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Finance is the life blood of any organisation, having too less of blood
leads to anemia in human beings, similarly paucity of finance leads to
decrease in activities or shelving of future expansion plans of any
organisation and may even lead to failure of business. Financial
institutions offer services for arranging finance for businesses to meet
its various needs.

Project Financing discipline includes understanding the rationale for project financing, how to
prepare the financial plan, assess the risks, design the financing mix, and raise the funds. In
addition, one must understand the cogent analyses of why some project financing plans have
succeeded while others have failed. A knowledge-base is required regarding the design of
contractual arrangements to support project financing; issues for the host government legislative
provisions, public/private infrastructure partnerships, public/private financing structures; credit
requirements of lenders, and how to determine the project's borrowing capacity; how to prepare
cash flow projections and use them to measure expected rates of return; tax and accounting
considerations; and analytical techniques to validate the project's feasibility

Project finance is finance for a particular project, such as a mine, toll road, railway, pipeline,
power station, ship, hospital or prison, which is repaid from the cash-flow of that project.









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Finance is essential for a business¶s operation, development and expansion. Finance is the core
limiting factor for most businesses and therefore it is crucial for businesses to manage their
financial resources properly. Finance is available to a business from a variety of sources both
internal and external. It is also crucial for businesses to choose the most appropriate source of
finance for its several needs as different sources have its own benefits and costs. Sources of
financed can be classified based on a number of factors. They can be classified as Internal and
External, Short-term and Long-term or Equity and Debt.






   

It would be uncomplicated to classify the sources as

1.‘ Internal and
2.‘ External.

‘ Ê 
 
 
Internal sources of finance are the funds readily available within the organization. Internal
sources of finance consist of:
· Personal savings
· Retained profits
· Working capital
· Sale of fixed assets

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À‘  

This is the amount of personal money an owner, partner or shareholder of a business has at his
disposal to do whatever he wants. When a business seeks to borrow the personal money of a
shareholder, partner or owner for a business¶s financial needs the source of finance is known as
personal savings.
À‘ 

Retained profits are the undistributed profits of a company. Not all the profits made by a
company are distributed as dividends to its shareholders. The remainder of the profits after all
payments is made for a trading year is known as retained profits. This remainder of finance is
saved by the business as a back-up in times of financial needs and maybe used later for
company¶s development or expansion. Retained profits are a very valuable no-cost source of
finance.
À‘ ‰
 
Working capital refers to the sum of money that a business uses for its daily activities. Working
capital is the difference of current assets and current liabilities (i.e. Working capital = Current
assets ± Current liabilities). Proper working capital management is also vital as it is also a source
of finance for a business.

 
Current assets are also known as cash equivalents because they are easily convertible to cash.
Current assets consist of Stock, Debtors, Prepayments, Bank and Cash. These assets are used up,
sold or keep changing in the short run.
Stock ± this refers to the stock of goods available to the business for sale at a given time. It is
very important to maintain the right amount of stock of goods for a business. If stock levels are
too high it means that too much of money is being held up in the form of stock and if stock levels
are too low the business will lose possible opportunities of higher sales. Debtors ± are a
business¶s customers owing money to the business having been bought the business¶s goods or
service on credit. If a business has cash flow problems it can maintain a low level of debtors by
encouraging the debtors to pay as early as possible. Prepayments ± these are the expenses paid in
advance. The payment being made even before the expense occurs is a prepayment. Bank and

 
Cash ± Bank is the cash held in banks and cash is money held by the business in the form of
cash. Having too much of money in the form of cash is also not good for a business since it can
use that money to invest and earn a return but however a business should have healthy current
ratio (current assets : current liabilities) of 2:1.

 !
Current liabilities are short-term debts that are in immediate need of settlement. Some examples
of current liabilities are creditors, accruals, proposed dividends and tax owing. These obligations
have to be paid within a year.
Creditors ± also known as trade creditors are suppliers from whom the business purchased goods
on credit. Paying the creditors as late as possible will ease cash flow requirements for a business.
Accruals ± are the expenses owed by the business.
Dividends proposed ± are the dividends payable for the year that is not yet paid.
Tax owing ± is the sum of money owing as tax.

À‘ Ñ
"
Fixed assets are the assets a company that do not get consumed in the process of production.
Some examples of fixed assets are land and building, machinery, vehicles, fixtures and fittings
and equipment. Sometimes where the fixed asset is a surplus and is abandoned, it can be sold to
raise finance in demanding times for the business. Otherwise businesses may choose to stop
offering certain products and sell its fixed assets to raise finance. Selling fixed assets reduces the
production capacity of a business affecting a business¶s return.

#" 
 
 
Sources of finance that are not internal sources of finance are external sources of finance.
External sources of finance are from sources that are outside the business. External sources of
finance can either be:
A.‘ Ownership capital or
B.‘ Non-ownership capital

A
‘ $ % 
Ownership capital is the money invested in the business by the owners themselves. It can be the
capital funding by owners and partners or it can also be share bought by the shareholders of a
company. There are mainly two main types of shares. They are:
1.‘ Ordinary shares
2.‘ Preference shares

‘   &% 

Ordinary shares also known as equity shares are a unit of investment in a company. Ordinary
shareholders have the privilege of receiving a part of company profits via dividends which is
based on the value of shares held by the shareholder and the profit made for the year by the
company. They also have the right to vote at general meetings of the company. Companies can
issue ordinary shares in order to raise finance for long-term financial needs.

#‘    % 
Preference shares are another type of shares. Preference shareholders receive a fixed rate of
dividends before the ordinary shareholders are paid. Preference shareholders do not have the
right to vote at general meetings of the company. Preference shares are also an ownership capital
source of finance. There are several types of preference shares. Some of them are Cumulative
preference share, Redeemable preference share, Participating preference share and Convertible
preference share. Cumulative preference shares ± if a company is in a loss making situation and
is unable to pay dividends for one year then the dividend for that year will be paid the next year
along with next year¶s dividends. Redeemable preference shares ± these preference shares can be
bought back by the company at a later date.

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*‘
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Vnlike ownership capital, non-ownership capital does not allow the lender to participate in
profit-sharing or to influence how the business is run. The main obligations of non-ownership
capital are to pay back the borrowed sum of money and interest. Different types of non-
ownership capital:
ż Debentures ż Grant
ż Bank overdraft ż Venture capital
ż Loan ż Factoring
ż Hire-purchase ż Invoice discounting
ż Lease

À‘ ! 
Debentures are issued in order to raise debt capital. Debenture holders are not owners but long-
term creditors of the company. Debenture holders receive a fixed rate of interest annually
whether the company makes a profit or loss. Debentures are issued only for a time period and
thus the company must pay the amount back to the debenture holders at the end of the agreed
period. Debentures can be secured, unsecured, fixed or floating. Secured debentures ± are
debentures that are secured against an asset. They are also called mortgage debentures.
Vnsecured debentures ± these debentures do not have an asset as
Collateral. Fixed debentures ± have a fixed rate of interest. Floating debentures ± do not have
fixed rate of interest and are not tied to any specific asset.
1.‘ Bearer debentures ± these debentures are easily transferable.
2.‘ Registered debentures ± are not easily transferable and legal
3.‘ Procedures have to be followed in case of a transfer.
4.‘ Convertible debentures ± can be converted to stock at the end of the debenture repayment
date.

À‘ * 
  
Bank overdraft is a short term credit facility provided by banks for its current account holders.
This facility allows businesses to with draw more money than their bank account balances hold.

†
Interest has to be paid on the amount overdrawn. Bank overdraft is the ideal source of finance for
short-term cash f low problems.
À‘ 

Loans are amounts of money borrowed from banks or other financial institutions for large and
long-term business projects such as the development or expansion of the business. However
loans can be substituted by other alternative sources of finance which are more suitable.
À‘ X  %
Hire purchase allows a business to use an asset without paying the full amount to purchase the
asset. The hire purchase firm buys the asset on behalf of the business and gives the business the
sole usage of the asset. The business on its part must pay monthly payments to the hire purchase
firm amounting to the total value of the asset and charges of the hire purchase firm. At the end of
the payment period the business has the option of purchasing the asset for a nominal value.
À‘ 
In a lease the leasing company buys the asset on behalf of the business and the asset is then
provided for the business to its use. Vnlike a hire purchase the ownership of the asset remains
with the leasing company. The business pays a rent throughout the leasing period. The leasing
firm is known as the less or and the customer as lessee.
Leasing is of two types, namely
1.‘ Finance lease and
2.‘ Operating lease.
i.‘ Finance Lease ± this is where the lessee¶s monthly payments add up to at least 90% of the
total value of the asset. Operating Lease ± this lease does not run for the full life of the
asset and the lessee is not liable for the full value of the asset.

À‘ ´ 
Grants are funding given to businesses for programs or services that benefit the community or
public at large. Grants can be given by the government or private firms. For example a grant may
be given to open a new factory where unemployment is high.

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À‘ Ë  
Venture capital is the capital that is contributed at the initial stages of an uncertain business. The
chance of failure of the business is great while there is also a possibility of providing higher than
average return for the investor. The investor expects to have some influence over the business.
À‘  

This is where the factoring company pays a proportion of the sales invoice of the business within
a short time-frame to the business. The remainder of the money is paid to the business when the
factoring company receives the money from the business¶s debtor. The remainder of the money
will be paid only after deducting the factoring company¶s service charges. Some factoring
companies even offer to maintain the sales ledger of the business.
Factoring is of two types:
a.‘ Recourse factoring and
b.‘ Non-recourse factoring.
‘ 
  
( In this type of factoring the client company is liable for bad debts.
!‘
' 
   
 ± is where the factor takes responsibility for the payment of the
debtors. The client company is not liable if debtors do not pay back. Non-recourse factoring
is usually more expensive because of the high risks experienced by the factor.

À‘ Ê
 

In invoice discounting the client company send out a copy of the invoice to the invoice
discounting firm. The client then receives a portion of the invoice value. In contrast to factoring,
the client company collects the money from its debtors. Once the payment is received it is
deposited in a bank account controlled by the invoice discounter. The invoice discounter will
then pay the remainder of the invoice less any charges to the client.

>
 Financial Institution in Project Financing

IDFC Projects is a wholly owned subsidiary of Infrastructure Development Finance Company

Limited (IDFC). IDFC is India¶s leading financial institution at the forefront of developing
infrastructure through its presence across financing, advisory, investment banking, development
and asset management functions related to the sector.

IDFC Projects Ltd. (IP) is the development arm of IDFC, with the mandate to develop, finance,
execute and manage infrastructure projects in the country.

Despite growing interest and participation by different stakeholders in infrastructure projects, a

huge shortfall of delivery capacities continues to exist in the public as well as private sector in
India. There is a large unmet demand for new technologies, for creation of assets without cost or
time overruns and for their efficient management and maintenance. A pipeline of greenfield
projects, together with a growing number of operating assets, present significant opportunities
for infrastructure developers, contractors and operators to work in public private partnerships
with governments.

IDFC Projects seeks to participate in these evolving opportunities. It is currently considering

projects of national importance across infrastructure sectors including power generation and
transmission, surface transport, special economic zones, water treatment and distribution systems
and infrastructure corridors.

In the course of its activities, IDFC Projects builds upon its parent's core strengths of government
sponsorship, project financing and asset management to create a strong value proposition in the
conceptualization, development and implementation of infrastructure projects.

IDFC Projects seeks to fulfill its mandate in active collaboration with the Central and State
Governments as well as with the private sector from India and abroad

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Ñ 


Infrastructure development across sectors

To sustain 9% GDP growth in India, investment in infrastructure is expected to increase from

4.6% of GDP in 2006-7 to around 9% of GDP over the period 2007-12. The 11th plan envisages
an investment of VSD 500 billion during this period, of which 23% is expected to come from the
private sector.




IDFC has successfully financed several pioneering road projects

such as the Jaipur - Kishangarh Expressway and has a total
exposure of Rs. 7,922 crore in the sector.

IDFC has been actively involved as a financier for almost all the
ports on the west coast and for Container Forwarding Stations (CFS) in India.


$ 

Over the last decade IDFC has financed power projects

aggregating to about 10000 MW. IDFC has also financed
transmission projects like the Tala project of Powerlinks.

 !

IDFC has a rich financing experience in commercial and industrial

infrastructure, primarily in IT parks, SEZs, commercial property
and hotels, which now account for over 9.8% of IDFC's exposure.

IDFC has been actively involved in several roles in the water

sector. The roles range from being a co-developer to providing long term project financing.

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‰ 
IDFC has been actively involved in several roles in the water sector. The roles range from being
a co-developer to providing long term project financing. Some of the key transactions of IDFC in
the water sector include the Dewas Water Supply Project, the Haldia Water Treatment Plant
Project and the Chennai Desalination Plant Project.

IDFC has also been a member of an Expert Committee of the Planning Commission to review
issues on ownership of ground water.

IDFC Projects completes the IDFC portfolio by participating as a developer in water sector
projects. Currently, IDFC Projects is evaluating opportunities for provision of common water
supply facilities in industrial clusters. We are also evaluating other opportunities in this sector
including setting up water treatment and supply facilities on Build, Operate and Transfer (BOT)
basis.



















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ICICI Bank is India's second-largest bank with total assets of Rs. 3,634.00 billion (VS$ 81
billion) at March 31, 2010 and profit after tax Rs. 40.25 billion (VS$ 896 million) for the year
ended March 31, 2010. The Bank has a network of 2,528 branches and 5,808 ATMs in India, and
has a presence in 19 countries, including India. ICICI Bank offers a wide range of banking
products and financial services to corporate and retail customers through a variety of delivery
channels and through its specialized subsidiaries in the areas of investment banking, life and
non-life insurance, venture capital and asset management. The Bank currently has subsidiaries in
the Vnited Kingdom, Russia and Canada, branches in Vnited States, Singapore, Bahrain, Hong
Kong, Sri Lanka, Qatar and Dubai International Finance Centre and representative offices in
Vnited Arab Emirates, China, South Africa, Bangladesh, Thailand, Malaysia and Indonesia. Our
VK subsidiary has established branches in Belgium and Germany.

ICICI Bank's equity shares are listed in India on Bombay Stock Exchange and the National Stock
Exchange of India Limited and its American Depositary Receipts (ADRs) are listed on the New
York Stock Exchange (NYSE).


  ´

ICICI Bank Project Finance Group (PFG) has developed comprehensive domain expertise and
knowledge in the infrastructure & manufacturing sector, having ensured timely financial closure
of several big ticket projects. PFG has unmatched capabilities of discovering, creating and
structuring project finance transactions.

´
   

PFG is the ³One Stop Shop´ fulfilling the funding requirements of Greenfield & Brownfield
projects in infrastructure & manufacturing sector. It comprises of three sub-groups as follows:

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 ‘ Ê       ´
 )Ê´  IFG caters to the funding requirement in the
infrastructure sector like Power, Telecom, Roads, Ports, Airports, Railways and Vrban
infrastructure.
‘    
  
 )´  MPG caters to the funding requirement in the
manufacturing sector like Oil & Gas, Steel, Aluminum, Cement, Auto, and Mining
‘ Ê     *& ´
 )Ê´  IEG is engaged in providing equity support to
projects in various established as well as upcoming sectors.

The project finance team of ICICI Bank has developed substantial insight in the dynamics and
trends in the infrastructure sector, having assisted the Government of India in formulating
policies relating to various segments of the infrastructure sector. The unique insight and
understanding thus derived from the exercise has not only enabled ICICI Bank to provide
optimum solutions to its clients, but has also provided ICICI Bank with an appropriate decision
support for strategic measures, going forward.

Ñ   

PFG provide a wide range of services including the following:

‘ Rupee term loans

‘ Foreign currency term loans
‘ External Commercial Borrowings
‘ Subordinated debt and mezzanine financing
‘ Export Credit Agency backed funding
‘ Non fund based facilities like Letter of Credit, Bank Guarantee, Supplier¶s Credit,
Buyer¶s Credit etc.
‘ Equity funding

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We are a financing and financial services group with continuous expansion into new markets.
We arrange global access to capital and professional assistance in obtaining loans for medium
and large organisations as well as industrial and commercial development projects.

The key to our success, and our clients' success, is our ability to help secure hard-to-obtain loans
from the world's major banks. We do so by reducing risks to those lenders by arranging collateral
to cover the value of our clients' projects.

To date, our record of successful global financing completions continues to expand, from power
plants and petroleum production projects, hotel and resort developments, to airline acquisitions
and corporate aircraft financing.

One of AHEB Investment Group key assets is the strength of its relationships with many of the
world's leading financial institutions and regional banks.

During the year of 2007, AHEB Investment Group expanded its banking contact in Europe, and
to Asia and the Middle East. Our global project financing activities increased dramatically as did
the quality of our relationships with our existing prime banking partners. In 2007, we anticipate a
further broadening our international banking relationships to provide our clients with even
greater access to regionally-based industrial and commercial project financing sources.

With the current strong demand for alternate sources of large project and start-up financing,
AHEB Investment Group continues to widen its range of financing services and program options
in lockstep with our banking contacts.

AHEB Investment Group works with a number of partners that promote trade and investment,
and offer development and funding program that can help your project.

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The financing programs typically include loans, equity investments, and guarantees. These
agencies will enhance the credibility of your project with other lenders and equity investors, but
also will increase the viability and protection of your project.

AHEB Investment Group and Investors Member of AHEB Investment Group provide securitized
funding and/or leveraged investment opportunities for third party project funding in a mutually
agreed upon Structured finance platform for the benefited of all the parties.

AHEB and Investors Member of AHEB establish the Credit and Asset backed funding Pool
(³Asset Pool´).

This Asset Pool is to be established for the purpose of effecting the aforesaid Structured Finance
using special purpose vehicles (SPV¶s). These SPV¶s will issue debt or credit instruments in the
capitalizing and/or securitizing of one or more dedicated accounts (the "Accounts") with
sufficient credit, funds or collateral to secure and facilitate the asset backed security issuance.
This issuance of negotiable, investment grade (rated ³AA´ or better by Standard & Poor¶s or an
equivalent rating organization) asset backed securities is targeted for resale to institutional
investors;

AHEB Investment Group will fund these loans or credit facilities secured by above described
guarantee instruments and to manage these accounts for addition yield and to reduce default risk.

AHEB Investment Group will enter into downstream funding Agreements with credit worthy
project sponsors and issue debt or credit instruments to financial institutions as determined by
AHEB Investment Group and its institutional investors, to generate project funding from these
assets, credit guarantees or collateral (ii.) for the immediate leveraging and management of the
proceeds there from by AHEB Investment Group as Exclusive Asset Manager, and (iii.) for the
sharing, to the extent provided hereunder, of such leveraged Funds.

In consideration of this Asset Pool and mutual covenants included, INVESTOR and AHEB
Investment Group they will provide the following services in connection with the INVESTOR

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and shall combine the asset management and investment management models developed by
AHEB Investment Group. As exclusive Asset Manager for the Asset Pool, AHEB Investment
Group will also manage and invest such account(s), together with other available assets and
income streams, for profit and for the purposes hereof, through the date of repayment of all
indebtedness arranged by the special purpose entity by AHEB Investment Group or the maturity
of the underlying guarantee instruments. Any and all new debt or investment allocated for Asset
Pool and/or any approved structured finance related entity that receives any financial benefit of
such funds, is also to be managed, in trust nevertheless, by AHEB Investment Group for the
mutual benefit and profit for the Parties

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* ,Ê Ê

$ +

     

The State Bank of India (SBI) is planning to set up an infrastructure finance subsidiary to support
construction or roads, power plants and airports. A subsidiary will help it overcome limitations
that it encounters in funding infrastructure projects within the bank.

SBI will be able to raise long-term funds through the subsidiary, which will also not have to
adhere to the norms of setting some portion of deposits as reserves that a bank is statutorily
required to.

OP Bhatt last month said the bank does not have long-term funding resources and that the
banking system under strain due to lack long-term funding opportunities and non-performing
assets. Overall exposure to the infrastructure is also limited, as banks cannot raise long-term
funds.
The biggest hurdle for SBI providing a greater support to infrastructure projects is non-
availability of long-term funding. The government has for long not granted the demand from
banks to allow them to issue tax-free infrastructure bon-ds for mobilising long-term funds. As a
bank, it has limited access to long-term sources of funds and the subsidiary will help the bank get
over this handicap.

A detailed questionnaire on the bank¶s plans for an infrastructure subsidiary was sent to the SBI
managing director and group executive (associates and subsidiaries), R Sridharan, but there was
no response, despite several reminders.

³As a bank there are a number of bottlenecks to fund infrastructure projects due asset-liability
mismatches. Banks generally tap short-term funds, which cannot be used to finance long-term
projects. We want to overcome these bottlenecks by having a subsidiary dedicated to

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infrastructure financing,´ said an SBI official in the know of the happenings, but did not want to
be identified.

Project finance for SBI had 70 proposals in pipe-line with SBI¶s share of debt being Rs 30,883
crore and syndication mandates of Rs 28,665 crore. Compare this to the infrastructure finance
requirement, which is close to $500 billion over the past five years. The major contributor is
power sector. The total advance of the bank at the end of the third quarter was Rs 607,154 crore,
15 per cent growth from Rs 509,573 crore.

Whenever there are growth opportunities, SBI has been quick to set up subsidiaries. The
merchant banking was once a division of the bank it got hived off into a subsidiary named SBI
Capital markets when the business grew in size. SBI Cap focuses on infrastructure project
advisory and syndication mandates particularly in sectors such as urban infrastructure and power
and expected to boost the prospects for the infrastructure subsidiary.

This will be the second initiative from SBI to finance infrastructure outside the bank¶s books.
Last year in April, SBI and Australia-based Macquire Group along with International finance
Corporation, an arm of the World Bank, launched an infrastructure fund for equity participation
in projects.

³Raising funds on the balance sheet of the subsidiary may be advantageous rather than exposing
the balance sheet of the bank. If funds have to be raised through the bank¶s balance sheet, then
SBI will have to issue bonds which would be limited, not enough to fund the huge requirement,´
said the SBI official.

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Ê     
+&+

L&T Infrastructure Finance Company Limited )
 Ê  is a wholly owned subsidiary of
Larsen & Toubro Limited. LT Infra is a Non Banking Financial Company (NBFC) registered
under Reserve Bank of India (RBI) Act 1934. The company has commenced operations in
January 2007. It leverages L&T¶s expertise in the infrastructure sector to offer turnkey financial
solutions.

!
 

 ´
  


!
 + )

is a Technology, Engineering,
Construction and Manufacturing Company. It is one of the largest and most respected companies
in India's private sector.

Larsen & Toubro Infrastructure Finance was set up as a 100% subsidiary of L&T with an initial
capital of Rs. 500 crore (VSD 125 million). It commenced its business in January 2007 upon
obtaining Non-Banking Financial Company (NBFC) license from the Reserve Bank of India
(RBI).

As of March 31, 2008, L&T Infrastructure Finance has approved financing of more than one
billion VSD to select projects in the infrastructure sector.


  

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The Project Finance Group (PFG) is responsible for business development, project appraisal and
client relationship management in infrastructure lending. The project finance segment of our
Company provides customized debt financing products to infrastructure projects and their
sponsor companies. PFG provides efficient transaction processing and management capabilities
and acts as a single point of contact for our customers¶ entire project financing requirements.

In order to provide our customers with an optimal capital structure for the customized solutions
that we offer, we typically make use of the following types of products:

À‘ Term loans
À‘ Debentures
À‘ Securitized debt
À‘ Subordinated debt
À‘ Convertible debentures
À‘ Preference shares

Our Company has provided financial products and services encompassing various infrastructure
sectors, including power, roads, telecommunications, oil and gas, ports, urban infrastructure,
water and sanitation, rail container and logistics operations, agricultural infrastructure, industrial
parks, SEZs, etc.

 +

As part of the appraisal process undertaken by the PFG, a risk analysis for the projects is carried
out by the Risk Management department. Based on the risk analysis, PFG designs/recommends
the appropriate risk mitigation structures to enhance the viability. After the project feasibility is
established by PFG, the proposal is put forward for approval.

0

 
+

The project development group has been set up as a distinct group to explore business
opportunities in infrastructure projects, particularly energy and transportation sectors. The
objective of the group is to identify and work on projects where LT Infra can participate in
development of infrastructure projects as co-developer by taking equity/equity linked positions
in the Developer Company.

´ÊÊ Ñ

Guidelines followed by IFC bank

Ê
 
Ê Ê  
Ê )Ê * ,

‘

‘‘‘
‘
‘  ‘‘
‘‘‘‘ ‘
‘‘ ‘
‘‘

U‘ Be located in a developing country* that is a member of IFC;

U‘ Be in the private sector;
U‘ Be technically sound;
U‘ Have good prospects of being profitable;
U‘ Benefit the local economy; and
U‘ Be environmentally and socially sound, satisfying IFC environmental and social standards as
well as those of the host country.
U‘ 25 percent maximum: IFC's share of project cost
U‘ Investment size: $1 million to $100 million in standard projects
U‘ IFC does not lend directly to micro, small, and medium enterprises or individual
entrepreneurs, but many of our investment clients are financial intermediaries that on-lend to
smaller businesses.

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  ‘

‘‘
A company or entrepreneur seeking to establish a new venture or expand an existing enterprise
can approach IFC directly by submitting an investment proposal. An investment proposal should
include the following preliminary information
1. Brief description of project.
2. Sponsorship, management & technical assistance:
À‘ History and business of sponsors, including financial information.
À‘ Proposed management arrangements and names and curricula vitae of managers.
À‘ Description of technical arrangements and other external assistance (management,
production, marketing, finance, etc.).

3. Market & sales:

À‘ Basic market orientation: local, national, regional, or export.
À‘ Projected production volumes, unit prices, sales objectives, and market share of proposed
venture.
À‘ Potential users of products and distribution channels to be used.
À‘ Present sources of supply for products.
À‘ Future competition and possibility that market may be satisfied by substitute products.
À‘ Tariff protection or import restrictions affecting products.
À‘ Critical factors that determine market potential.

4. Technical feasibility, manpower, raw material resources & environment:

À‘ Brief description of manufacturing process.
À‘ Comments on special technical complexities and need for know-how and special skills.
À‘ Possible suppliers of equipment.
À‘ Availability of manpower and of infrastructure facilities (transport and communications,
power, water, etc.).
À‘ Breakdown of projected operating costs by major categories of expenditures.
À‘ Source, cost, and quality of raw material supply and relations with support industries.
À‘ Import restrictions on required raw materials.

00
 À‘ Proposed plant location in relation to suppliers, markets, infrastructure, and manpower.
À‘ Proposed plant size in comparison with other known plants.
À‘ Potential environmental issues and how these issues are addressed.

5. Investment requirements, project financing & returns:

À‘ Estimate of total project cost, broken down into land, construction, installed equipment,
and working capital, indicating foreign exchange component.
À‘ Proposed financial structure of venture, indicating expected sources and terms of equity
and debt financing.
À‘ Type of IFC financing (loan, equity, quasi-equity, a combination of financial products,
etc.) and amount.
À‘ Projected financial statement, information on profitability, and return on investment.
À‘ Critical factors determining profitability.

6. Government support & regulations:

À‘ Project in context of government economic development and investment program.
À‘ Specific government incentives and support available to project.
À‘ Expected contribution of project to economic development.
À‘ Outline of government regulations on exchange controls and conditions of capital entry
and repatriation.

7. Timetable envisaged for project preparation & completion.

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After this initial contact and a preliminary review, IFC may proceed by requesting a detailed
feasibility study or business plan to determine whether or not to appraise the project. IFC's
project/investment cycle illustrates the stages a business idea goes through as it becomes an IFC-
financed project.



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There is no standard application form for IFC financing. A company or entrepreneur, foreign or
domestic, seeking to establish a new venture or expand an existing enterprise can approach IFC
directly. This is best done by reading how to apply for financing and by submitting an
investment proposal. After these initial contacts and a preliminary review, IFC may proceed by
requesting a detailed feasibility study or business plan to determine whether or not to appraise
the project.


¦


Typically, an appraisal team consists of an investment officer with financial expertise and
knowledge of the country in which the project is located, an engineer with the relevant technical
expertise, and an environmental specialist. The team is responsible for evaluating the technical,
financial, economic and environmental aspects of the project. This process entails visits to the
proposed site of the project and extensive discussions with the project sponsors.
After returning to headquarters, the team submits its recommendations to senior management of
the relevant IFC department. If financing of the project is approved at the department level, IFC's
legal department, with assistance from outside counsel as appropriate, drafts appropriate
documents. Outstanding issues are negotiated with the company and other involved parties such
as governments or financial institutions


   Before the proposed investment is submitted to the IFC Board for review,
the public is notified of the main elements of the project. Environmental review documents are
also made available to the public.


   ¦

 The project is submitted to IFC's Board of Directors, which
reviews the proposed investment.


 
 IFC seeks to mobilize additional finance by encouraging other
institutions to make investments in the project.


  If the investment is approved by the Board, and if stipulations from earlier
negotiations are fulfilled, IFC and the company will sign the deal, making a legal commitment.

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 Funds are disbursed under the terms of the legal commitment signed by
all parties.


  
 Once funds have been disbursed, IFC monitors its investments closely. It
consults periodically with management, and it sends field missions to visit the enterprise. It also
requires quarterly progress reports together with information on factors that might materially
affect the enterprise in which it has invested, including annual financial statements audited by
independent public accountants.

 When an investment is repaid in full, or when IFC exits an investment by selling its
equity stake, IFC closes its books on the project.

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