Development Banks

/

UNITED NATIONS

AFRICAN INSTITUTE FOR ECONOMIC DEVELOPMENT AND PLANNING

DAKAR

IDEP/ET/XXXV/303

Originals French

Mr. Chafanel

hoi ''it

DEVELOPMENT BANKS

Financing development consists "both in maintaining and extending

the processes which tend to expand

(Commercial

credit, production credit-

social

credit...)

^- these have already been examined - and to promote enterprises and new structures by means of long term and medium term financial operations, so as to stress development, to consolidate it

and to change the very characteristics of the economy.

In developing countries, where the monetary sector is small, where public resources are scarce, where the tendency to save is not very strong

because incomes are low, where resources in foreign currency are often limited, where it is important to avoid excessive inflation which by ruining the money would throw the country in rudimentary economy, a

specific action seems indispensable. This is why we saw several organs

being set up to insure the financing of development.

Without wasting any time in studying some of the well known systems

set _up by countries who had a particular responsibility in Africa, these

mechanisms still play an essential role

(Colonial

Development

Corporation,,

Caisse Centrale de Cooperation Economique, various

Funds),

we will have

to study attentively new Institutions.

a)

Worldwide Institutions ^- IBRD, IFC, IDA

b)

Regional Institutions - European Investments Bank

(and

its development fund for overseas

countries),

Inter-American Development Bank - Arab Development Bank ^- Central American Bank for Economic integration and especially the African Deve-

\-

lopment Bank established on August 4>

1963

^•

c)

National Institutions: National Banks for Development and similar Institutions.

+ Translator's note: Only the Agreement establishing the Bank was signed

on August 45

1963.

IDEP/ET/XXXV/303

Page 2

Here we shall examine í

- Worldwide Institutions : IBRD, IPC, IDA

- The African Development Bank

- National Banks and National Institutions for Development.

I - WORLDWIDE INSTITUTIONS

The International Bank for Reconstruction and Development was

especially meant, at first, to give a new start to International Investment

Mechanisms. This hope was premature and the Bank itself came to realize

that it was necessary to divers if.~y its action hy the creation of the

International Finance Corporation and later the International Association

for Development.

A ^- I. B. R. D.

Since

1946,

the number of its members increased steadily

(102

by June 30?

1964)»

4 country must belong to the International

Mo¬

netary Fund to be able to belong to the Bank.

(None

of the countries

of the "Oriental Bloc" are

members).

The capital of the bank is made of a number of quotas the amount

of which is computed so as to be proportional to the economic im¬

portance of the country

(national

^revenue, foreign trade, monetary

reserves).

These quotas comprise a paid ^up portion equivalent to

20^

of the subscribed capital to assume the obligations of the Bank

to the lenders

(sign

of financial solidarity amongst the

members).

The Bank is managed by a Board of Governors

(1

for each member country - each governor has voting rights for 250 ^votes plus one extra vote for each $ 100.000.00 portion of the

capital)

and a Board

of Directors

(18

Directors but this number may increase s five re¬

present the five States whe own the greatest number of shares and

13 must be from various countries thus assuring as wide a geo¬

graphical representation as

possible).

a)

The resources of the Bank ^s

- Paid up part of the Capital

(20 %)

ⁱ

2$

must be paid in Gold

or in dollars^ and the bank may dispose of it as it pleases;

IDEP/ET/XXXV/303

Page 3

18

$

are paid, in the currency of the member State

and.

can

only be

disposed of with tho countries consent. But, ^as we have just said, the remaining

80 fo

constitute the security in order to

assure the credit of the Bank(1 )^.

- Surpluses and reserves which _are, of course, the bank's own

funds.

- Loans

(The

State on whose market the loan is taken must accept

that the product of the loan may be exchanged for the money of any other member

State).

b)

^Use of the Bank;

- The Bank may grant direct loans, take part in loans, guarantee

loans granted by the private sector, and this, of course in con¬

formity with its aim : to assist in the Development of member

States.

- conditions of acceptance of requests for loans;

. priority must be given to the "most useful and most urgent

projeccts"

(General

economic utility contribution of the project

to the realization of a development

plan)5

. Reimbursement possibilities

(financial

profitability of reim¬

bursement)

verification of the state of indebtedness of the country and of its balance of payments.

. if the loan is not granted to a State, it must be guaranteed by it or by the Central Bank and this is compulsory.

. a well defined aim

(

exceptions: e.g. the financing of part

of the Congo-Leo

plan);

and loans to Banks of development

. the financing must only, in principle, apply to expenses in

hard currency _, in connexion with the project;

. it must not compete with other equivalent sources of credit:

the Bank must be convinced that the country could not find elsewhere at acceptable conditions, tho funds needed.

(ï)

The subscribed capital doubled in 1959? came to

21.186

million

dollars on 30 june

1984»

IDEP/ET/XXXV/303

Page 4

"but the Bank may lend money Both to public communities and private enterprises.

The Bank studies the file

(its

economical, technical and finan¬

cial

aspects)

of the project hy referring to consultants, taking it

into consideration _, and detailed studies ^are carried out, on the spot hy special missions, -opening of négociations, - presentation of the

project to the Board of Directors who is then in possession of a spe¬

cial report of the Loan Committee, a report on the economy of the country

and of a report on the project

(detailed report).

The withdrawals

will

he made when the effective expenses have heen verified.

c)

Activities of the Bank.

By 30 June

1964>

IBRD granted

4OO

loans representing a

total

amount of 7*792 million dollars and was in possession of a

portfolio of loans amounting to 4*949 million dollars.

India was on top of that list of borrowers and Asia had

received

1/3

of all financing. Transportation

and

^energy

which

form the hasis of the economic infrastructure constituted

2/3

of total contrihutionss the share of the industry was ahout 15

$

of the whole and that of agriculture 10

$.

For fiscal

year

1963/64,

a total amount of

809

million

dollars,

trans¬

portation reœeived 313 millions, electrical energy 3755millions, industry 73 millions, agriculture

26

millions, the rest

20

millions.

IBRD is characterized hy the very high amount of the loans

(l/3

of loans are higher than

20 million dollars and 1/3 between

10 and 20 million dollars and the fact that the loans granted

are rather long term loans

(ahout 10$

of the loans for more

than 10 _years,

70$

between 10 and 20 years for less

than 20 years).

What the Bank charges for loans:

- a variable commission

(between

0.5 and 1.5

$

^of the unpaid

balance ^- in fact set at 1

$$

- the same rate of interest since 1957, whatever the duration,

the amount, the purpose or the legal personality of the lender?

a rate linked to the real cost of its loans

(maximum

=

6.25$,

63/64

^-

5*50$)}

IDEP/ET/XXXV/303

Page 5

— a franchise period, taking into consideration the duration of

the loan _, is granted.

This rate policy has "been criticized.

The _average yearly amount of the loans for development financed

"by IBRD is about

800

million dollars, this is to say about 15

Í°

of the total official contributions by Western countries

to developing countries. The Bank now has important and diver¬

sified _resources, its shares are very much sought after, it can count on an increasing amount of reimbursements, it has set up

a satisfactory system of loan transfers and of joint financing operations, its reserves and revenues are considerable. Its

power is undeniable, its role as a prime mover is certain, its

intervention has been much sought after to solve international

f-inancial problems

(consortium

for help to India and

Pakistan),

and finally it took an active part in the enonoiation and the spreading of the doctrine of development. Its influenco in

many countries thus goes beyond the results of the financing undertaken and of the technical assistance given. Others, on the

other hand, express some reservations as to what they think is

the philosophy of the Bank

(the

role that it seems to give to the enterprise and particularly to private

capital).

»F.C«

A twofold purpose was the basis of its establishments the requi¬

rement of a governmental guarantee as stipulated in the by-laws prevented small and medium size enterprises from soliciting a

loan, as they were reluctant to ask for such guarantee, - as IBRD did not succeed in bringing about an important current

of direct private investments in developing countries, it was necessa¬

ry to complete its action by a more specialized institution the purpose of which would be to encourage and facilitate the initiatives of private investors. The mission of IPC is thus well defined ï it is only interested in private enterprises, it alone decides

(without

referring to governmental

priorities)

whether or not the project is worth while, it takes the earning potential into

consideration.

\

IDEP/ET/XXXV/303

Page

6

The number of members of IFC

(73

by 30 June

19^3)

is smaller than the number of members of IBRD, but ^one must be a member of IBRD

to belong to the Corporation.

The subscriptions which are payable in gold or in convertible curren¬

cy

®ujst_j3e_j3aid_jjd^ (they

^are

^quite proportional

to

the

IBRD quotas

(35

million dollars for the USA on a total of 100

millions).

The administration of IFC is assured by a Board of Governors

(1

^for

each member

country)

which may delegate its powers to a Board of

Directors

(except

for reserved

matters).

Each member country disposes

of 250 votes plus one vote per share, thus right to vote is practically proportional to the subscriptions.

a)

^Resources of the Corporation

- Initial capital

(in

^principle 100 million dollars, exactly 98 million dollars on 30 June

1963)

- Loans

- Profits

- Benefits derived from transfers of loans: the social capital should merely be a working capital reconstituted by these transfers

(danger

of accumulation of bad risks, - in fact few

transfers)

b)

Operations of the corporation;

The corporation must contribute to finance the establishment, the modernization, the enlargement of enterprises and to promote new invest¬

ment initiatives by bringing together local private capital and foreign capital and by putting this capital at the disposal of experienced management.

- Conditions for the acceptance of the request;

. it must be a private productive investment. The IFC is only

interested in private enterprises: it excludes investments per¬

taining to infrastructure and other investmentsfinanced by IBRD

and is interested essentially, at least in the beginning, in

industrial investments and investments in mines;

. the financing of the Corporation must have and keep a complemen¬

tary character

(it

intervenes to complete the insufficiency

of private funds and bank loans, and only in cases where

IDEP/ET/XXXV/303

Page 7

normal sources cannot furnish the balance at acceptable

conditions).

- Criteria for choice of projects*

» "the multiplier effect"

(on

private

investments)

. a high financial profit .

- Terms of granting loans:

. loans under various forms, but with a fixed interest plus a variable complementary revenue according to the results of the

enterprise

(mid-way

between bondholder and

shareholder)5

, participation in the form of shares

(without

being able to exerci¬

se the right to vote pertaining to shares, nor a direct control

on the management of the

enterprise);

. duration of loans between 5 and 15 .years, possibility of requesting guarantees,

c)

Activities :

By 30 June

1963, 62

operations

for 90 million dollars (in

general

1/3

of the

investments) especially

the

iron-smelting industry,

cement factories, manufacture of automobiles, mainly in

South

America. On the 18 million dollars of new commitments for the fiscal year

1962/63,

11.4 million

corresponds

to investments in 7 industrial enterprises, the rest being assigned to corporate financing of in¬

dustrial development. In fact, the Corporation has had a tendency

to help relatively important enterprises and one may wonder whether

or not its intervention there actually had ^a determining effect.

The IFC has only known limited success, and the reason for this

may be that the basic conditions are only present in exceptional

oases; but it is true that its mission is less to intervene on a

large scale than to acquaint the interested parties with certain financing techniques and with a concept of the possibilities and

the role of private enterprise.

C.- I.D.A.

While the Bank finances at market rates, IDA operates at ^more favourable special conditions for the lender. The members of IDA

(76

by

30

June

1963) fall in two

groups

of countries): the industria¬

lized countries

(1/5

in number

3/4 ⁱⁿ subscriptions) and

the

IDEP/ET/XXXV/303

Page

8

developing:

countries)»

The first

(industrialized)

must pay the full amount

of their subscriptions in convertible currency; the second

(developing)

i - ■

pay 10

%

in convertible currency, "but may pay the remaining

90%

^{in their na¬}

tional

ourrenoy(it

would not have been possible, nor logical to request

•|bat their payment be

transferable).

The Association is administered by a Board of Governors and a Board

of Directors, which overlap in fact with the managing organs of the Bank.

The right to vote is calculated on the basis of 500 votes per country plus

a number of votes proportional to subscriptions

(1

vote for 5.000

dollars).

a)

koe-.-i.xoQo of the Association:

""

coy-tal: the subscriptions are proportional to the quotas of the member

countries of the IBRD

(total

around 1 billion dollars, exactly

968

mill

dollars on 30 June

1963)»

- additional resources

(limited):

^they do not bestow supplementary votes

and the subscribing country may voice certain reservations as to their lEtil-ination. This pertains to: 1

)

offers in foreign currency by ^a

member country in exchange for which the Association grants "Special

Development Certificates" -

2)

Additional subscriptions of member

countries in their own currency

(speoial

contract in which the country

may stipulate how the funds will be

used).

~ ReTr subscriptions: by vote with a majority of

2/3

of the votes, but

each country is not obliged to follow

(necessary

in view of the quasi- inipossibility to issue government bonds.

Opppations:

The association finances, in general, projects of well defined charac¬

ter having a very high priority for development.

This financing may remain subsidiary, the Association intervening only, when a lack of ordinary sources of capital has been noted

(ab¬

sence of capital or capital obtainable at too high a rate of

interest).

- The Association lends not only to States but also to public organs>

to local collectivities, to private enterprises:

IÛEP/ET/XXXV/303

Page 9

- these loans take the appropriate form according to the case

and the particular situation; the Association will set the rate of

inter'?st at will, will determine the

duration of the loan; it

may request governmental guarantee and cover some expenses in national

currency5 it will determine the currency of reimbursement;

- the projects may not be directly profitable in the financial sense of the word but they must be productive

(indirect

economic

gains)

and show a high priority in the needs for development.

c)

Activity of the Association:

The Association concentrates its efforts, of course, on the projects representing the highest multiplier of economic and social

progress but which are not profitable

(ex.

route network,

irrigation..);

but it will nevertheless undertake "profitable" projects, especially

if it must complete the action of the IBBD or intervene in its stead

(the

case of the much deteriorated balance of

payments).

The Association intervenes sometimes together with the Bank, but intervenes also in some oases where the Bank cannot intervene;

small hydraulic project, professional training, sanitary equipment,

water supply ^...

Until then, the loans ^were granted without interest with mere administrative fee 0.75

jo

and without reimbursement for the first 10 years, this reimbursement being carried out later at the rate of interest of

1%

during 10 years and

3%

during the last 30 years.

The credits granted which amounted to 101 million dollars

the first year, came to 134 millions the next year to reach the

figuro of 260 million dollars during fiscal year

1962/63.

Altogether 495 million dollars of Development credit have been granted. Asia received the greatest part of it

(363.8

millionsof which 300 millions

for India

alone).

During the fiscal year

1962/63,

17 credits have

been opened to 9 countries: India 6 =» 178 millions: electrical energy, irrigation, railroad, ports, telecommunications5 Turkey 3 = 26 millions: Development Bank, irrigation, electrical ^energy; Pakistan

2 = 11.5 millions: industrial _zones, flood control; Tunisia 1 = 5 millions:

construction of sohools; Ethiopia 1 => 13.5 millions: route network.

IDEP/ET/XXXV/303

Page 10

Aid, thus must correspond, to a precise need

(infrastructure,

^-

cases where the Bank may not

intervene).

The problem for the Bank is that of the reconstitution of its resources

(reimbursement

would not come about until much

later).

The oountries of the first

group would be willing to furnish 750 million dollars of new resour¬

ces to the Association, in three yearly payments of 250 millions5

these payments would be considered as supplementaty contributions

(thus

^not comprising the right to

vote).

THE AFRICAN DEVELOPMENT BAM

The African Development Bank was established on August 4, 1

963+

and had recently chosen its Headquarters and designated its management

organs.

Mission of the Bank

To contribute to the economic development and the social progress of the Member States, individually and collectively - and for this

purpose the Bank s

- utilizes the resources put at its disposal to finance some

projects and investment programmes tending to the social and eoonomio development and giving priority ï

- to those which are of interest to several Member States ,- to those making the economies of these countries more and more com¬

plementary;

- the Bank mobilizes and augments inside and outside Africa the

resources meant for the financing of these projects and ^programmes

- favours the investment of private and oublie capital in Africa

- furnishes the necessary technical assistance;

- cooperates with national, regional and international organs having

a similar aim and with other institutions interested in African

development;

- encourages the establishment of a consortium for financing in conformity with its aims.

Any African country may become a member of the Bank provided it is an independent State; the States who are not founding

members may become members after the coming into effect of the

+ Translator's notes Only the Agreement establishing the Bank

was signed on August 4>

19&3.

J

9

iDEP/ET/xxxv/303

Page 11

agreement and. by adhering to it according to the terms

to he determined

by the Board of Governors.

The Bank is administered by a Board of Governors which spells out

the general directives pertaining to the policy of the Bank in all matters

of credit

(1

^governor and one deputy Governor per

State),

^{- one}

Board

of Directors enthrusted with the general operations of the Bank

(it

elects the President, it reaches decisions about loans, guarantees investments,

bonds)

and made up of 9 members

elected

by the

Governors

for three _years and reeligible. The quorum for meetings of the Board

of Directors is ^a majority of Directors representing at least

2/3

of

the total of the votes awarded to member States

(every

member State

has 625 votes plus one vote per share

owned).

On the Board of Directors

each Director has the same number of votes as those which contributed to his election. A president who presides ^over the Board of Directors but

does not take part in the vote, except in case of a tie when his voice

then becomes preponderant. He is the Chief of Personnel and he manages the day to day operations of the Bank.

a)

Resources.-

- capital of 25O millions of Account Units

(25.000 shares)

defined by a certain weight in gold. The capital is made of shares to

be completely paid up and of callable shares

(for

half of the

total

amount).

This capital may be increased by a decision

of the Board of Governors taken by a

2/3

majority vote and re¬

presenting at least

3/4

of the total amount of the votes. The

number of shares to subscribe is stipulated in an annex to the Agreement and for the new members, determined by the Board of Governors. In case of increase of the capital, each State may subscribe according to its initial quota, but is not compelled

to. A State may also request the increase of its subscription

(terms

being dictated by the Board of

Governors).

The payments

are spread out

(6

payments =

5%y 35%

and 4 of

15%>

the first

one at the date of ratification, the other spread out over

41/2 years).

The amounts subscribed for the capital to be en¬

tirely released are paid in gold or in convertible currency!

in case capital is being "called up" payment may be made in gold

IDEP/ET/XXXV/303

Page 12

in convertible currency or in a currency necessary to the Bank

to fulfil its commitments

(1).

special funds : the Bank may set up special funds?

orrowing in the Member States or elsewhere?

funds received or reimbursement of loans granted?

revenues derived from "special funds" are "special resources"

and are used differently from the "regular resources"? in other

words the Bank must distinguish between its regular operations

and those which are derived from the Special Fund.

.peration.-

The Bank _may grant :

- direct loans or participation in such loans?

■ participation in the capital stock of an institution or enter¬

prise?

- guarantee of loans granted by others?

■ limitative clauses set the total bills remitted to the Bank by the clients

(worry

as to

solvability).

Also, special provisions limit

participation

(total

at the most equal to

10%

of the paid up capital stock, increased by the reserved funds and the assets comprised in regular resources,- a particular investment could

not be higher than a certain percentage of the authorized capital

of" the institution or the interested enterprise. This percentage

is set by the Board of

Directors) (worry

about surety and also publicity about the action of the

Bank).

When it gives direct loans, the Bank furnishes monnies other than the one of the interested Member State, which are necessary to pay the expenses in hard currency? but it may also furnish

financial means corresponding to the coverage of local expenses in two cases;

1)

provided it does not have to sell part of its assets in gold or in convertible currency in order to do it, ^-

(ï)

In case of variation of the value of the money of a Member State, the adjustment of the funds of the Bank in this money is carried out by supplementary payments of the Member State

(or

reimbursement in case of

revalorisation).

I

%

tf

IDEP/ET/xxxv/303

Pago 13

2)

^{if the} local expenses would unduly "burden the balance of payments

of the country, and on condition that the part taken "by the Bank

does not go "beyond a reasonable fraction of the total local

expenses

(concern

about bringing about a direct effort on the part

of the beneficiary State but without inconveniencing

it).

Criteria for acceptance of requests.-

- well defined projects

(those

forming part of ^a national or regional

programme).

Nevertheless, the Bank may grant global loans to Na¬

tional African Banks for development, or, to other ""appropriate "

Institutions!

- if the beneficiary may not get the necessary funds elsewhere on reasonable terms|

- investigation as to the ability of the lender;

- rate of interest and other "reasonable" and "adapted" costs.

The Bank assures itself that the loan is used for the purpose for which it was granted.

The loan contract stipulates its terms and conditions

(interest,

redemption, time of

payment...)

also, the surety contract sets its

terms

(commissions... charges).

It must be stipulated therein that

the Bank must take into account the conditions at which it obtains the funds utilized. The Bank may demand guarantees from the member State and prescribe the measures that it deems advisable. The Bank gets a commission on direct loans granted and on the security it gives

(at

least

1%

^{per year on the total}

outstanding).

In the case of a

surety, the Bank gets a security charge, the rate of which is set by

the Board of Directors.

Thus the African Bank for Development appears to be an institution

cautiously set up and which will confirm and reinforce the solidarity amongst

Member States. Its role has been conceived as that of a promoter and a popu- larizer of knowledge and its founding members hope that it will contribute

to development not only because of its direct intervention, but also because

of the _many incentives that it should produce,

(collection

of foreign capital,

mobilization and extension of African

saving...).

IDEP/ET/XXXV/303

Page 14

III - NATIONAL BANKS FOR DEVELOPMENT.-

National Banks for Development have been created, during the last few years practically in all countries of Africa, often carrying over the work

of pre-existing institutions which they replaced or with which they colla¬

borated, the interested governments having generally in this last case dis¬

tributed the work amongst the various financing organs of the country

(e.g.

Senegal, Niger, Ivory

Coast).

If some of these institutions are private banks

(Banks

for Industrial

and Mining Development of Iran, Development Finance Corporation of Ceylon,

Industrial Credit and Investment Corporation of India, Industrial Financial Corporation of Thailand, Industrial Bank of Bolivia, and a few

others)

or deal with ^a majority of foreign Capitals

(investment

Company of Nigeria,

Northern Development ^- Nigeria Limited, Sierra Leone Investment

Limited)

most of them deal exclusively with public capital or have a majority share¬

holding of public capital. In fact, one may say that the source of financing

and the particular property regime of the Institution may vary, not only according to the doctrine of the Governments but also according to the State

of Development of the country and the functions that the Development Bank

is called _upon to fulfil. IFC and IBRD sometimes bring their contribution

to the creation of Development Banks. They then carry out an investigation aiming at :

1)

knowing the banking organization of the country and in particular the role played by the Central Bank

(distribution

of medium term

funds and control of allocation of hard

currency),

^-

2)

to evaluate the perspectives of development of a market for private capital

(possibility

of local saving and attitude of the financial authorities towards the pri¬

vate

sector).

It is perhaps useful to select ^a few examples to show the diversity

of National Development Banks ^. The Nigerian Industrial Bank was established

in January 1964 by IFC together with American, European and Japanese finan¬

cing institutions and with the participation of Nigerian interests, It

has been agreed that all shares held by IFC would be considered as Nigerian

shares and IFC agreed to sell them only to private Nigerian investors.

The paid up capital comes to 6.3 million dollars of which

5«6

million dollars

is made of common stock shares with voting right and

51%

^°f these shares

has been reserved to Nigerian subscribers

(mostly

Central Bank and ^a few private

parties)

and to InternationalOrganizations of which Nigeria is ^a

member

(IFC).

To help, at the start, the State granted a long term advance

; IDEP/ET/XXXV/303

Page 15

without interest in the amount of 5.6 million dollars. The National

Bank for Economic Development in Morocco, with a slight majority par¬

ticipation)

also has a number of foreign subscribers

(French,

Americans, Germans, Italians, Algerians, and Belgians. In the French

speaking

coun¬

tries of Africa, the local State always owns the majority of the shares

and the Caisse Centrale de Cooperation Economique, the issuing Banks

and various organs such as Social Security Funds, most often intervene

on its side

(Niger, Senegal).

These Banks for Development have, of course, various activities

but besides the usual assignments

(industrial

credits, agricultural credit, housing, social

credits)

^{we see} them venture in new fields ; loans to

public collectivities, contributions to the financing of various private investments, search for foreign capital, subscriptions to participations,

mobilization of local savings

(private

savings or treasury of public

organs)

management of public "funds", operations on behalf,

and with

the resources, of the State enthrusted to the Banks by the governments.

The tendancy which seems most prevalent is the Single Bank

(Dahomey,

Ethiopia, Liberia, Mali, Togo,

Uganda...)

^{so as} to concentrate

ail the means and responsibilities ^, to ^{assure a} better distribution of risks, to reduce management costs and to avoid the competition that a

plurality of institutions may bring about.

It is still too early to have a definite opinion as to the impact

of these institutions on economic development. The principles which

have inspired their creation are fair, but the problem consists in knowing

if they will manage to play an active role in development or if they will merely be stages in the distribution of foreign financial help.

The first problem to resolve is the problem of personnel and even

more so the problem of business leaders who must at the same time have

initiative and be cautious. One of the major difficulties to be encoun¬

tered by the Development Banks could be the fact that the spirit of enter¬

prises is often lacking locally

(usefulness

of the entrepreneur in the underdeveloped

countries).

^The investors

(foreign

and

national)

^are often discouraged by the unfavourable economic conditions

prevailing locally.

Of course, here we touch another field, the

field of the facts about de¬

velopment, but it is certain that the banks

will have

to

plead with public

IDEP/ET/XXXV/303

Page 16

powers so that the latter may strive to "bring ahout a favourable climat

and favourable conditions for a favourable take off

(position

of owners of

capital).

The Development Banks offer the first advantage of making small projects possible through foreign institutions or establishments. They

will have to choose the projects and the borrowers5 and it will be up to

then to decide according to economic and financial criteria : does this project have priority ? will it be profitable? is the project well set

up financially? Finally, they will have to endeavour to set up a local

financial market through stimulation of local savings and they will

endeavour to set _up a local financial market through stimulation of

local savings and the encouragement of initiative, a market on which they will be able to intervene with their own means but in a cautious va given its frailty.