DEVELOPMENT FINANCE (full notes)
CFM 301
By DR. TIRIMBA IBRAHIM
1.0 Introduction
In this course you will get to understand and be able to apply, analyze and interpret the
fundamental principles of international and development finance in relation to the overall
development and growth of a country. You will also be able to understand the role and structure
of development banks at national, regional and international levels. The course will also bring
out the concept of the financial systems and how they influence development among them
devolved funds, Microfinance institutions, International and local donor agencies, obtaining
development finance in general. You will finally understand the concept of project management,
economic and financial evaluation of development projects.
1.1 Course objectives
By the end of this unit you should be able to:
1. Explain the concept of development finance
2. Explain the various sources of finances for development
3. Explain the management process, and control of development process
4. Explain the role and structure of development banks
5. Describe the concept of project management
6. Describe the role of the financial system to the development of a country
7. Explain the various methods and techniques used in project appraisal
8. Explain the role of microfinance institutions and devolved funds in development
9. Explain the role monitoring and evaluation in projects
.
1
,LECTURE 1: INTRODUCTION TO DEVELOPMENT FINANCE
1.0 Definitions
Development-:
Progression from simple to more complex/sophistication
Steady improvement as of an individual, society or country.
It can be Human, Technological, and economic, social, cultural or political development.
Finance:-
A branch of economics concerned with resource allocation as well as resource management,
acquisition and investment.
A science of the management of money, banking, investment and other assets.
1.1 Major sources of finances in developing countries?
Regulatory taxes and general taxes.
Fees and earnings
Charges & fines
Debt/ Borrowings (Internal &External)
Intergovernmental Transfers
capital receipts from the privatisation of public enterprises.
Foreign Aid
Donations
1.2 Major sources of finances for development
i. Development banks
They are institutions that provide financial support and advice for economic and social
development activities in developing countries.
ii. Multilateral Development banks ( MDBs)
Refers to the World bank group and regional development banks namely
The African Development bank
2
, The Asian Development Bank
The European Bank for reconstruction and Development
The Inter- American Development Bank Group etc
Structure of MDBs
The banks are characterized by a broad membership, including both borrowing, developing and
developed donor countries and not limited to member countries from the region.
Each bank has its own independent legal and operational status with high level of cooperation
MDBs provide financing for development through:
Long term loans, based on market interest
Very long term loans ( credits) with interest below market rates
Grant financing mostly for technical assistance, advise or project preparation
1.3 The role of MDBs to Developing countries
1. Poverty eradication& employment generation
2. Ensures sustainable development
3. financial stability
4. support for SMEs & microfinance
5. Mobilization of resources- financial /physical
6. Improving financial and physical infrastructure
7. Financing development & regional economic integration
8. Boosts investment through investment financing
9. Support training and capacity building
10. Contribute to economic growth and development
11. Enforcing corporate Governance & Regulation- strengthening institutional structures
3
, 1.4 World bank
The International Bank of Reconstruction and Development (IBRD) or the World Bank was
established in 1945 under the Bretton Woods Agreement of 1944 to assist in bringing about a
smooth transition from a war time to peacetime economy.
1.4.1 The functions of World Bank
1. To assist in reconstruction and development of member state territories by facilitating the
investment of capital for production purposes.
2. To promote private foreign investment by means of guaranteeing loans to private
investors.
3. To promote the long-range balanced growth of international trade and maintenance of
equilibrium in the balance of payment of members by encouraging international
investment for development of their productive capacity.
4. To arrange loans made to its member such that urgent projects are given priority.
World bank – lending function
The bank lends to member countries in any of the following ways:
a. By participating in direct loans out of the funds raised in the market of members or
otherwise borrowed by the bank.
b. By warranting or participating in loans out of its own funds.
c. By guaranteeing in whole or in part loans made by private investors through the usual
Investment channel.
1.4.2 What are the criticisms of World Bank?
i. Loans depend on countries agreeing a ‘Structural Adjustment Programme’
ii. Leads to rapid increase in price of goods in country
iii. Increases poverty
iv. Lower investment and cut social spending
v. Little evidence that these policies work
4
CFM 301
By DR. TIRIMBA IBRAHIM
1.0 Introduction
In this course you will get to understand and be able to apply, analyze and interpret the
fundamental principles of international and development finance in relation to the overall
development and growth of a country. You will also be able to understand the role and structure
of development banks at national, regional and international levels. The course will also bring
out the concept of the financial systems and how they influence development among them
devolved funds, Microfinance institutions, International and local donor agencies, obtaining
development finance in general. You will finally understand the concept of project management,
economic and financial evaluation of development projects.
1.1 Course objectives
By the end of this unit you should be able to:
1. Explain the concept of development finance
2. Explain the various sources of finances for development
3. Explain the management process, and control of development process
4. Explain the role and structure of development banks
5. Describe the concept of project management
6. Describe the role of the financial system to the development of a country
7. Explain the various methods and techniques used in project appraisal
8. Explain the role of microfinance institutions and devolved funds in development
9. Explain the role monitoring and evaluation in projects
.
1
,LECTURE 1: INTRODUCTION TO DEVELOPMENT FINANCE
1.0 Definitions
Development-:
Progression from simple to more complex/sophistication
Steady improvement as of an individual, society or country.
It can be Human, Technological, and economic, social, cultural or political development.
Finance:-
A branch of economics concerned with resource allocation as well as resource management,
acquisition and investment.
A science of the management of money, banking, investment and other assets.
1.1 Major sources of finances in developing countries?
Regulatory taxes and general taxes.
Fees and earnings
Charges & fines
Debt/ Borrowings (Internal &External)
Intergovernmental Transfers
capital receipts from the privatisation of public enterprises.
Foreign Aid
Donations
1.2 Major sources of finances for development
i. Development banks
They are institutions that provide financial support and advice for economic and social
development activities in developing countries.
ii. Multilateral Development banks ( MDBs)
Refers to the World bank group and regional development banks namely
The African Development bank
2
, The Asian Development Bank
The European Bank for reconstruction and Development
The Inter- American Development Bank Group etc
Structure of MDBs
The banks are characterized by a broad membership, including both borrowing, developing and
developed donor countries and not limited to member countries from the region.
Each bank has its own independent legal and operational status with high level of cooperation
MDBs provide financing for development through:
Long term loans, based on market interest
Very long term loans ( credits) with interest below market rates
Grant financing mostly for technical assistance, advise or project preparation
1.3 The role of MDBs to Developing countries
1. Poverty eradication& employment generation
2. Ensures sustainable development
3. financial stability
4. support for SMEs & microfinance
5. Mobilization of resources- financial /physical
6. Improving financial and physical infrastructure
7. Financing development & regional economic integration
8. Boosts investment through investment financing
9. Support training and capacity building
10. Contribute to economic growth and development
11. Enforcing corporate Governance & Regulation- strengthening institutional structures
3
, 1.4 World bank
The International Bank of Reconstruction and Development (IBRD) or the World Bank was
established in 1945 under the Bretton Woods Agreement of 1944 to assist in bringing about a
smooth transition from a war time to peacetime economy.
1.4.1 The functions of World Bank
1. To assist in reconstruction and development of member state territories by facilitating the
investment of capital for production purposes.
2. To promote private foreign investment by means of guaranteeing loans to private
investors.
3. To promote the long-range balanced growth of international trade and maintenance of
equilibrium in the balance of payment of members by encouraging international
investment for development of their productive capacity.
4. To arrange loans made to its member such that urgent projects are given priority.
World bank – lending function
The bank lends to member countries in any of the following ways:
a. By participating in direct loans out of the funds raised in the market of members or
otherwise borrowed by the bank.
b. By warranting or participating in loans out of its own funds.
c. By guaranteeing in whole or in part loans made by private investors through the usual
Investment channel.
1.4.2 What are the criticisms of World Bank?
i. Loans depend on countries agreeing a ‘Structural Adjustment Programme’
ii. Leads to rapid increase in price of goods in country
iii. Increases poverty
iv. Lower investment and cut social spending
v. Little evidence that these policies work
4
