Unit III. The european bank for reconstruction and development

The European Bank for Reconstruction and Development was established in 1991 when communism was crumbling in central and eastern Europe and ex-soviet countries needed support to nurture a new private sector in a democratic environment. Today the EBRD uses the tools of investment to help build market economies and democracies in 27 countries from central Europe to central Asia.

The EBRD is the largest single investor in the region and mobilises significant foreign direct investment beyond its own financing. It is owned by 60 countries and two intergovernmental institutions. But despite its public sector shareholders, it invests mainly in private enterprises, usually together with commercial partners.

It provides project financing for banks, industries and businesses, both new ventures and investments in existing companies. It also works with publicly owned companies, to support privatisation, restructuring state-owned firms and improvement of municipal services. The Bank uses its close relationship with governments in the region to promote policies that will bolster the business environment.

The mandate of the EBRD stipulates that it must only work in countries that are committed to democratic principles. Respect for the environment is part of the strong corporate governance attached to all EBRD investments.

Every EBRD investment must:

• Help move a country closer to a full market economy: the transition impact

• Take risk that supports private investors and does not crowd them out

• Apply sound banking principles

Through its investments, the EBRD promotes:

• Structural and sectoral reforms

• Competition, privatisation and entrepreneurship

• Stronger financial institutions and legal systems

• Infrastructure development needed to support the private sector

• Adoption of strong corporate governance, including environmental sensitivity

OWNERSHIP AND FUNDING

The EBRD is owned by its member/shareholder countries, the European Community and the European Investment Bank. The Bank's share capital is provided by its members. Voting power is in proportion to the number of shares.

How the EBRD is funded

With a subscribed capital totalling EUR 20 billion (EUR 5 billion paid-in and EUR 15 billion callable), the EBRD has a solid capital base. The strength of the Bank's capital and its prudent operational and financial policies are reflected in the EBRD's credit rating of AAA from Standard & Poor's and Aaa from Moody's.

How the EBRD finances its loan operations

The EBRD finances project lending and operational needs by borrowing funds on the international capital markets.

The Bank does not directly utilise shareholders' capital to finance its loans. Instead, the AAA/Aaa rating enables the Bank to borrow funds in the international markets by issuing bonds and other debt instruments at highly cost-effective market rates. By raising funds on competitive terms, EBRD can structure loans which best match the requirements of its clients in its countries of operations.

The Bank manages its liabilities such that it does not incur foreign exchange nor interest rate risk in its funding operations. It interacts with all major capital market participants on a daily basis in order to ascertain which market, currency or structure of debt can provide the EBRD with the most efficient cost of financing.

EBRD's securities are sold to investors, such as central banks, pension funds, insurance companies and asset managers around the world.