PROJECT APPRAISAL

AND FINANCE
Group 9 Members:
Krishna Agrawal (20JMBAR014)
Sachin Seetaram Acharya ( 20MBAJ0010)
Vimal Krishnan V (20MBAJ0019)
Vinay Sai gs (20MBAJ0099)
Reddy Akkamma Bharath (20MBAJ0062)
CONTENTS
 Various innovative sources of international finance available to
Companies.
 Multilateral development finance institutions
 Export credit options available
 INTERNATIONAL FINANCE
 International finance defines as always towards international financial management. It is also
called as multinational finance. Multinational companies, individuals and investors need
evaluate to take care of international issues like foreign exchange risk additionally
governmental risk, including economic, transaction, and translation distinguish-ability.

 International finance helps organizations engage in cross-border transactions with foreign

business partners, such as customers, investors, suppliers and lenders. Various international
sources from where funds may be generated.
 The understanding of the International Finance can be illustrated
in the following points below: 

 International finance is the study of monetary interactions which happens between two or
more countries.

 International finance talks about foreign direct investment and currency exchange rates.

 Increase in globalization has intensified the importance of international finance.

 The concept of International Finance crosses the barriers of the nations and deals about the
international funding rather than restricting itself to particular national boundaries.
Various Innovative Sources Of International
Finance
 Commercial Banks

 Development Banks & Financial Institutions

 International Agencies

 International Capital Markets

(a) American Depository Receipts (ADR’s)
(b) Global Depository Receipts (GDR’s)
(c) Foreign Currency Convertible Bonds (FCCB’s)
 Commercial Banks
 Companies can borrow foreign currency from commercial banks all over the world.
 They're essential for non-trade foreign activities finance. Bank loans and services vary by
country.
 One example of this is Standard Chartered emerged as a major source of foreign currency
loans to the Indian industry.

 It is the most used source of international financing.

 Development Banks & Financial Institutions

 The EXIM Bank of India provides a number of credit facilities to Indian Businessmen and
foreign importers.
 The all-India Financial Institutions are providing foreign currency financial assistance to Indian
Projects through various lines of credit already procured by them from International Financial
Market are raising funds in international finance market.
 AIFIs are raising funds in International finance market through issue of bonds to cater the needs
of domestic projects.
 International Agencies
 A number of international agencies have emerged to finance international trade and business such
as IBRD, IDA, IFC, IMF, ADB, etc. IBRD and IDA make loans for high priority projects in
member countries to further their development plans.
 These are made usually to the governments or the entities enjoying credit of governments IFC
usually assets developing countries in promoting private enterprise.

 ADP provides financial assistant to its members countries in Asia Pacific Region.
 The IMF provides temporary or emergency currency reserves to countries in balance of payments
difficulties, just as a local commercial banks provide overdraft facility to the companies
 International Capital Market
 Lending and borrowing in foreign currency to finance the international trade and industry has
led to development of international capital market. The last decade and a half has witnessed the
Global dispersion of finance industry. Massive cross- border capital flows have been taking
place. While opening up of domestic market had begun around the end of 1970's, this trend is
now spreading to developing countries also.

Various constituents and instruments of global capital market are:

(a) American Depository Receipts (ADR’s)
(b) Global Depository Receipts ( GDR’s)
(c) Foreign Currency Convertible Bonds (FCCB’s)
 American Depository Receipts (ADR’s)

 This a tool often used for international financing. As the name suggests, depository receipts
issued by a company in the USA are known as American Depository Receipts.

 ADRs can be bought and sold in American markets like regular stocks. It is similar to a GDR
except that it can be issued only to American citizens and can be listed and traded on a stock
exchange of the United States of America.
 Global Depository Receipts ( GDR’s)

 In the Indian context, a GDR is an instrument issued abroad by an Indian company to raise funds
in some foreign currency and is listed and traded on a foreign stock exchange.

 A holder of GDR can at any time convert it into the number of shares it represents.

 The holders of GDRs do not carry any voting rights but only dividends and capital appreciation.
 Many renowned Indian companies such as Infosys, Reliance, Wipro, and ICICI have raised
money through issue of GDRs.
 Foreign Currency Convertible Bonds (FCCB’s)
 Foreign currency convertible bonds are equity-linked debt securities that are to be converted into
equity or depository receipts after a specific period.
 A holder of FCCB has the option of either converting them into equity shares at a predetermined
price or exchange rate or retaining the bonds.
 The FCCB’s are issued in a foreign currency and carry a fixed interest rate which is lower than the
rate of any other similar nonconvertible debt instrument.
 FCCB’s resemble convertible debentures issued in India. It is true that businesses need funds but
the funds required in business are of different types - long term, short term, fixed and fluctuating.
That is the reason why business firms resort to different types of sources for raising funds.
 Multilateral Development Finance Institution
The purpose of MDFIs is to facilitate financing and provide advisory services for developing
Countries. Work as financing institutions that provide stable and long-term financing for various
projects within developing countries.

 The projects include:

 Infrastructure projects
 Energy projects
 Education
 Environmental sustainability projects
 How MDFI differ From Commercial Banks

 Commercial banks provide financing services with the objective of making a profit, while
MDFIs provide lower-cost financing with the goal of improving economic conditions in
developing countries.

 MDFIs are unique in that they do not seek to gain substantial profits for shareholders. Instead,
they set objectives and development goals to reduce economic inequality within the world.
 List of MDFI’s
 WORLD BANK GROUP (IBRD, IDA, IFC, MIGA, ICSID)

 ASIAN DEVELOPMENT BANK (ADB)

 INTERNATIONAL MONETARY FUND (IMF)

 INTERNATIONAL FUND FOR AGRICULTURAL DEVELOPMENT (IFAD)

 GLOBAL ENVIRONMENT FACILITY (GEF)

 WORLD BANK GROUP
1.International Bank for Reconstruction and Development (IBRD)
 Founded in 1944
 All IBRD loans are guaranteed by creditor governments through appropriations decided by their
individual governments.
 IBRD finances investments across all sectors and provides technical support and expertise at
each stage of a project.
 IBRD which provides loans to middle-income and credit-worthy low-income country
governments.
 Most IBRD funds come directly from bond sales.
 2. International Development Association( IDA)

 Founded in 1960
 Zero to low-interest loans (called “credits”) and grants for programs that boost economic
growth, reduce inequalities, and improve people’s living conditions.

 Repayments of loans are stretched over 30 to 40 years, including a 5 to 10 years of grace
period.

 IDA also provides grants to countries at risk of debt distress.

 IDA which provides interest-free loans and grants to the governments of the poorest countries
 3. International Finance Corporation

 It was established in 1956

 Its money comes from capital subscription of its members.

 IFC’s investment are in manufacturing followed by mining, energy, tourism and public utilities.

 Its goal are to increase sustainable agriculture opportunities, improve healthcare and education, increase access to

financing for microfinancing and business clients, advance infrastructure, help small business grow revenues, and
invest in climate health.
 4.Multilateral Investment Guarantee Agency (MIGA)

 On April 12, 1988 an international convention established MIGA as the newest member of the
World Bank Group

 MIGA was created to complement public and private sources of investment insurance against
non-commercial risks in developing countries.

 The mission is to promote foreign direct investment (FDI) into developing countries to help
support economic growth, reduce poverty, and improve people's lives.
 5. International Centre for Settlement of Investment Disputes
(ICSID)

 Established in 1966

 For legal dispute resolution and conciliation between international investors and States

 ICSID which provides international facilities for conciliation and arbitration of investment disputes
 The Indonesian government was sued in June 2012 by a London-based mining company Churchill
Mining after the local government revoked the concession rights held by a local company in which
the firm had invested . The government is countering the Churchill case, claiming that Churchill did
not have the correct type of mining licenses.
 ASIAN DEVELOPMENT BANK (ADB)

 Established in 1966
 ADB supports projects in developing member countries that create economic and development
impact, delivered through both public and private sector.
 ADB’s objective is to support economic development in Asia and the Pacific by promoting
investment through the provision of loans, grants, equity participation, guarantees and technical
assistance.
 Its financing is available for private sector projects that have a clear development impact.
 It is able to offer political risk guarantees for loans from commercial banks, shareholders, guaranteed
loans, bonds, financial leases, letters of credit, promissory notes and bills of exchange.
 INTERNATIONAL MONETARY FUND (IMF)
 Founded at the Bretton Woods Conference in 1944 to secure international monetary cooperation.
 The IMF is headed by a board of governors, each of whom represents one of the organization’s
approximately 180 member states
 Each member contributes a sum of money called a quota subscription. Quotas are reviewed every five
years and are based on each country’s wealth and economic performance—the richer the country, the
larger its quota
 The quotas form a pool of loanable funds and determine how much money each member can borrow
and how much voting power it will have.
 IMF’s principal activities have included stabilizing currency exchange rates, financing the short-term
balance-of-payments deficits of member countries, and providing advice and technical assistance to
borrowing countries.
 INTERNATIONAL FUND FOR AGRICULTURAL
DEVELOPMENT (IFAD)

 Its foundation in 1977

 Headquartered in Rome, Italy, IFAD is involved in over 200 projects across nearly 100
countries.
 International financial institution and a specialised agency of the United Nations that works to
address poverty and hunger in rural areas of developing countries
 It is the only multilateral development organization that focuses solely on rural economies
and food security.
 It funds and sponsors initiatives that improve land and water management, develop rural
infrastructure, train and educate farmers in more efficient technologies, build up resilience
against climate change, enhancing market accessibility.
 GLOBAL ENVIRONMENT FACILITY (GEF)
 The GEF works with partners to tackle the planet’s biggest environmental issues. 
 GEF is also an INNOVATOR AND CATALYST that supports multi-stakeholder alliances to
preserve threatened ecosystems on land and in the oceans, build greener cities, boost food security
and promote clean energy for a more prosperous, climate-resilient world; leveraging $5.2 in
additional financing for every $1 invested.
 The GEF Trust Fund was established to help tackle our planet’s most pressing environmental
problems.
  Funds are available to developing countries and countries with economies in transition to meet the
objectives of the international environmental conventions and agreements.
 EXPORT CREDIT OPTIONS AVAILABLE

Export credits are government financial support, direct financing, guarantees, insurance or interest rate
support provided to foreign buyers to assist in the financing of the purchase of goods from national
exporters.
In India, export credit is available both in Indian rupees and foreign currency as discussed here:

 Export credit in Indian rupees

The Reserve Bank of India (RBI) prescribes a ceiling rate for the rupee export credit linked to
Benchmark Prime Lending Rates (BPLRs) of individual banks available to their domestic borrowers.
However, the banks have the freedom to decide the actual rates to be charged with specified ceilings.

 Pre-Shipment Credit
Pre-shipment credit means any loan or advance granted by a bank to an exporter for financing the
purchase, processing, manufacturing, or packing of goods prior to shipment. It is also known as packing
credit. As the ultimate payment is made by the importer, his/her credit worthiness is important to the
bank.
Up to 180 days. Against incentives receivable from the government covered by Export Credit and
Guarantee Corporation (ECGC) guarantee up to 90 days
  Post Shipment Credit
Post-shipment credit means any loan or advance granted or any other credit provided by a bank to an
exporter of goods from the date of extending credit after shipment of goods to the date of realization of
export proceeds. It includes any loan or advance granted to an exporter, in consideration of any duty
drawback allowed by the government from time to time.
 On demand bills for transit period, as specified by FEDAI (Foreign Exchange Dealers Association
of India)
 Usance bills (for total period comprising usance period of export bills, transit period as specified by
FEDAI, and grace period, wherever applicable)
 Up to 90 days
 Up to 365 days for exporters under the Gold Card Scheme.
 TYPES OF EXPORT FINANCE
 Pre-shipment export finance:
The exporter is provided finance even for the purchase of raw materials and processing them into
finished products but this finance can be provided only when the exporter has firm order from the
importer and the importer has also given an anticipatory Letter of Credit from his bank. So, against the
export order received from the importer, the exporter is given finance by his bank which is called pre-
shipment export finance.

 Post shipment export finance:

After dispatching the goods to the importer, the exporter draws a bill, against which the importer will
make payment. But this may take a minimum period of 3 to 6 months and this time gap will affect the
exporter in his continuation of production. For this purpose after exporting, the export bill will be
presented by the exporter to his bank. The bank will prefer to purchase the bill or collect the bill or
even discount the bill, which depend on the economic status of the importing country.
Export finance against collection of bills:
When exporting to different countries, a bank loan can be obtained against the bills sent for
collection. Banks will come forward to provide financing to exporters because there are
institutions such as the Export Credit Guarantee Corporation. In the event of a default, the
guaranteeing company will pay at least 80% of the defaulted amount.

 Deferred export finance

To enable the importer to purchase valuable goods, hire purchase financing or lease finance may
be arranged. There are two types of deferred export finance.

 Supplier’s finance; and

 Buyer’s finance.
 Supplier’s finance in exporting:

In the supplier’s finance, exporter’s bank will finance the exporter so that he will sell the goods
on installment basis to the importer. The exporter will receive the full value and the payment
made in installments by the importer will be received by the exporter’s bank.

 Buyer’s Finance in exporting:

In buyer’s finance, the buyer is given credit under line of credit by the exporter’s bank and the
exporter will be made to export.
Institutions involved in export finance:
Number of institutions have not only emerged in providing export finance but even the existing
institutions have opened up various avenues in granting export finance. The institutions are:

 Export Import bank

 Commercial banks, both nationalized and non-nationalized
 Development banks such as IDBI, ICICI, etc.
 Small Industries Development Bank of India
 State Finance Corporations
 National Small Industries Corporation
 Export Credit Guarantee Corporation.
THANK YOU