International Financial Institutions or IFIs are institutions that provide financial and technical support for economic and social development activities in developing countries promoting international economic cooperation and sustainable development. Each IFI is an independent organisation with its own legal and management system, but since a large number of countries have membership in several IFIs, cooperation between them is well established.
In principle IFIs provides temporary financial assistance to countries facilitating sustainable development in line with the specific objectives defined by the IFI. The financial support can be provided via long-term loans based on the market interest rates, very-long term loans at interest rates below market rates and grants providing technical assistance, advisory services or project preparation. IFIs can also provide a mix of loans and grants, equity or guarantees. 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.
All IFIs use country strategy documents, as these are fundamental to establishing an IFI’s lending priorities for a particular country. Based on the country’s own vision for its long-term development and written by the IFI, these documents lay out the IFI’s support program for the respective nation.
References: Bhargava, Vinay. 2006. Global Issues for Global Citizens : An Introduction to Key Development Challenges. Washington, DC: World Bank. © World Bank. https://openknowledge.worldbank.org/handle/10986/7194 License: CC BY 3.0 IGO.
Project cycle is a useful way to understand the various stages that any project will probably go through. The same approach will apply when you are dealing with a simple project idea within your own organisation or a complex project supported by a number of external funders.
Different funding agencies use different terms, but the principles behind the process are basically the same (see Figure 1). An in-depth presentation of generic stages included in the Project cycle, particularly, project preparation stages are included in in Annex 1. Detailed description of the project cycle characteristic for IFIs operating in Central Asia will be presented in the relevant subsections of Section 2.
Figure 1 General stages of the project cycle
References: Environmental Project Development Manual (1997) Environmental Know-how Fund, Phare.
Blending is the strategic use of a limited amount of grants to mobilise financing from partner financial institutions and the private sector to enhance the development impact of investment projects. Blending mechanisms allow for combining loans from public or private financial institutions with EU grants, providing donor organisations with the opportunity of attracting additional funds by mobilising loans from financial institutions and providing them greater impact on the formulation of policies and/or on the way projects are set up and managed. Furthermore, blending loans and grants can promote cooperation between stakeholders in development aid and can enhance the visibility of aid.
Beyond the specific development objectives defined for each operation, the use of blending reflects the following specific goals:
- financial leverage: mobilise public and private resources for enhanced development impact and do more with less;
- non-financial leverage: improve project sustainability, development impact, quality, innovation and enable a faster project start;
- policy leverage: support reforms in line with EU and partner country policies;
- aid effectiveness: improve cooperation between European and non-European aid actors (i.e. donors and financial institutions)
- visibility: provide more visibility for EU development funding.
Blending operations may constitute an opportunity to engage in a dialogue between EU and CA governments on specific sector policies – also on the regional level.
More detailed information on blending can be found in here.
European Court of Auditors (2014) Special Report: The effectiveness of blending regional investment facility grants with financial institution loans to support EU external policies European Commission, Directorate-General for International Cooperation and Development (November 2015), Guidelines to EU blending operations (ISSN 1977-8309). Available from: https://www.google.lv/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&cad=rja&uact=8&ved=0ahUKEwjP0fbFztLYAhWHhKYKHct9D6YQFggoMAA&url=https%3A%2F%2Feuropa.eu%2Fcapacity4dev%2Ffile%2F29926%2Fdownload%3Ftoken%3DA_BGHkcb&usg=AOvVaw2stwTbLgwxnMlWBh-I7j9Y
Promotion of sustainable development all over the world is of the key goal of all major IFIs and other international funding organisations. This is why all of these organisations put environmental and social responsibility at the heart of their activities. In technical terms it means that most of supported projects depending on their scale and potential impact will go through a very detailed assessment with regards to potential environmental and social impact. Overall the following issues are taken into consideration:
- climate change mitigation and adaptation,
- promotion of renewable energy,
- sustainable management of water resources and improvement of water quality, including drinking water and waste water management,
- protection, conservation, maintenance and rehabilitation of natural habitats,
- promotion of sustainable farming practices,
- reduction of social, racial and gender inequality, etc.