Domination of restrictive project loans by transnational banks

Project loans are for a bank the relatively safest form of finance. Such loans are tied to a precise activity in which there is an economic return to cover repayment which can be evaluated on an ex-ante basis. Moreover, project loans carry a substantial element of built-in discipline because the use of resources is tied to project proposals, and project implementation may also benefit from the expertise of an established private foreign or local supplier or contractor. Characteristics similar to project lending can also be found in the financing of capital goods imports. Offering greater risk are freely disposable loans and refinancing credits. The riskiest loan is one of free disposition, since a bank has no ex-ante insurance that the resources will be employed wisely and generate returns sufficient to permit repayment.

Banks grouped by size of assets, show that those with the smallest assets have an inclination to provide the riskier types of loan: free disposition and refinancing.