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The BNG centers on lending and project financing, often very long term. It stopped being just another capital market institution in 1989 when it became a full credit institution subject to the full supervision of the Dutch Central Bank.  In 1994 BNG was awarded the Triple A status by no fewer than three credit rating agencies.  Total assets are approximately 500 billion US dollars.  It has 300 staff members and just one office.  Key to its success are the knowledge of municipalities the BNG has built up over the years and the rule in the Netherlands that municipalities are no allowed to run a deficit.

Table 2 Example of a Bond Bank: the Bank of Dutch Municipalities (BNG, 1999)

History and approach

Examples of sectoral interventions

1.

Incorporated in 1914 it is a financial specialist of and for the public sector:

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Municipalities

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Provinces

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joint local authority undertakings

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regional police forces

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housing associations

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education & health care organizations

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businesses allied to the public sector

2.

The BNG being a triple A institution pays a low rate for the bonds it issues

1.

Loans for housing programs

2.

90 % of monetary transfers between central government bodies, semi-government bodies and municipalities

3.

Investments in waste treatment

4.

Cash management for local authorities

5.

Financing sport facilities in municipalities

6.

Arranging project finance for major renovation of business park projects

7.

Streamlining rent payments for housing associations

Intermediation in Gujarat: a network of institutions

There are important differences per state in India as far as legislation and type of existing intermediary institutions are concerned. An institution similar to KUIDFC does not exist in Gujarat for example. The Gujarat Infrastructure Development Board (GIDB) is the state institution to facilitate investments in advanced infrastructure such as ports, electricity and major roads. It is a high level nodal agency, falling directly under the Chief Minister of the state, but is not necessarily working with local governments.

In the case of Gujarat project development and project financing activities are best suited to the private sector. The state could learn from the Project Development Corporation of Rajasthan (PDCOR), which is small outfit with as majority shareholders private sector financial institutions which prepares projects and links them to potential investors. The private sector is better able to package and pool important projects, while the government could take the necessary policy reform initiatives.vi State governments are in a better position to push local governments to adopt the necessary reforms and to undertake the project preparation activities. The State’s role should be enabling, deploying strategies to ensure confluence of the financial institutions needs with the local government offerings.

Infrastructure development in Gujarat is hindered by limited borrowing capacities rather than by limited fund availability. It can also be noted that restrictive municipal laws need

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