Introduction of World Bank
The World Bank group is a multinational financial institution established at the end of World War II (1944) to help provide long-term capital for the reconstruction and development of member countries.
The group is important to multinational corporations because it provides much of the planning and financing for economic development projects involving billions of dollars for which private businesses can act as contractors and suppliers of goods and engineering-related services.
Table of Contents
- 1 Introduction of World Bank
- 2 Purpose of World Bank
- 3 What is World Bank?
- 4 World Bank Group
- 5 World Bank’s Agenda
- 6 Responsibilities of World Bank
Purpose of World Bank
The purposes for the setting up of the Bank are:
- To assist in the reconstruction and development of territories of members by facilitating the investment of capital for productive purposes, including the restoration of economies destroyed or disrupted by war, the reconversion of productive facilities to peacetime needs and encouragement of the development of productive facilities and resources in less developed countries.
- To promote private foreign investment by means of guarantees or participation in loans and other investments made by private investors; and when private capital is not available on reasonable terms, to supplement private investment by providing, on suitable conditions, finance for productive purposes out of its own capital, funds raised by it and its other resources.
- To promote the long-range balanced growth of international trade and the maintenance of equilibrium in balance of payments by encouraging international investment for the development of the productive resources of members, thereby assisting in raising productivity, the standard of living and condition of labour in their territories.
- To arrange the loans made or guaranteed by it in relation to international loans through other channels so that the more useful and urgent projects, large and small alike, can be dealt with first.
- To conduct its operations with due regard to the effect of international investment on business conditions in the territories of members and, in the immediate post-war years, to assist in bringing about a smooth transition from a wartime to a peacetime economy.
What is World Bank?
The World Bank is an international financial institution that provides loans to developing countries for capital programs. The World Bank’s official goal is the reduction of poverty. the World Bank comprises:
- International Bank for Reconstruction and Development (IBRD)
- International Development Association (IDA)
- International Finance Corporation (IFC)
- Multilateral Investment Guarantee Agency (MIGA)
- International Centre for Settlement of Investment Disputes (ICSID).
World Bank Group
International Bank for Reconstruction and Development
IBRD is an international financial institution that offers loans to middle-income developing countries. It was established in 1944 with the mission of financing the reconstruction of European nations devastated by World War II.
The IBRD provides commercial-grade or concessional financing to sovereign states to fund projects that seek to improve transportation and infrastructure, education, domestic policy, environmental consciousness, energy investments, healthcare, access to food and potable water, and access to improved sanitation.
The main aim of IBRD is to reduce poverty in the countries that fall in the middle-income bracket but are creditworthy at the same time. IBRD has been earning a net income each year since 1948. It is involved in various developmental activities and also ensures the financial strength of poor countries. It comprises five appointed and 19 elected Executive Directors.
International Development Association
IDA is an international financial institution that offers concessional loans and grants to the world’s poorest developing countries. It was established in 1960 to complement the existing International Bank for Reconstruction and Development by lending to developing countries that suffer from the lowest gross national income, from troubled creditworthiness, or from the lowest per capita income.
There are two criteria on the basis of which countries are said to be eligible to access IDA funds.
They are as follows:
- Relative poverty of a country (as measured by per capital income)
- Lack of credit worthiness for IBRD resources.
International Finance Corporation
IFC is an international financial institution that offers investment, advisory, and asset management services to encourage private sector development in developing countries.
It was established in 1956 as the private sector arm of the World Bank Group to advance economic development by investing in strictly for-profit and commercial projects which reduce poverty and promote development.
Multilateral Investment Guarantee Agency
MIGA iwas established in 1988 comprising 162 members with cumulative guarantees as issued for $12.4 million and fiscal 2003 guarantees issued for $1.4 million.
The objective of MIGA is to encourage FDI in developing countries by providing the guarantee to the investors against losses that may be caused by non-commercial risks— expropriation, restrictions on inconvertibility and transfers, war and civil disturbance and breech of contracts.
It also provides technical and advisory help to countries for strengthening their intermediaries related to investment promotion, and disseminate information pertaining to investment opportunities. In addition, it also provides investment dispute mediation services on request.
International Centre for Settlement of Investment Disputes
ICSID was established in 1966, comprising 139 members, with 129 registered cases in total, and 26 cases as registered in fiscal 2003. The basic objective of ICSID is to provide international facilities of conciliation for encouraging foreign investment, through arbitration of investment disputes.
World Bank’s Agenda
The World Bank’s main mission is to facilitate the development of developing countries. This can be achieved by lending money to the developed countries at a higher rate of interest as compared to the poor countries. It fact, a very minimal rate of interest or no interest loans and grants should be extended to a poor country.
The five important trajectories followed by the World Bank to facilitate economic growth are:
- To build capacity by strengthening and educating the governments
- Making laws towards protecting individuals and property rights and also to promote businesses
- Starting strong systems for lending and borrowing in many different situations
- Curbing corruption at the government level
- Providing consultancy, research and training to facilitate academicians, students and organizations for research-related activities.
Responsibilities of World Bank
We will now discuss some of the programs and responsibilities of the Bank are:
- Poverty reduction strategies
- Clean technology fund management
- Clean air initiative
- United Nations development business
- Country assistance strategies
Poverty reduction strategies
Under this initiative, the Bank formulates plans for poverty reduction in poor countries and simultaneously to develop themselves. Along with the local governments or groups, the Bank analyzes the specific needs of each country and accordingly develops the best strategy for it.
This initiative of the World Bank receives aid from forty-five countries to the tune of $25 million. This money goes to IDA (International Development Association), which distributes it among the poor countries according to their requirements.
Clean technology fund management
This is a temporary management responsibility of the Clean Technology Fund which has been given to the World Bank to focus on the production of cost-competitive renewable energy.
Clean air initiative
The clean air initiative of the World Bank is focused on improving the quality of air in cities, in selected regions of the world, through various partnerships by sharing experiences and knowledge. This initiative also includes electric vehicles.
United Nations development business
The agreement between the World Bank and the United Nations in 1981 led to the establishment of the United Nations Development Business, which became the official source for the World Bank contract awards, procurement notices and project approvals.
This agreement was renegotiated in 1998 to create an electronic version of the publication through the World Wide Web (www).
Currently, all the major multilateral development banks, national governments and United Nations agencies have made the development business their primary publication for their tenders and notices. For some, it has been made a mandatory requirement to use this publication.
Country assistance strategies
Under country assistance strategies, the World Bank identifies the key areas in which it can best support a country in reducing poverty and achieving sustainable development.