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International Financial Institutions (IFI)

Most developing countries depend on foreign capital and know-how to make progress in their development. The private sector is one source of these resources, but because of the risk involved the amounts are insufficient. Helping fill the gap are such international financial institutions as the World Bank, regional development banks and funds and the International UN-Fund for Agricultural Development, IFAD.

On the basis of the capital resources that their members have paid and subscribed for, development banks raise money on international capital markets which they then make available to developing countries at conditions similar to those on the market for projects and investments. In contrast to normal commercial banks, development banks complement their credit grants with advisory and consulting activities.

But these financial possibilities are not sufficient for all developing countries, particularly the poorest which can make only limited use of the money. Therefore the development banks have set up supplementary funds: the IDA of the  World Bank, the African and Asian Development Funds and the Fund for Special Operations, FSO of the Inter-American Development Bank. These funds grant credits at favourable rates of interest and longer repayment periods or non-repayable grants to the poorest member countries. Donor countries such as Switzerland replenish these funds every three of four years with contributions, thus ensuring bank liquidity over the longer term. Among the funds is included the Multilateral Investment Fund, MIF, of the Inter-American Development Bank, which works on behalf of small and micro enterprises.

The most important development banks and funds

The most important development bank is the  World Bank. It was set up in July 1944, the same year as the International Monetary Fund, IMF, in Bretton Woods in the United States. However the so-called Bretton Woods Institutions have different mandates. The IMF is responsible for ensuring and encouraging international financial stability while the World Bank is charged with the economic and social development of member countries and the fight against poverty.

The regional development banks (African Development Bank, Asian Development Bank, Inter-American Development Bank) are modelled on the structure of the World Bank. The difference is that the member states of the regional institutions have the majority of the equity shares and thus have greater control. The regional development banks finance projects and programmes exclusively in the region of the member countries. As with the World Bank their main goal is fighting poverty and promoting sustainable economic and social development.

To promote specifically the private sector in developing countries, the World Bank can count on the services of the International Finance Corporation, IFC. The IFC grants credits to local private enterprises and participates in their share capital. The International Investment Corporation, IIC, a daughter organization of the Inter-American Development Bank, functions on the same principle, focussing on granting credits and share capital in small and medium-size enterprises. The Multilateral Investment Guarantee Agency, MIGA, of the World Bank promotes investments by foreign companies in developing countries. For this purpose MIGA protects investors against non-commercial risks such as political unrest.

The United Nations International Agricultural Development Fund, IFAD pursues the goal of increasing food production around the world. This fund is replenished every three years.

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