African Investment Bank
Encyclopedia
The African Investment Bank (AIB) is one of three financial institutions of the African Union
African Union
The African Union is a union consisting of 54 African states. The only all-African state not in the AU is Morocco. Established on 9 July 2002, the AU was formed as a successor to the Organisation of African Unity...

 (AU) along with the African Monetary Fund
African Monetary Fund
The Africa Monetary Fund will be an African Union financial institution, though in time its responsibilities will be transferred to the African Central Bank.This institution is one of the three financial institutions of the future African Union. It will be based in Yaoundé, Cameroon. -Links:**...

 and the African Central Bank
African Central Bank
The African Central Bank is one of the three financial institutions of the African Union. Over time, it will take over responsibilities of the African Monetary Fund....

. It will be headquartered in Tripoli, Libya and is scheduled to begin operations in April 2007.

Background

The Lome Summit (2000) adopted the Constitutive Act of the African Union, which specifies the objectives, principles, and organs of the AU. Twenty-seven African countries signed the act, which provided for establishing a wide variety of institutions, including the Pan-African Parliament
Pan-African Parliament
The Pan-African Parliament , also known as the African Parliament, is the legislative body of the African Union and held its inaugural session in March 2004. The PAP exercises oversight, and has advisory and consultative powers, lasting for the first five years...

; Court of Justice
Court of Justice
Court of Justice may refer to:*Caribbean Court of Justice*Court of Justice of the European Union*International Court of Justice*Court of Justice *Ontario Court of Justice...

; African Central Bank; African Monetary Fund; and African Investment Bank. In 2005, the AU held a meeting of independent experts in Addis Ababa, Ethiopia, to consider concept papers and draft Protocols prepared by the African Union Commission (AUC) regarding the three institutions. The AU also determined seats for the financial
FINANCIAL
FINANCIAL is the weekly English-language newspaper with offices in Tbilisi, Georgia and Kiev, Ukraine. Published by Intelligence Group LLC, FINANCIAL is focused on opinion leaders and top business decision-makers; It's about world’s largest companies, investing, careers, and small business. It is...

 institutions, the African Central Bank (Nigeria
Nigeria
Nigeria , officially the Federal Republic of Nigeria, is a federal constitutional republic comprising 36 states and its Federal Capital Territory, Abuja. The country is located in West Africa and shares land borders with the Republic of Benin in the west, Chad and Cameroon in the east, and Niger in...

), the African Investment Bank (Libya), and the African Monetary Fund (Central Africa
Central Africa
Central Africa is a core region of the African continent which includes Burundi, the Central African Republic, Chad, the Democratic Republic of the Congo, and Rwanda....

).

Mandate and Principles Governing Operations

On November 21, 2006, the AUC held a meeting in Yaounde, Cameroon, to outline the implementation of the three African Financial Institutions as per Article 19 of the Constitutive Act. The AIB's mandate was invisioned to aid in fostering economic growth and accelerating economic integration
Economic integration
Economic integration refers to trade unification between different states by the partial or full abolishing of customs tariffs on trade taking place within the borders of each state...

 in Africa
Africa
Africa is the world's second largest and second most populous continent, after Asia. At about 30.2 million km² including adjacent islands, it covers 6% of the Earth's total surface area and 20.4% of the total land area...

 in line with the AU's Strategic Plan. Article 17 of the Agreement further established that AIB's method of banking operations will be conducted in accordance with the following governing principles:
  1. Operations are principally for financing specific projects, including national, sub-regional or regional development schemes for members. May include financing to national development institutions in Africa serving the mandate;
  2. In selecting projects, evaluate its potential contribution to the mandate, rather than project type;
  3. AIB will not finance any undertaking in a member's territory if that member objects;
  4. In considering loan or guarantee applications, consider the borrower's ability to obtain financing or facilities elsewhere;
  5. In making or guaranteeing loans, consider if the borrower & its guarantor can meet obligations; and that the interest rate
    Interest rate
    An interest rate is the rate at which interest is paid by a borrower for the use of money that they borrow from a lender. For example, a small company borrows capital from a bank to buy new assets for their business, and in return the lender receives interest at a predetermined interest rate for...

    , other charges & the repayment schedule is appropriate;
  6. Proceeds can only be used for procurement in member states of goods produced by members, except if the Board of Directors
    Board of directors
    A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. Other names include board of governors, board of managers, board of regents, board of trustees, and board of visitors...

     permits non-member procurement, or non-member produced goods, in special circumstances (i.e., non-member provides significant financing to AIB);
  7. In the case of a direct loan, the borrower can draw funds only for project expenditures as incurred;
  8. Take measures to ensure that loan proceeds are used only for the purposes which the loan was granted;
  9. Avoid a disproportionate amount of resources benefiting any member;
  10. Seek reasonable diversification in equity capital investment; AIB will not assume management of any entity or enterprise in which it has an investment, except where necessary;
  11. Apply sound banking principles, particularly to investments in equity capital;
  12. In guaranteeing loans made by other investors, AIB shall receive suitable risk
    Risk
    Risk is the potential that a chosen action or activity will lead to a loss . The notion implies that a choice having an influence on the outcome exists . Potential losses themselves may also be called "risks"...

     compensation.

Membership

According to Article 4, AIB membership is open to all AU members. Eligible countries who do not become members when operations begin may be subsequently admitted, under terms and conditions established by the Board of Governors
Board of governors
Board of governors is a term sometimes applied to the board of directors of a public entity or non-profit organization.Many public institutions, such as public universities, are government-owned corporations. The British Broadcasting Corporation was managed by a board of governors, though this role...

 (BOG), following the affirmative vote of at least four-fifths of the Governors, representing not less than three-fourths of the member's total voting power.

Capital

AIB's initial authorized capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...

 stock has yet to be determined. It will be divided into a number shares with a specific par value
Par value
Par value, in finance and accounting, means stated value or face value. From this comes the expressions at par , over par and under par ....

, which shall be available to members for subscription in accordance with the provisions in the Agreement. The authorized capital stock shall be divided into paid-in shares
Paid in capital
Paid in capital refers to capital contributed to a corporation by investors through purchase of stock from the corporation . It includes share capital Paid in capital (Paid-in capital or Contributed capital) refers to capital contributed to a corporation by investors through purchase of stock...

 and callable shares
Call option
A call option, often simply labeled a "call", is a financial contract between two parties, the buyer and the seller of this type of option. The buyer of the call option has the right, but not the obligation to buy an agreed quantity of a particular commodity or financial instrument from the seller...

. The BOG will occasionally determine the proportion of authorized capital in paid-in shares and callable shares. The BOG may increase the authorized capital stock, under terms and conditions deemed advisable. The BOG's decision to increase the authorized capital will be adopted by a vote of at least four-fifths of the Governors, representing not less than three-fourths of the members total voting power.
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