INTERNATIONAL MONETARY FUND
The International Monetary Fund (IMF) is an organization of 190 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
Established in 1944, 44 founding members, today number of member countries 190, staff from 150 nations.
Objectives of IMF
l To improve and promote global monetary cooperation of the world.
l To secure financial stability by eliminating or minimizing the exchange rate stability.
l To facilitate a balanced international trade.
l To promote high employment through economic assistance and sustainable economic growth.
l To reduce poverty around the world.
Financial Assistance by IMF
Domestic factors include inappropriate fiscal and monetary policies, Exchange rate problems, , political instability, and weak institution etc.
External factors include shocks ranging from natural disasters to large swings in commodity prices.
The COVID-19 pandemic was an example of external shock affecting countries across the globe. Some other crises situations are depicted below:
l Balance of payment problems occur when a nation is unable to pay for essential imports or service its external debt.
l Financial crises stem from illiquid or insolvent financial institutions.
l Fiscal crises are caused by excessive deficits and debt.
IMF funds come from following three sources:
1. Member quotas- Quotas are the IMF’s main source of financing. Each member of the IMF is assigned a quota, based broadly on its relative position in the world economy. At present, India has quota of 2.75% (with 13,114.4 million of Special Drawing Rights) of total quota at IMF with 2.63% of voting rights.
2. New Arrangements to Borrow- From member countries and institutions.
3. Bilateral borrowing agreements- Activation of the agreements requires support of 85% of creditors eligible to vote.
The IMF Surveillance
Fund do regular check on members countries, also identifies possible risks of economic stability of member countries.
The IMF Capacity Development
The IMF provides technical assistance and training to governments, including central banks, finance ministries, revenue administrations, and financial sector supervisory agencies.
*Data extracted from the IMF website on June 05, 2023.
(For more information, students may visit https://www.imf.org/external/)
World Bank is an international organization affiliated with the United Nations (UN) and designed to finance projects that enhance the economic development of member states. Headquartered in Washington, D.C.
Five Constituent Institutions under World Bank
The World Bank Group comprises following five constituent institutions that share a commitment to reducing poverty, increasing shared prosperity, and promoting sustainable growth and development.
1. The International Bank for Reconstruction and Development (IBRD) - provides loans at market rates of interest to middle-income developing countries and creditworthy lower-income countries.
2. The International Development Association (IDA) - provides interest-free long-term loans, technical assistance, and policy advice to low-income developing countries in areas such as health, education, and rural development.
3. The International Finance Corporation (IFC) - operating in partnership with private investors, provides loans and loan guarantees and equity financing to business undertakings in developing countries.
4. The Multilateral Investment Guarantee Agency (MIGA) - Loan guarantees and insurance to foreign investors against loss caused by non-commercial risks in developing countries are provided by the MIGA.
5. The International Centre for Settlement of Investment Disputes (ICSID) - is responsible for the settlement by conciliation or arbitration of investment disputes between foreign investors and their host developing countries.
World Bank Leadership
Priorities of World Bank Group
v Climate Change
v Food Security
v Human Capital Project (HCP)
Human capital consists of the knowledge, skills, and health that people invest in and accumulate throughout their lives, enabling them to realize their potential as productive members of society.
As of October 2022, 86 countries at all income levels are working with the World Bank Group on strategic approaches to transform their human capital outcomes.
INTERNATIONAL FINANCE CORPORATION (IFC)
History of IFC Started in 1957
Today, IFC is the largest global development institution focused on the private sector, having delivered nearly $250 billion in financing to businesses in emerging markets.
The Bank Group has set two goals for the world to achieve by 2030:
1. End Extreme Poverty; and
2. Promote shared prosperity in every country.
IFC was founded in 1956 on a bold idea: that the private sector has the potential to transform developing countries. Since then IFC has expanded its horizons in more than 100 countries, coining the term “emerging markets” and pioneering new markets such as sustainable bonds. The mission of IFC is Advance economic development by encouraging the growth of private enterprise in developing countries.
The International Finance Corporation (IFC) is an international financial institution that offers investment,advisory, and asset-management services to encourage private-sector development in developingcountries.
The IFC helps the countries to develop their private sectors in a variety of ways:
l Investing in companies
l Mobilizing capital
l Advising businesses and governments
The IFC is owned and governed by its member countries but has its own executive leadership and staff that conduct its normal business operations. It is a corporation whose shareholders are member governments that provide paid- in capital and have the right to vote on its matters.
Functions of IFC
l It provides a wide range of investment and advisory services that help businesses and entrepreneurs in the developing world meet the challenges they face in the marketplace.
l It offers innovative financial products to private sector projects in developing countries.
l It also provides advisory services that help build businesses.
l It can provide a mix of financing and advisory services that is tailored to meet the needs of each project.
Funding by International Finance Organization
IFC’s first investment came in September 1957 with SIEMENS.
IFC is an active issuer of ESG bonds also known as Socially Responsible Investments.
All projects financed by IFC must adhere to stringent ESG standards and our Sustainability Framework which help our clients do business in a sustainable way.
A brief on some of the funding instruments are discussed below:
l Benchmark & Global Bonds- IFC issues various Benchmark and Global Bonds such as U.S. Dollar Benchmark Bonds, USD SOFR Floating Rate Notes Bonds, Australian Dollar Public Bonds, British Pound Sterling Public Bonds, New Zealand Dollar Public Bonds etc.
l Discount Notes- IFC’s Discount Note Program was launched in June 2009 and provides an additional funding and liquidity management tool for IFC to support our trade finance and supply chain initiatives, and to expand the availability of short-term local currency finance. Our discount notes offer a high-quality, short-term investment opportunity in U.S. dollar and Chinese renminbi.
l Green Bonds- IFC is one of the world’s largest financiers of climate-smart projects for developing countries. IFC was also one of the earliest issuers of green bonds, launching a Green Bond Program in 2010 to help catalyze the market and unlock investment for private sector projects that support renewable energy and energy efficiency.
l Impact Notes - IFC is one of the world’s largest financiers of climate-smart projects for developing countries. Since 2005 - when we started to track climate-smart components of our investments and advisory services - IFC has provided more than $28 billion in long-term financing and raised over $22.3 billion in core mobilization through partnerships with investors. IFC was also one of the earliest issuers of green bonds, launching a Green Bond Program in 2010 to help catalyze the market and unlock investment for private sector projects that support renewable energy and energy efficiency.
l MTNs & Structured Notes- IFC aims to maintain the position as an active and flexible issuer of plain vanilla and structured notes. Our structured notes offer investors a yield pickup and can accommodate investor needs.
l Social Bonds - IFC’s Social Bond Program, launched in 2017, offers bond investors an opportunity to allocate investments to the achievement of certain SDGs without any additional credit risk than that of IFC as a triple-A rated issuer. Proceeds from the bonds go towards financing select projects from IFC’s Banking on Women and Inclusive Business programs, which benefit under- served populations in emerging markets including women and low-income communities with limited access to essential services such as basic infrastructure, finance etc. IFC is a frequent issuer of social bonds in public and private markets, in various currencies and tenors. The Social Bond Program aligns with the Social Bond Principles published by the International Capital Market Association (ICMA).