Procedural Aspects of Project Finance

The procedural aspects of project financing by banks and other major financial institutions consists of following stages:

1. Identification of the Project

The project’s idea is introduced to providers by various sources: a request from the government concerned or financials identification missions may identify a proposal from other financiers, or it. Applications for financing are then sorted out and classified: projects to be financed are selected from amongst projects which have top priority in the development plans of the beneficiary countries and which meet the requirements established by the rules for financing set out by the providers and agreed upon by the government concerned. In all cases, an official request from the government should be submitted to financials before it decides to participate in the financing.

2. Desk Review and Determination of the Project’s Scope

Experts, each in his field of specialization, study all the documents available on the project and examine its components, its estimated local and foreign costs, the preliminary financing plan, the position of the other sources of financing, the current economic situation and the development policy of the beneficiary country and, generally, review all elements which may help in making the project a success.

3. Preliminary Approval

The findings of the project’s review are set out in a report prepared by financials experts and submitted to Board of Directors for preliminary approval for undertaking further studies on the said project with the intention of considering the possibility of organization’s participation in its financing.

4. Project Appraisal and Submission to the Board

After the project has been granted preliminary approval, organizations usually dispatches an appraisal mission to the project’s site. The appraisal stage is considered to be one of the key stages of the procedure in this stage the project’s objectives, components, cost, financing plan, justification and all its economic, technical and legal aspects are determined. The project’s implementation schedule, the methods of procurement of goods and services, the economic and financial analysis and the implementing and operating agencies are also examined at this stage. Based on the results of the appraisal mission, an appraisal report is prepared, as well as a Director General’s report which is submitted to the Board of Directors for final approval.

5. Consultations with other Co-Financiers

Consultations are considered to be one of the important stages in the procedure. It is during this stage that agreement is reached regarding the financing plan, the type of financing, and distribution of the components of the project so as to ensure the smooth flow of disbursements during execution of the various components of the project. This coordination should continue throughout the project implementation period to ensure the fulfillment of its objectives.

6. Negotiations and Signature of the Loan Agreement

After the beneficiary government is informed of the Board of Directors’ decision to extend the loan according to the terms agreed upon during the appraisal of the project, the loan agreement is prepared and negotiated, and eventually signed with the government concerned.

7. Declaration of Effectiveness of the Loan Agreement

A loan agreement is declared effective after continuous contacts with the government concerned and the other co-financiers and after fulfillment of all conditions precedent to effectiveness stipulated in the loan agreement.

8. Project Implementation and Disbursement from the Loan

After the declaration of effectiveness of the loan agreement, the project’s implementation and, consequently, the disbursements from the loan funds start according to the plan agreed upon during the appraisal process and in line with the rules and provisions of the loan agreement signed between the two parties.

9. Supervision and Follow Up

Financials undertakes the follow-up of the project’s implementation through its field missions sent to the project’s site or through the periodic reports which it requires the beneficiary country to provide on a quarterly basis. These reports enable them to advise the government concerned on the best ways to implement the project.

10. Current Status Reports

Whenever necessary, experts prepare status reports which include the most recent information and developments on the project’s implementation. These reports are submitted to the Board of Directors for information and approval of any possible amendments, which may be required for implementation. This is done in coordination and agreement with the government concerned and the other co-financiers.

11. Project Completion Report

This report is prepared at the project’s site and in the office as well, after completion of the project. This report enables organizations to make use of the experience gained from the completed project, when implementing similar projects in future. In addition, it may help in identifying a new project in the same sector.

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