganga clean-up and conservation program.
Apart from dedicated operational-level institutions at the Central and state level, the Project will also help the NGRBA set up a state-of-the-art Ganga Knowledge Centre to act as a repository for knowledge relevant for the conservation of the Ganga.
While NGRBA will fund investments (like sewage treatment plants, sewer networks etc) that are critical for reducing pollution in the Ganga, it is the cities and municipalities that will have to be responsible for managing and maintaining them in the long run. The Project will help build the capacity of city-level service providers responsible for running these assets and also modernize their systems for doing so.
The Project will also help strengthen the Central and State Pollution Control Boards for better monitoring the pollution in the Ganga, by modernizing their information systems and providing staff training. The Project will also finance the upgradation of the Ganga water quality monitoring system, as well as carry out an inventory of all the sources of pollution that affect water quality in the Ganga.
With the Implementationing of some demonstrative investments for, the reducing reduction of point-source pollution at priority locations on the Ganga,. tThe Project will finance pilots for new technologies or implementation arrangements, which could be transformative if successful and replicated on scale. The individual investments will be selected in accordance with the Framework for investments developed for the NGRBA Program.
Discussion Question:
What is The National Ganga River Basin Authority and how is it assisted by the World Bank?
Hint:
The NGRBA a comprehensive vision for clean-up and conservation of the Ganga is being provided financial assistance by the World Bank with $1 billion in financing from the World Bank Group, including $199 million interest-free IDA credit and $801 million low-interest IBRD loan, was approved by the Bank's Board of Executive Directors on 31 May 2011 and to be implemented over eight years
Source: http://www.worldbank.org/en/news/2012/05/31/india-the-national-ganga-river-basin-project
