Details about the World Bank, its objectives and importance. Contributed by: Sumit Singh, M52, MONIRBA

2. At a Glance
Motto Working for a World Free of Poverty
Formation July 1944
Type Monetary International Financial Organization
Legal Status Treaty
Purpose/Focus Crediting
Headquarters Washington D.C., U.S.
Membership
189 countries (IBRD)
173 countries (IDA)
President Jim Yong Kim
Main Organ Board of Directors
Parent Organization World Bank Group
Website Worldbank.org

3. Introduction
The World Bank is an international financial institution that provides
leveraged loans to developing countries for capital programs. The World
Bank has a stated official goal of reducing poverty.
The World Bank differs from the World Bank Group, in that the World Bank
comprises only two institutions:
1. International Bank for Reconstruction and Development (IBRD)
2. International Development Association (IDA)
Whereas the latter incorporates these two in addition to three more:
1. International Finance Corporation (IFC)
2. Multilateral Investment Guarantee Agency (MIGA)
3. International Centre for Settlement of Investment Disputes (ICSID)

4. Objectives
• To provide long-run capital to member countries for economic reconstruction
and development. World Bank provides capital mainly for the following
purposes:
 To rehabilitate war ruined economies (this objective is fully achieved).
 To finance productive efforts according to peace-time requirements.
 To develop resources and production facilities in underdeveloped countries.
• To induce long-run capital investment for assuring Balance of Payments (BoP)
equilibrium and balanced development of international trade.
• To provide guarantee for loans granted to small and large units and other
projects of member countries.
• To ensure the implementation of development projects so as to bring about a
smooth transference from a war-time to peace economy.
• To promote capital investment in member countries by the following ways:
 To provide guarantee on private loans or capital investment.
 If private capital is not available even after providing guarantee, then IBRD provides loans
for productive activities on considerate conditions.

5. Functions
The main functions can be explained with the help of the following
points:
1. World Bank provides various technical services to the member countries. For
this purpose, the Bank has established “The Economic Development Institute”
and a Staff College in Washington.
2. Bank can grant loans to a member country up to 20% of its share in the paid-
up capital.
3. The quantities of loans, interest rate and terms and conditions are determined
by the Bank itself.
4. Generally, Bank grants loans for a particular project duly submitted to the
Bank by the member country.
5. The debtor nation has to repay either in reserve currencies or in the currency
in which the loan was sanctioned.
6. Bank also provides loan to private investors belonging to member countries
on its own guarantee, but for this loan private investors have to seek prior
permission from those counties where this amount will be collected.

6. History
• The Second World War damaged economies of the most of the
countries, particularly of those who were directly involved in the war.
• The global war had completely dislocated the multilateral trade and had
caused massive destruction of life and property.
• In 1944, it was realised to concentrate on reconstructing these war
affected countries. Besides, it was also given a thought to develop
underdeveloped economies in a planned way.
• IBRD was established in 1944 alongwith the IMF on the basis of the
recommendation of the Bretton Wood Conference. These two
organizations are called ‘Bretton Wood Twins’.
• Delegates from a wide variety of countries attended the Bretton Woods
Conference, but the most powerful countries in attendance, the United
States and United Kingdom, mainly shaped negotiations.
• India is a member of four constituents of the World Bank Group i.e.
IBRD, IDA, IFC and MIGA but not the fifth institute ICSID.

7. History
• 1944-1974
– Before 1974 the reconstruction and development loans
provided by the World Bank were relatively small.
– First country to receive a World Bank loan was France.
– The loan was for US$250 million, half the amount
requested, and it came with strict conditions.
– France had to agree to produce a balanced budget and
give priority of debt repayment to the World Bank over
other governments.
– In addition, before the loan was approved, the United
States State Department told the French government that
its members associated with the Communist Party would
first have to be removed.

8. • 1974-1980
– From 1974 to 1980 the bank concentrated on meeting
the basic needs of people in the developing world.
The size and number of loans to borrowers was
greatly increased as loan targets expanded from
infrastructure into social services and other sectors.
• 1980-1989
– During the 1980s the bank emphasized lending to
service Third-World debt, and structural
adjustment policies designed to streamline the
economies of developing nations.
History

9. • 1989-present
– Beginning in 1989, in response to harsh criticism from
many groups, the bank began including environmental
groups and NGOs in its loans.
– In 1991 the bank announced that to protect against
deforestation, especially in the Amazon, it would not
finance any commercial logging or infrastructure projects
that harm the environment.
– In order to promote global public goods, the World Bank
tries to control communicable disease such as malaria,
delivering vaccines to several parts of the world and
joining combat forces. In 2000 the bank announced a "war
on AIDS" and in 2011 the Bank joined the Stop
Tuberculosis Partnership.
– Less recently, a project in Seychelles to promote local
tourism by the name of project MAGIC was launched in
2010.
History

10. Management
• Management of world bank includes - Board of Governors, Board of
Executive Directors, Loan Committee, Advisory Committee, President
and other members of the staff.
• Board of Governors of the world bank includes one Governor (Finance
Minister) and one alternate governor (governor of central bank)
appointed by each member country for a term of 5 years. Each governor
has voting power in relation to its financial contribution to the capital of
the bank. Board is required to meet at least once in a year.
• Executive Directors are 21 and out of this 6 are appointed by the six
largest shareholders like USA, UK, Germany, France and Japan. The
remaining 15 members are elected by the rest of member countries. It
meets once a month to carry on daily routine work.
• President is appointed by board of executive directors.
• World Bank perform its functions with the help of two committees -
Advisory Committee and the Loan Committee. Advisory Committee
includes 7 experts appointed by the Board of Governors. Loan
Committee is constituted by the executive directors and loan is provided
as per the economies of member countries.

11. Critics
• High Interest Rates:
It charges a very high interest on loans, and also an annual commitment charge
and a front-end fee. Presently it is 7.6%.
• Less aid to Developing Countries:
Its lending operations account for only a small proportion of the total net and to
developing countries.
• Faulty Lending Procedure:
It is regarded to be faulty as it lays emphasis on the repaying capacity of the
borrowing country before granting loans.
• Discriminatory:
The bank has been criticized to be discriminatory in its purpose-wise and
region-wise assistance to its members.
• Hard Conditionality: The introduction of SAF and ESAF has made loan terms
tighter. The borrowing country is required to follow an action programme set out
in a letter of development policies.

12. IMF vs. WORLD BANK
World Bank provides long-term loans for
promoting balanced economic development,
while IMF provides short-term loans to member
countries for eliminating BOP disequilibrium.
Both these institutions are complementary to
each other. Few economists have even
suggested that the two organizations should be
merged.

13. Membership
• Generally every member country of the IMF automatically becomes
the member of World Bank. Similarly, any country quitting IMF is
automatically expelled from the World Bank’s membership.
• But, under a certain provision a country leaving the membership of
IMF can continue its membership with World Bank if 75% members
of the Bank give their vote in its favour.
• Any member country can quit the Bank simply by written notice to
the Bank, but such country has to repay the granted loans on terms
and conditions decided at the time of sanctioning the loan.
• Any country working against the guidelines of Bank can be debarred
from membership by the Board of Governors.
• World Bank has two types of members: Founder members and
General members .
• India is also one of the 30 founding members of the World Bank.
• At present total membership is 189 .

14. Voting Right
• Voting right of members is determined on the
basis of their share in the total capital of the
Bank.
• Each member has 250 votes plus one
additional vote for each 1,00,000 shares of the
capital stock held.

15. Capital Resources
• The initial authorized capital of the WB was $ 10,000
million, divided in 1 lakh shares of $ 1 lakh each.
• On June 30, 1996, the authorized capital of the Bank
was $ 188 billion out of which $ 180.6 billion was
issued to the member countries in the form of
shares.
• Headquarter of World Bank is at Washington D.C.

16. India and The World Bank
• India has been borrowing from the World Bank through IBRD and
IDA for various development projects in the area of poverty
alleviations, infrastructure, rural developments etc.
• IDA funds are one of the most concessional external loans for GoI
and are used largely in social sector projects that contribute to the
achievement of Millennium Development Goals.
• India has borrowed around US$ 65.8 billion from the World Bank so
far.
• In 1958, the Bank played an important role in establishing ‘India Aid
Club’ for providing specific economic assistances to India. It has
now been renamed as ‘India Development Forum’.
• International Development Association (IDA), an associate of World
Bank is known as the soft loan window of the Bank and was
established on September 24, 1960.
• During 1995-96 (July-June), India ranked first among the nations
getting assistance from IDA.

17. Thank You