Introduction:

International Financial Institutions (IFIs) are established by more than one country and subject to international law.  Owners and shareholders are generally governments or other international institutions. IFIs can refer to members of the World Bank Group such as International Finance Corporation (IFC); regional development banks such as Asian Development Bank (ADB) and European Bank for Reconstruction and Development (EBRD); and export credit agencies of individual country governments, such as US Export Import Bank (EXIM).

Body:

The Asian Development Bank unveiled a $1.5 billion Covid-19 package for India on Tuesday and is in discussions with the government on further aid for specific sectors. It’s also in discussions with the country’s private sector to provide support where needed.

The multilateral lender has begun consultations with India on providing support for micro, small and medium enterprises (MSMEs) and infrastructure projects through credit guarantees.

IFIs share the following goals and objectives:

• to reduce global poverty and improve people’s living conditions and standards;
• to support sustainable economic, social and institutional development; and
• to promote regional cooperation and integration.

Significance of International financial institutions:

• IFIs achieve these objectives through loans, credits and grants to national governments. Such funding is usually tied to specific projects that focus on economic and socially sustainable development.
• IFIs also provide technical and advisory assistance to their borrowers and conduct extensive research on development issues.
• In addition to these public procurement opportunities, in which multilateral financing is delivered to a national government for the implementation of a project or program, IFIs are increasingly lending directly to non-sovereign guaranteed (NSG) actors.
• These include sub-national government entities, as well as the private sector.
• IFIs are important in project finance because they play a significant role in supporting large scale infrastructure projects in emerging markets.
• They can provide critical capital and catalyze the participation of other players.
• IFIs take a long-term view with respect to an investment and have a stronger appetite for risk. They are prepared to finance projects which commercial lenders are not.
• IFIs have been set up for different reasons compared to commercial lenders. Although certain IFIs are mandated to lend based on “sound banking principles”, other considerations are relevant. EBRD and IFC invest only where it can provide “added value”, by investing in projects that could not otherwise attract private capital on similar or reasonable terms.
• Lastly, International financial institutions measure risk by the government or company’s ability to repay, its level of debt and what the group can offer as collateral in case of default.

Conclusion:

All international financial institutions have the same central goals:  to promote economic and social progress in poor or developing countries by helping raise standards of living and productivity to the point at which development becomes self-sustaining.

The IFIs remain central to the functioning of the global financial system through their provision of policy advice, financing for development, global public goods, financial safety nets and rules-based framework for international economic activity.