Financial Reporting, World Bank finance, Federal budgeting of International finance institutions

1. 1 ResearchConductedbyArthurMboue
World Bank Funding: Trading Hungry Voice for Money
Governments and private companies around the World are receiving Billions of dollars every
year ($64 Billion committed in 2016) from the World Bank in the forms of loans, credits, grants
to Governmental agencies and private institutions.
2016 World Bank Group Committed and Disbursed Funds (in Billion of Dollars)
IBRD IDA IFC MIGA Recipient-
Executed
Trust Funds
World Bank
Group
Commitments 29.72 16.17 11.17 Gross issuance
4.25
2.91 64.18
Disbursements 22.53 13.19 9.95 3.36 49.03
But a lot of people do not understand where all these money come from. It is why I did design
this illustration (and tables) of the sources of funding of the World Bank Group and its too many
interdivisional transactions.
The World Bank and its subsidiaries deride this world star financial strength from the capital
backing they receive as equity contribution and donation from developed countries and MIC,
capital stock from all its members as subscribed shares including paid in capital and non-called
subscripted capital, internal resources from its own retained earnings, transfers from peers
(IBRD, IDA, IFC or/and MIGA), borrowings from market sources, discount notes program and
other short-term program and borrowings from (IBRD and/or IFC).
In theory, the World Bank Group is owned by all its members, 189, although top 8 developed
shareholders are owners of close to 50% of World Bank shares.

2. 2 ResearchConductedbyArthurMboue
SHAREHOLDER VALUEOWNED BY TOP 8 Preferred Shareholders
IBRD IFC IDA MIGA
CapitalStock CapitalStock Subscriptions and
Contributions
CapitalStock
Amount paid
($Million)
% Total Amount paid($
Million)
%
Total
Amount paid
($ Million)
% Total Amount paid
($ Million)
% Total
United States 2,857.6 17.58 569.38 22.19 50,411.44 20.54 67.41 18.36
United
Kingdom
691.0 4.14 121.01 4.72 28,484.30 11.60 17.59 4.83
France 672.4 4.14 121.01 4.72 17,257.95 7.03 17.59 4.83
Germany 717.9 4.42 128.91 5.02 25,579.03 10.42 18.36 5.04
China 774.8 4.88 61.76 2.41 536.03 0.22 11.36 3.12
Japan 1,222.2 7.58 162.53 6.33 44,063.68 17.97 18.44 5.06
Saudi Arabia 484.6 3.05 51.04 1.99 2,634.57 1.07 11.36 3.12
Russia 483.5 3.05 102.85 4.01 761.09 0.31 11.36 3.28
Total 7,904 48.84% 1,155.95 51.39 169,728.09 69.15 173.46 47.64
You have to be a member of IMF in order to join IBRD under Article II section1,b (membership
shall be open to other members of the Fund, at such times and in accordance with such terms as
may be prescribed by the Bank). In addition, a country is not required to be a member of all
divisions of the World Bank Group. Adviser must know that if a country membership to the IMF
is terminated, it is not a dead sentence, it can request a special treatment in order to keep its
membership at the World Bank active under IBRD Article of Agreement VI, section 3 (Any
member which ceases to be a member of the IMF shall automatically cease after 3 months to be
a member of the Bank unless the Bank by ¾ of the total voting power has agreed to allow it to
be remain a member). Although World Bank divisions do not have the same leaders, buildings
and employees, they share the same Executive Directors attending their committees or joint
committees with absence of objection and voting for the constituents they represent. Advisers
must make sure they read each division’s rules because sometimes they are different when one
division is silent on one rule, it means may be that IBRD rule prevails. IBRD was the earlier and
only division of the World Bank when it was founded.
EQUITY CONTRIBUTION
 IBRD members can subscribe to the allocated shares but they will pay only 20 % (called
paid in capital) under Article of Agreement II, section 5,i (20% shall be paid or subject to
call under Section 7 (i) of this Article as needed by the Bank for its operations). The rest
is classified as non-called membership subscription. In order for the IBRD to call for the
collection of this big portion of membership under Article of Agreement II, section 5, ii
(the remaining 80% shall be subject to call by the Bank only when required to meet
obligations of the Bank created under Article IV, Sections 1 (a)(ii) and (iii)), a least two
events must precede this event, first, the World Bank must be in serious need for liquid

3. 3 ResearchConductedbyArthurMboue
and then it must be a vote of Governors. Historically, 72 years later, the World Bank
Group has never made that ‘liquidity’ call for help may be because any calls on unpaid
subscriptions are uniform on all shares. The subsidiary may make several calls until it
gets sufficient liquid to cover its incurred obligation or/and meet its target obligations.
In addition there is no additional liability caused by these calls under Article of
Agreement II section 6 (liability on shares shall be limited to the unpaid portion of the
issue price of the shares). Reading this subscription, advisers must master the fact that
the more shares a country member is allowed to subscribe, the more shares the country
member owns. For US being the largest shareholder and founder of the IBRD has not
been cheap since, in 2016 alone, up to $43.4 Billion of unpaid subscription representing
17.54% from 1 out 189 countries. Also, Bretton Woods Agreements obligated the US to
have $7.7 Billion set apart requiring no further congressional hearing. US Congress did
approve $137.9 Billion just in case there is a crisis at the World Bank Group. In 2016,
IBRD incurred but not received uncalled subscripted Capital was $247.52 Billion ($210
Billion and $36.86 Billion to be called only when required to meet funds borrowed or on
loans guaranteed obligations by its operations or the IBRD respectively).
 IDA equity contribution is funded by its rich and middle income countries members as
regular contribution and contribution for the Multilateral Debt Relief Initiative (MDRI).
Every 3 years, replenishment event takes place and countries pledge a lot of money to
help the division as higher as they can afford. Advisers must let people they are advising
know that there is a difference between pledge and actual donation. For this program,
these members have up to three installments from prepaid to send their cash or cash
equivalent donation to the World Bank. This contribution to the IDA used to be the best
way to get more voting rights points as extracurricular financial contribution credits at
IBRD and IDA. IDA is the World biggest welfare institution with a pivotal humanitarian
role not just to end extreme poverty around the World but also to help the poorest
countries in the World (so far 126 countries) with grants and interest free loans. In
2016, the number of contributing members did increase from 18 at the inception of this
program to 51 members in IDA 17 as regular contribution, contribution for Multilateral
Debt Relief Initiative (MDRI) and Concession Loans from members. MDRI program is the
Troubled Debt Relief program funded by its wealthy members to compensate IDA on a
dollar basis for forgone loan reflows (principal and service charge repayments) due to
poor countries as debt cancellation or modification. Concessional loans from members
is an additional contribution mechanism to the IDA replenishment fundraising. In 2016,
IDA did receive $7.866 Billion in members (Part II, poor members, do you want me to
subtract Saudi Arabia and China? I will next time) contribution as regular contribution
and $237 Billion as rich members (Part I, do you want me to subtract Slovenia and

4. 4 ResearchConductedbyArthurMboue
others? I will next time) contribution including subscription and donations to finance
MDRI and others.
 IFC Article of Agreement II, Section 3 (c) states that “the initial subscription of each
original member shall be payable in full within 30 days after either the date on which the
Corporation shall begin operations…” That means there is no paid in capital and unpaid
subscription at IFC. Article II Section 4 leaves no room for non-paid membership or low
class deadbeat moms (members) when it states “no member shall be liable, by reason of
its membership, for obligations of the Corporation.” Normally, all divisions (IBRD, IFC,
IDA are all Aaa rated) and other MDBs rely on contractual agreements with their
members in the callable capital pledge as emergency support to manage any future
financial risk. At IFC, the institution believes in its shareholders ability and willingness to
support the institution as a risk management strategy and a substitute to a callable
capital pledge. In 2016, IFC did receive $2.567 Billion in subscribed capital
 MIGA has just 181 members with paid in capital and callable capital. Based on its Article
of Agreement Chapter II Article 7i & ii (within 90 days from the date on which this
Convention enters into force with respect to such member, 10% of the price of each
share shall be paid in cash as stipulated in Section (a) of Article 8 and an additional 10%
in the form of non-negotiable,…), 20 percent of the subscribed shares must be paid as
paid in capital and the remaining 80 percent is subject to call when it will be needed to
help MIGA meets its obligations. Any calls on unpaid subscription are uniform on all
shares under Chapter II Article 8, b (Calls on any portion of unpaid subscriptions shall be
uniform on all shares). In 2016, MIGA did recognize $1.9 Billion in total subscribed
capital and did receive $0.366 Billion in paid in capital.
BORROWING FROM THE MARKET
The World Bank Group fundraising events target institutional investors and retail investors by
issuing debt needed to help it meet its funding needs. Its funding levels depend on the global
economic environment. To meet its funding needs at low costs, favorable maturity and higher
spread, the World Bank strategy must focus on timing (low market demand for liquid), size of
the offer (the higher volume, the better), diversification (private placement, bond,…), cost
effective syndication (few is the best), secondary market and consensus pricing. All
transactions of all of its divisions are exempt from SEC regulation and EU prospectus directive.
Putting aside its highest credit rating (Aaa/AAA for all its 4 divisions), all its products are
recognized by rating agencies, investors, banks and governments that are its members. Most of
its preferred shareholders are rated Aa/AA or higher with contractual agreements and treaties
to respond to its liquidity needs in case of crisis. The World Bank has the best response to the
question, ”what will happen if something wrong happens tomorrow”. All of these qualities
coupled with high volume and zero historic failed payment entitled the World Bank with the

5. 5 ResearchConductedbyArthurMboue
lowest cost of its working capital and more competitive and flexible financial options than its
international financial MDBs peers and competitors. As you were told during your risk
management class, the higher the risk, the higher the return of investment. Here. The World
Bank is paying a very low premium because its investors are exposed to a risk free investment.
It is why a good spread can materialize from these transactions after trading with its borrower
members. The financial position of the World Bank is very robust supported by its Aaa/AAA
rating, an effective risk management practices and conservative financial policies. This strong
risk management helps the World Bank manages any developing countries crisis without
liquidating its assets or impairing its ability to meet its past and future obligations.
 IBRD, like all the World Bank main four divisions, can borrow at attractive low rate
thanks to its triple A credit rating, history of no default, financial strength of its wealthy
shareholder crisis management support (huge uncalled subscription tied to reputation,
international security and global agreement). Under its Article of Agreement IV section
8 (ii), IBRD can conduct public offering only with the approval of the host country. In
2016, IBRD did borrow $63 Billion making it a premier borrower. Its debt retirement
program is reducing its costs of borrowing and increasing its market attractiveness.
IBRD has a world recognized record of issuing a host of products including callable or
puttable notes, discounted bond, FX linked coupon, zero coupon, currencies, floating
notes with caps and floors. The weighted average cost of discount note borrowing was
at 0.8% .
 IFC can borrow from international capital markets without any authorization of its board
to meet its obligations. Under the Article of Agreement III Section 6 (i), IFC may conduct
a public offering only with the approval of the host country. In 2016, IFC borrowed only
$14.3 Billion because of its program retiring its debts and by consequent reducing its
funding. In sum, during fiscal year 2016, IFC payables from borrowing related currency
swaps amounted $19.9 Billion. In 2016, IFC repurchase amounted $0.5 Billion with
recognized claimof $6 Million in gain. IFC has a proved record of issuing products
including callable or puttable notes, discounted bond, zero coupon, step-up/step-down
coupon bonds, FX linked coupon, dual currencies and floating notes with caps and
floors. The weighted average cost of its discount note borrowing was at 0.33% while it
issued $11.5 Billion discount notes.
 IDA, in 2016, did borrow from its members (not the market) a total amount of $4.4
Billion. It was a decreasing trend.
 MIGA, unlike its peer subsidiary of the World Bank, the Council of Governors and board
of Executive Directors did set its maximum amount of contingent liability. Its operating
capital is comprised of retained earnings, paid in capital and insurance portfolio reserve.
Reinsurance of MIGA’s guarantee portfolio plays a pivotal role in its risk management

6. 6 ResearchConductedbyArthurMboue
and business growth. Securities lending and repurchase agreements increase its risk.
But, its triple A credit rating is still unchallenged. In 2016, total liabilities relating to
securities transferred under repurchase or security lending agreements including
Government and agency obligations was just $2.691 Million. MIGA receives collateral in
the form of liquid securities and is permitted to re-pledge them because they are
recognized as investments.
Transaction Summary (sample) Triple A Highest quality Use of the rating for
investors
Issuer InternationalFinance
Corp
Long term
rating
outlook Use to save investor money,
time andeffort based on
opportunityearning
Ratings AAA/Aaa Moody Aaa
(02/2016)
Stable Use to recognize riskin the
companybefore to invest
Format Global(SECexempt) S & P AAA
(01/2011)
Stable Use as a credibilitytool inthe
issuer’s presentation
Total issue size USD $ Billion Use to understandthe
companyplan
Coupon 2% (semi-annual,
30/360)
Use to helpmade
independent investment
decision
Pricing date March 2, 2017
Settlement date March 18, 2017
Maturity date March 18, 2022
Offer(re-offer) spread Ms-2bps
Offer(re-offer) price 99.2%
Offer(re-offer Yield 2.2%
INTERNAL RESOURCES (RE, INCOME,..)
WorldBank Comparative Funding,Fiscal Year 2016
IBRD IDA IFC MIGA
RetainedEarnings $21,258 $4913 $20,608 $684
PaidinCapital $15,805 $245,430 (including
contributions)
$2,566 $366
(transfer)
Borrowingsfrom
IBRD
NA $660 $205 $3,227
Borrowingsfrom
IDA
$497 NA $1,099
Discountnotes
program &
Borrowings
$3,665 $1,800
Borrowingsfrom
Market
$63 $4.4 $14.3
TransferfromIFC $330 ($2.671)

7. 7 ResearchConductedbyArthurMboue
INTERSUBSIDIARY TRANSACTION (TRANSFER-BORROWING)
When you review almost all incomes recognized for the World Bank Group (including the World
Bank publication), you will have serious reservation if you have a good background in corporate
consolidation. Transactions creating these aggressive data are, inter-subsidiary transactions
called here, transactions between affiliated organizations. In reality, if the World Bank Group
was not exempt from the SEC regulation, IBRD, IDA, IFC and MIGA were supposed to report as
subsidiaries of the World Bank Group. The purpose of the consolidation is to present the
financial position and operating results of the parent company (World Bank Group) and its
subsidiaries as if the group were a single company or family. ASC 805 guidance with its 3
approaches of consolidation including proprietary, parent company and entity concepts has
alternative method by combining financial statements that include a group of related
companies without including the parent company or other owner.
What is a subsidiary? Inter- company Accounts to be Eliminated Representation
 When the parent:
o Has a majorityof voting rights
o Is a member and canappoint
or remove a majorityof the
board
o Is a member and controls
alone a majorityof voting
rights bycontractual
agreement with other
members
o Has the rights to exercise a
dominant influence through
the Memorandum and ByLaw
or a control contractual
agreement
o Has a participating interest
and either actuallyexercises a
dominant influence over it or
manages bothon a unified
basis
Parent (Subs) Accounts VS Subsidiary’s Accounts
Investment in
Subsidiary
EquityAccounts
Intercompany
receivable (payable)
Inter-companypayable
(receivable)_
Advances to (from)
subsidiary
Advances from (to)
parent (Subsidiary)
Interest revenue
(expense)
Interest revenue
(revenue)
Dividendrevenue
(dividends declared)
Dividends declared
(dividends revenue)
Management fee
received from
subsidiary
Management fee paid
to parent (subsidiary)
Sales to (purchasesof
inventoryfrom)
subsidiary
Purchasesof inventory
(sale to ) parent
(subsidiary)
 They apply for lateral and horizontal transactions
That said, based on my review of the World Bank Group, the reporting authority can exercise
dominant influence on all of these divisions including disposition or have the rights to exercise
dominant influence on all these divisions acting as submissive of the World Bank Group. But,
when the reporting authority can only share the exercise of these rights with other participants,
the entity is reporting as affiliate. Also, for consolidation purpose, it will not make a great
difference because of the World Bank Group 100% ownership of each of these divisions. Unlike
foreign subsidiary, no country member, foreign or US, is imposing any true restriction on the
dollar as its functional currency because all immunities are granted to the World Bank Group by
its funding parents. In short, in 2016 at the World Bank Group, they were a lot of inter-
subsidiary transactions in term of fees payments, grants and borrowings.
Parent
A B
Downstream
Upstream
Horizontal
A= SubsidiaryA
B= Subsidiary B

8. 8 ResearchConductedbyArthurMboue
 Grants:
o Grant from IFC to IDA for $330 Million from the IDA 17 fundraising agreements
o Grant from IBRD to IDA for $660 Million from the IDA 17 fundraising
 Sale
o IFC sold a portion of its building in Accra, Ghana to IBRD for $13 Million and
recognized $3 Million gain
o IFC issued a note to IDA for $1,179 Million requiring $1,315 Million payment
(1.84%)
 Fee payments
o For loans, administrative and/or pensions benefits, the payable from IDA to
manager ( IBRD), amounted to $419 Million in 2016
o For loans, administrative and/or pensions benefits, the payable to IFC by
manager, IBRD amounted to $53 Million coupled with $72 Million in fees
charges to IFC
o For loans, administrative and/or pensions benefits payable from MIGA is $4
Million coupled with fees charged to MIGA
o Total fees paid by MIGA charged by IBRD/IDA $10.1 Million
o Total fees paid by MIGA charged by IFC $2.97 Million
 Borrowings
o MIGA has AR from IBRD of $3,237 Million
o MIGA has AP to IFC of $4,793 Million