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World Bank History
Conceived during World War II at Breton Woods, New Hampshire, the World Bank
initially helped rebuild Europe after the war. Its first loan of $250 million was to France
in 1947 for post-war reconstruction. Reconstruction has remained an important focus of
the Bank's work, given the natural disasters, humanitarian emergencies, and post conflict
rehabilitation needs that affect developing and transition economies.
Today's Bank, however, has sharpened its focus on poverty reduction as the overarching
goal of all its work. It once had a homogeneous staff of engineers and financial analysts,
based solely in Washington, D.C. Today, it has a multidisciplinary and diverse staff
including economists, public policy experts, sectoral experts, and social scientists. 40
percent of staff are now based in country offices.
Bretton Woods Conference, July 1-22, 1944
• World War II was still on, D-Day took place less than one month before.
• International concern over the competing currency devaluations and inflationary
tendencies which characterized the interwar years and the fear of a post-war
economic depression had been the genesis of the Conference and the Fund
• The Bank was conceived of primarily as an instrument through which the physical
assets of the post-war world might be rebuilt. Development financing would come
• It was the Latin American countries which were principally responsible for the
emphasis on development.
• Soviet Union represented at Bretton Woods, but did not subsequently ratify the
Articles of Agreement of the Bank or Fund.
• World Bank was the first multilateral development bank.
Affiliates of the World Bank:
(1) Economic Development Institute (EDI)
Established January 9, 1956
Purpose: Help member countries improve the degree of economic management in
government by increasing the number of administrators skilled in dealing with problems
of economic policy and with the planning and administration of development programs.
(2) International Finance Corporation (IFC)
Established July 20, 1956
Purpose: Promote sustainable private sector development primarily by:
Financing private sector projects located in the developing world.
Helping private companies in the developing world mobilize financing in international
Providing advice and technical assistance to businesses and governments.
(3) International Development Association (IDA)
Established September 24, 1960
Purpose: Act as the World Bank’s concessional lending window. It provides long-term
loans at zero interest to the poorest of the developing countries.
(4) International Centre for the Settlement of Investment Disputes (ICSID)
Established October 14, 1966
Purpose: Assist Contracting States and their nationals in settling, by means of
conciliation or arbitration, investment disputes between governments and foreign
(5) Operations Evaluation Unit
Established September 2, 1970
Purpose: Established by the President, the Operations Evaluation Unit evaluates Bank
Group operations. It is placed in the Programming and Budgeting Department.
(6) Consultative Group on International Agricultural Research (CGIAR)
Established May 19, 1971
Purpose: An informal association of public and private donors supporting a network of
international agricultural research centers.
CGIAR convenes in Washington under chairmanship of the Bank, but with its Technical
Advisory Group (TAG) headquartered at FAO, Rome.
(7) World Bank Staff Association
Established February 28, 1972
Purpose: Working Party of twelve established by the Provisional Delegate Assembly to
investigate various aspects of establishing a staff association. Its report recommended the
formation of a staff association and outlined its functions, objectives and general
Constitution drafting committee of three established to draft a constitution and rules of
Referendum held January-February 1972. Out of 2,998 eligible voters, 2,528 cast ballots,
of which 2,339 voted “yes” and 189 voted “no”. Nine “yes” votes arrived too late to be
Provisional Delegate Assembly first met on April 26, 1971; two delegates from each
department; assembly would decide whether or not there would be a staff association and,
if so, which form it would take.
(8) World Bank Administrative Tribunal
Established July 1979
Purpose: A judicate staff grievances.
September 1978: Round Table Conference on Legal Rights composed of staff and
management representatives. Conference was to examine the terms and conditions of
employment at the Bank to determine whether they should be enforceable through access
to an Administrative Tribunal.
An Appeals Committee had been established in 1976 to help to adjudicate staff
grievances, but its recommendations are not binding on the Bank.
National courts have been reluctant to adjudicate grievances of staff against the Bank.
Staff Association played a significant role in the process of establishing the
Members of the Administrative Tribunal are selected by the Executive Directors from a
list drawn up by the President of the Bank after due consultation.
First session began July 1, 1980 in London.
(9) Multilateral Investment Guarantee Agency
Established April 12, 1988
“The purpose of the Agency is not solely to provide investment insurance. Insurance is
the main instrument of the Agency but will be used along with other instruments to create
a better investment environment based on mutual confidence between investors and their
Established September 22, 1993
Purpose: The Inspection Panel is three-member, non-judicial body created by the Board
of Executive Directors of IBRD and IDA to provide an independent forum to private
citizens who believe that their rights or interests have been or could be directly harmed
by a project financed by the Bank. Affected people may bring their concerns to the
attention of the Panel by filing a Request for Inspection.
The World Bank Group, originated as a result of the Bretton Woods Conference of 1944.
It is one of the world’s largest sources of development assistance and it has extended
assistance to more than 100 developing economies, bringing a mix of finance and ideas to
improve living standards and eliminate the worst forms of poverty. For each of its clients,
the Bank works with Government agencies, nongovernmental organizations and the
private sectors to formulate assistance strategies. Together with the separate International
Monetary Fund, the World Bank organizations are often called the "Bretton Woods"
institutions, after Bretton Woods, New Hampshire, where the United Nations Monetary
and Financial Conference that led to their establishment took place (1 July-22 July 1944).
The Bank came into formal existence on 27 December 1945 following international
ratification of the Bretton Woods agreements. Commencing operations on 25 June 1946,
it approved its first loan on 9 May 1947 ($250m to France for postwar reconstruction, in
real terms the largest loan issued by the Bank to date)
The World Bank is a vital source of financial and technical assistance to developing
countries around the world. It is not a bank in the common sense. Since it was set up in
1944 as the International Bank for Reconstruction and Development, the number of
member countries increased sharply in the 1950s and 1960s, when many countries
became independent nations. As membership grew and their needs changed, the World
Bank expanded and is currently made up of five different agencies
The World Bank Group consists of five closely associated institutions, each institution
playing a distinct role in the mission to fight poverty and improve standard of living for
the people in the developing world. The term World Bank refers specifically to two of the
five i.e. The International Bank for Reconstruction and Development (IBRD) and The
International Development Association (IDA). The other institutions are The
International Finance Corporation (IFC), The Multilateral Investment Guarantee Agency
(MIGA) and The International Centre for Settlement of Investment Disputes (ICSID).
While all five specialize in different aspects of development, they use their comparative
advantages to work collaboratively towards the same overarching goal-poverty reduction.
Each institution plays a different but supportive role in the mission of global poverty
reduction and the improvement of living standards. The IBRD focuses on middle income
and creditworthy poor countries, while IDA focuses on the poorest countries in the world.
Together it provides low-interest loans, interest-free credit and grants to developing
countries for education, health, infrastructure, communications and many other purposes
The World Bank's activities are focused on developing countries, in fields such as
human development (e.g. education, health), agriculture and rural development (e.g.
irrigation, rural services), environmental protection (e.g. pollution reduction, establishing
and enforcing regulations), infrastructure (e.g. roads, urban regeneration, electricity), and
governance (e.g. anti-corruption, legal institutions development). It provides loans at
preferential rates to member countries, as well as grants to the poorest countries. Loans or
grants for specific projects are often linked to wider policy changes in the sector or the
economy. For example, a loan to improve coastal environmental management may be
linked to development of new environmental institutions at national and local levels and
to implementation of new regulations to limit pollution.
The World Bank is one of the most highly-regarded financial institutions in the world,
especially in the field of development economics and related research. In addition, World
Bank standards and methods have been adopted in many areas such as transparent
procedures for competitive procurement and environmental standards for project
evaluation. World Bank also engages in funding the education of promising young people
from developing countries through its graduate scholarship programs
The World Bank's two closely affiliated entities—the International Bank for
Reconstruction and Development (IBRD) and the International Development Association
(IDA)—provide low or no interest loans and grants to countries that have unfavorable or
no access to international credit markets. Unlike other financial institutions, we do not
operate for profit. The IBRD is market-based, and we use our high credit rating to pass
the low interest we pay for money on to our borrowers—developing countries. We pay
for our own operating costs, since we don’t look to outside sources to furnish funds for
I. Fund Generation
IBRD lending to developing countries is primarily financed by selling AAA-rated bonds
in the world's financial markets. While IBRD earns a small margin on this lending, the
greater proportion of its income comes from lending out its own capital. This capital
consists of reserves built up over the years and money paid in from the bank's 184
member country shareholders. IBRD’s income also pays for World Bank operating
expenses and has contributed to IDA and debt relief.
IDA, the world's largest source of interest-free loans and grant assistance to the poorest
countries, is replenished every three years by 40 donor countries. Additional funds are
regenerated through repayments of loan principal on 35-to-40-year, no-interest loans,
which are then available for re-lending. IDA accounts for nearly 40% of our lending.
Through the IBRD and IDA, we offer two basic types of loans and credits: investment
loans and development policy loans. Investment loans are made to countries for goods,
works and services in support of economic and social development projects in a broad
range of economic and social sectors. Development policy loans (formerly known as
adjustment loans) provide quick-disbursing financing to support countries’ policy and
Each borrower’s project proposal is assessed to ensure that the project is economically,
financially, socially and environmentally sound. During loan negotiations, the bank and
borrower agree on the development objectives, outputs, performance indicators and
implementation plan, as well as a loan disbursement schedule. While we supervise the
implementation of each loan and evaluate its results, the borrower implements the project
or program according to the agreed terms. As nearly 30% of our staff is based in some
100 country offices worldwide, three-fourths of outstanding loans are managed by
country directors located away from the World Bank offices in Washington.
IDA long term loans (credits) are interest free but do carry a small service charge of 0.75
percent on funds paid out. IDA commitment fees range from zero to 0.5 percent on un-
disbursed credit balances; for FY06 commitment fees have been set at 0.30 percent. For
complete information about IBRD financial products, services, lending rates and charges,
please visit the World Bank Treasury . Treasury is at the heart of IBRD's borrowing and
lending operations and also performs treasury functions for other members of the World
Grants are designed to facilitate development projects by encouraging innovation, co-
operation between organizations and local stakeholders’ participation in projects. In
recent years, IDA grants—which are either funded directly or managed through
partnerships—have been used to:
• Relieve the debt burden of heavily indebted poor countries
• Improve sanitation and water supplies
• Support vaccination and immunization programs to reduce the incidence of
communicable diseases like malaria
• Combat the HIV/AIDS pandemic
• Support civil society organizations
• Create initiatives to cut the emission of greenhouse gasses
IV. Analytic and Advisory Services
While we are best known as a financier, another of our roles is to provide analysis, advice
and information to our member countries so they can deliver the lasting economic and
social improvements their people need. We do this in several ways: through economic
research on broad issues such as the environment, poverty, trade and globalization and
through country-specific economic and sector work, where we evaluate a country's
economic prospects by examining its banking systems and financial markets, as well as
trade, infrastructure, poverty and social safety net issues, for example.
We also draw upon the resources of our knowledge bank to educate clients so they can
equip themselves to solve their development problems and promote economic growth. By
knowledge bank we mean the wealth of contacts, knowledge, information and experience
we've acquired over the years, country by country and project by project, in our
development work. Our ultimate aim is to encourage the knowledge revolution in
These are only some of the ways our analyses, advice and knowledge are made available
to our client countries, their government and development professionals, and the public
• Poverty Assessment
• Social and Structural Review.
• Public Expenditure Review
• Sector Reports
• Country Economic Memoranda
• Knowledge Sharing.
V. Capacity Building
Another core bank function is to increase the capabilities of our own staff, our partners
and the people in developing countries—to help them acquire the knowledge and skills
they need to provide technical assistance, improve government performance and delivery
of services, promote economic growth and sustain poverty reduction programs. Linkages
to knowledge-sharing networks such as these have been set up by the bank to address the
vast needs for information and dialogue about development:
Advisory Services and Ask Us help desks make information available by topic via
telephone, fax, email and the web. There are more than 25 advisory services at the
bank. Staff members who respond to inquiries add value to the work of our own
staff, clients and partners by responding quickly to their knowledge needs. Often,
they are the first and possibly the only contact the public at large and the people in
developing countries have with the World Bank.
Global Development Learning Network is an extensive network of distance
learning centers that uses advanced information and communications technologies
to connect people working in development around the world.
World Bank Institute Global and Regional Programs bring together leading
development practitioners online and face-to-face to exchange experiences and to
B-SPAN web casting service is an Internet-based broadcasting station that
presents World Bank seminars, workshops and conferences on sustainable
development and poverty reduction.
The World Bank continually strives to improve the delivery of its aid based on the
lessons learned from experience. Recognizing that in virtually all successful past
assistance efforts the country itself was driving the agenda, the Bank strives to help
governments take the lead in preparing and implementing development strategies to
shape the future of their countries. This is the philosophy behind the
Bank's Comprehensive Development Framework which, since 1999, has guided the
way its assistance has been delivered to developing countries. The four main principles of
the CDF are:
• Development strategies should be comprehensive and shaped by a long-term
• Development goals and strategies should be "owned" by the country, based on
local stakeholder participation in shaping them,
• Countries receiving assistance should lead the management and coordination of
aid programs through stakeholder partnerships, and
• Development performance should be evaluated through measurable results on the
ground, in order to adjust the strategy to outcomes and a changing world.
For low-income countries, the Bank's plans for assistance are based on Poverty
Reduction Strategies. In preparing theses strategies, the government consults a wide
cross-section of local groups and combines this with an extensive analysis of the
country's poverty and economic situation. The process is designed to develop country
ownership of the strategy, as well as to foster greater openness in policymaking and
increase government commitment to policies. After the consultations, the government
identifies the country's priorities and targets for reducing poverty over a three to five year
period. The Bank and other aid agencies then align their assistance efforts with the
country's own strategy - a proven way of boosting aid effectiveness.
The Bank's main vehicle for making strategic choices about the program design and
resource allocations for individual countries is its Country Assistance Strategy which,
since July 2002, has been based on PRSPs when dealing with low-income countries. In
producing its Country Assistance Strategy, the Bank conducts extensive analysis of the
country's economic and social situation in consultation with the government. Studies may
be conducted into issues such as poverty levels, agriculture, the health and education
systems, environmental policies, government procurement or financial management.
Additionally, the Bank has recently reviewed its role, activities, and effectiveness and the
development needs of countries in specific circumstances: Low Income Countries Under
Stress, Middle-Income Countries (MICs), and Small States.
Comprehensive Development Framework
The Comprehensive Development Framework (CDF) encompasses a set of principles to
guide development and poverty reduction, including the provision of external assistance.
Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to
enhance country ownership and the achievement of the Millennium Development Goals.
We intend to continue to direct the energy of our institutions to make this a reality.
Eliminating poverty, reducing inequity, and improving opportunity for people in low- and
middle-income countries are the World Bank Group's central objectives. The CDF is an
approach by which countries can achieve these objectives. It emphasizes the
interdependence of all elements of development—social, structural, human, governance,
environmental, economic, and financial.
The CDF advocates: a holistic long-term vision; the country in the lead, both "owning"
and directing the development agenda, with the Bank and other partners each defining
their support in their respective business plans; stronger partnerships among
governments, donors, civil society, the private sector, and other development
stakeholders in implementing the country strategy; and a transparent focus on
development outcomes to ensure better practical success in reducing poverty.
POVERTY REDUCTION STRATEGY
Poverty Reduction Strategy Papers (PRSPs) are one of the most tangible outcomes of the
new approach to development defined in the Bank's Comprehensive Development
Framework. Under the PRSP process, low-income countries write their own plans for
reducing poverty. Since July 2002, the World Bank has based its Country Assistance
Strategies, its plans for assistance to low-income countries, on PRSPs. PRSPs are
produced according to five principles:
• They are country-driven, involving broad-based participation by civil society and
the private sector as they are produced.
• They are directed toward achieving results and focused on outcomes that would
benefit the poor.
• They recognize that tackling poverty requires a comprehensive approach because
poverty is more than just a lack of income but that poor people also suffer from a
lack of opportunity, security, and voice in decisions that affect their lives.
• They are partnership-oriented in that they encourage the coordinated involvement
of bi-lateral, multilateral and non-government organizations in the country's
poverty reduction program.
They are based on a long-term perspective for poverty reduction. PRSPs foster greater
openness in policymaking. Governments have sought increasingly to include traditionally
marginalized groups, the private sector and civil society in developing them and because
of this, poverty-reduction strategies developed through this process tend to have broader
community and stakeholder support and are "owned" by the government
COUNTRY ASSISTANCE STRATEGY
The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers
from the International Development Association (IDA) and the International Bank for
Reconstruction and Development (IBRD). The CAS takes as its starting point the
country’s own vision for its development, as defined in a Poverty Reduction Strategy
Paper or other country-owned process. Oriented toward results, the CAS is developed in
consultation with country authorities, civil society organizations, development partners,
and other stakeholders. The purpose of the CAS is to set out a selective program of Bank
Group support linked to the country’s development strategy and based on the Bank
Group’s comparative advantage in the context of other donor activities. CASs are
designed to promote collaboration and coordination among development partners in a
The CAS includes a comprehensive diagnosis—drawing on analytic work by the Bank,
the government, and/or other partners—of the development challenges facing the
country, including the incidence, trends, and causes of poverty. The CAS identifies the
key areas where the Bank Group's assistance can have the biggest impact on poverty
reduction. In its diagnosis, the CAS takes into account the performance of the Bank’s
portfolio in the country, the country’s creditworthiness, state of institutional
development, implementation capacity, governance, and other sectoral and cross-cutting
issues. From this assessment, the level and composition of Bank Group financial,
advisory, and/or technical support to the country is determined. To track implementation
of the CAS program, the CAS is increasingly results-focused. It includes a framework of
clear targets and indicators to monitor Bank Group and country performance in achieving
HOW LOANS ARE MADE?
The World Bank offers two basic types of loans: investment loans for goods, work and
services to support economic and social development projects in a broad range of
sectors; and adjustment loans to support policy and institutional reforms.
During loan negotiations, the World Bank agrees with the borrowing country on the
development objective of the project or program, outputs, performance indicators (to
measure the impact and success of the project) and a plan to put it all into practice. Once
a loan is approved and becomes effective, the borrower puts the project or program into
practice according to the terms agreed with the World Bank.
The World Bank supervises how each loan is used and evaluate the results. All loans are
governed by operational policies, which make sure that operations are economically,
financially, socially and environmentally sound.
HOW ARE CITIZENS REPRESENTED AT THE WORLD BANK?
The World Bank is run like a cooperative, with member countries as shareholders. The
number of shares a country has is based roughly on the size of its economy. The United
States is the largest single shareholder, with 16.41 percent of the votes, followed by Japan
(7.87 percent), Germany (4.49 percent), the United Kingdom (4.31 percent) and France
(4.31 percent). The rest of the shares are divided among the other member countries.
Every member government is represented by an Executive Director. The five largest
shareholders (France, Germany, Japan, the United Kingdom and the United States)
appoint an executive director each, while other member countries are represented by 19
The 24 Executive Directors make up our Board of Directors. They normally meet twice a
week to oversee business, including reviewing loans and guarantees; new policies; the
administrative budget; country support strategies; and borrowing and financial decisions.
Dhanendra Kumar is the Executive Director for India. He also represents Bangladesh,
Bhutan, and Sri Lanka.
Like all corporate organizations, each of the agencies of the World Bank Group has
shareholders; these are the member countries. Every shareholder is allocated a certain
number of votes linked to the size of its shareholding. The votes include a specified
number of membership votes (which is the same for all members) and additional votes
based on the number of shares of the stock held. The number of votes of a member
expressed as a percentage of the total number of votes held by all shareholders is the
member’s voting power.
TYPES OF LOAN
The Bank has two basic types of lending instruments: investment loans and development
policy loans. Investment loans have a long-term focus (5 to 10 years), and finance goods,
works, and services in support of economic and social development projects in a broad
range of sectors. Development Policy loans have a short-term focus (1 to 3 years), and
provide quick-disbursing external financing to support policy and institutional reforms.
Investment loans provide financing for a wide range of activities aimed at creating the
physical and social infrastructure necessary for poverty alleviation and sustainable
development. Over the past two decades, investment lending has, on average, accounted
for 75 to 80 percent of all Bank lending.
The nature of investment lending has evolved over time. Originally focused on hardware,
engineering services, and bricks and mortar, investment lending has come to focus more
on institution building, social development, and building the public policy infrastructure
needed to facilitate private sector activity. Projects range from urban poverty reduction
(involving private contractors in new housing construction, for example) to rural
development (formalizing land tenure to increase the security of small farmers); water
and sanitation (improving the efficiency of water utilities); natural resource management
(providing training in sustainable forestry and farming); post-conflict reconstruction
(reintegrating soldiers into communities); education (promoting the education of girls);
and health (establishing rural clinics and training health care workers).
Eligibility. Investment loans are available to International Bank for Reconstruction and
Development (IBRD) and International Development Association (IDA) borrowers not in
arrears with the Bank Group.
Disbursement. Funds are disbursed against specific foreign or local expenditures related
to the investment project, including pre-identified equipment, materials, civil works,
technical and consulting services, studies, and incremental recurrent costs. Procurement
of these goods, works, and services is an important aspect of project implementation. To
ensure satisfactory performance, the loan agreement may include conditions of
disbursement for specific project components.
Instruments. The large majority of investment loans are either Specific Investment
Loans or Sector Investment and Maintenance Loans. Adaptable Program Loans and
Learning and Innovation Loans were recently introduced to provide more innovation and
flexibility. Other instruments tailored to borrowers' specific needs are Technical
Assistance Loans, Financial Intermediary Loans, and Emergency Recovery Loans.
Development Policy Lending
Development Policy loans provide quick-disbursing assistance to countries with external
financing needs, to support structural reforms in a sector or the economy as a whole.
They support the policy and institutional changes needed to create an environment
conducive to sustained and equitable growth. Over the past two decades, development
policy lending—previously called adjustment lending—has accounted, on average, for 20
to 25 percent of total Bank lending.
Development Policy loans were originally designed to provide support for
macroeconomic policy reforms, such as in trade policy and agriculture. Over time, they
have evolved to focus more on structural, financial sector, and social policy reform, and
on improving public sector resource management. Development Policy operations now
generally aim to promote competitive market structures (for example, legal and
regulatory reform), correct distortions in incentive regimes (taxation and trade reform),
establish appropriate monitoring and safeguards (financial sector reform), create an
environment conducive to private sector investment (judicial reform, adoption of a
modern investment code), encourage private sector activity (privatization and public-
private partnerships), promote good governance (civil service reform), and mitigate short-
term adverse effects of development policy (establishment of social protection funds).
Eligibility. Development policy loans are available to IBRD and IDA borrowers not in
arrears to the Bank Group. Eligibility for a development policy loan also requires
agreement on monitorable policy and institutional reform actions, and satisfactory
macroeconomic management. Coordination with the IMF is an essential part of the
preparation of a development policy loan.
Disbursement. Funds are disbursed in one or more stages (tranches). Tranches are
released when the borrower complies with stipulated release conditions, such as the
passage of reform legislation, the achievement of certain performance benchmarks, or
other evidence of progress toward a satisfactory macroeconomic framework.
Instruments. The new policy OP/BP 8.60 applies uniformly to all development policy
lending, replacing the previous different types of lending (e.g., RILs, SALs, SECALs,
SNALs, PSALs). Development policy operations in PRSP countries may continue to be
called "PRSCs", because this is by now a well-established "brand name."
World Bank Group Agencies
The World Bank Group consists of:-
(1) The International Bank for Reconstruction Development (IBRD), established in 1945,
(2) The International Finance Corporation (IFC), established in 1956,
(3) The International Development Association (IDA), established in 1960,
(4) The Multilateral Investment Guarantee Agency (MIGA), established in 1988 and
(5) The International Centre for Settlement of Investment Disputes (ICSID), established
Governments can choose which of these agencies they sign up to individually. The
IBRD has 184 member governments, and the other institutions have between 140 and 176
members. The institutions of the World Bank Group are all run by a Board of 24
Executive Directors, with each Director representing either one country (for the largest
countries), or a group of countries. Directors are appointed by their respective
governments or the constituencies.
The agencies of the World Bank are each governed by their Articles of Agreement that
serve as the legal and institutional foundation for all of their work
I. International Bank for Reconstruction and Development
Commencing operations on June 25, 1946, it approved its first loan on May 9, 1947
($250m to France for postwar reconstruction, in real terms the largest loan issued by the
Bank to date).
The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan
after World War II, with an additional mandate to foster economic growth in developing
countries in Africa, Asia and Latin America. Originally the bank focused mainly on
large-scale infrastructure projects, building highways, airports, and power plants. As
Japan and its European client countries "graduated" (achieved certain levels of income
per capita), the IBRD became focused entirely on developing countries. Since the early
1990s the IBRD has also provided financing to the post-Socialist states of Eastern Europe
and the former Soviet Union.
International Bank for Reconstruction and Development (IBRD) is one of the five
institutions consisting the World Bank Group. The IBRD is an international organization
whose original mission was to finance the reconstruction of nations devastated by WWII.
Now, its mission has expanded to fight poverty by means of financing states. Its
operation is maintained through payments as regulated by member states. It came into
existence on December 27, 1945 following international ratification of the agreements
reached at the United Nations Monetary and Financial Conference of July 1 to July 22,
1944 in Bretton Woods, New Hampshire.
The IBRD provides loans to governments, and public enterprises, always with a
government (or "sovereign") guarantee of repayment. The funds for this lending come
primarily from the issuing of World Bank bonds on the global capital markets - typically
$12-15 billion per year. These bonds are rated AAA (the highest possible) because they
are backed by member states' share capital, as well as by borrowers' sovereign
guarantees. (In addition, loans that are repaid are recycled (relent).) Because of the
IBRD's credit rating, it is able to borrow at relatively low interest rates. As most
developing countries have considerably lower credit ratings, the IBRD can lend to
countries at interest rates that are usually quite attractive to them, even after adding a
small margin (about 1%) to cover administrative overheads.
MISSIONS AND PRINCIPLES:
The mission of the Bank is to:
• Fight poverty with passion and professionalism for lasting results.
• Help people help themselves and their environment by providing resources,
sharing knowledge, building capacity and foreign partnership in the public and
• Be an excellent institution able to attract, excite and nurture diverse and
committed staff with exceptional skills who know how to listen and learn.
The Principles of the Bank is:
• Client Centric
• Working in partnership
• Accountable for quality results dedicated to financial integrity and cost-
• Inspire and be innovative
The purposes of the Bank, as laid down in its Articles of Agreement are:
• To assist in the reconstruction and development of the territories of the members,
by facilitating the investment of capital for productive purposes including the
restoration of economies destroyed by war, the reconversion of productive
facilities to peace time needs, and the encouragement of the development of
productive facilities and resources in the less developed countries.
• To promote private foreign investment by means 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
investments by providing on suitable conditions, finance for productive purposes
out of its own capital funds raised by it and other resources.
• To promote long-range balanced growth of internal trade and the maintenance of
equilibrium in the balance of payments, by encouraging international investments
of the productive resources of members, thereby assisting in raising productivity,
the standard of living and conditions of labour in their territories.
The main focus is on helping the poorest people and the poorest countries, but for all its
clients the Bank emphasises the need for :
• Investing in people, particularly through basic health and education.
• Focusing on social development, inclusion, governance and institution-building as
key elements of poverty reduction.
• Strengthening the ability of the governments to deliver quality services, efficiency
• Protecting the environment.
• Supporting and encouraging private business development.
• Promoting reforms to create a stable macro-economics environment, conducive to
investment and long-term planning.
Through its loans, policy advice and technical assistance, the World Bank supports a
broad range of programmes aimed at reducing poverty and improving standard of living
in the developing world.
The global fight against poverty is aimed at ensuring that people everywhere in this
world have a chance for a better life for themselves and for their children. Over the past
generation, more progress has been made in reducing peverty and raising standard of
living than during any other period in history in developing countries.
In its lending operation, the Bank is guided by certain policies which have been
formulated on the basis of Articles of Agreement
First, the Bank should properly assess the repayment prospects of the loans. For
this purpose, it should consider the availability of natural resources and
productive plant capacity to exploit the resources, and operate the plant and the
country’s past debt record.
Secondly, the Bank should lend only for specific projects which are economically
and technically sound and of a high priority nature. Most Bank loans have been
made for basic utilities, such as power and transport which are prerequisites for
economic development. The Bank also places considerable emphasis upon
proper management of the projects.
Thirdly, the Bank lends only to enable a country to meet the foreign exchange
content of any project cost, it normally expects the borrowing country to mobilise
its domestic resources.
Fourthly, the Bank does not expect the borrowing country to spend the loan in a
particular country, in fact, it encourages the borrowers to procure machinery and
goods for Bank financed projects in the cheapest possible market consistent with
Fifthly, it is the Banks policy to maintain continuing relations with borrowers with
a view to check the progress of the projects and keep in touch with financial and
economic developments in borrowing countries. This also helps in the solution of
any problem which might arise in the technical and administrative field.
Lastly, the Bank indirectly attaches special importance to the promotion of local
The World Bank has traditionally financed all kinds of capital infrastructure such as
roads and railways, telecommunications and ports and power facilities, its development
strategy also places an emphasis on investment that can directly affect the well being of
the masses of poor people of developing countries by integrating them as active partners
in the development process.
The following are the Lending Programmes of the Bank:
Structural Adjustment Lending:
The Bank in response to the deteriorating prospects for the developing
countries during the 1980’s, inaugurated a programme of Structural Adjustment Lending
(SAL). This lending supports programmes of specific policy changes and institutional
reforms to achieve a more efficient use of resources and thereby:
(a) Contribute to a more sustainable balance of payment in the medium and long term
and to the maintenance of growth in the face of severe constraints, and
(b) Lay the basis for regaining momentum of future growth.
Special Action Programme:
In 1983, the Bank initiated its Special Action Programme (SAP),
designed to increase assistance to countries that were making efforts to cope with the
exceptionally difficult economic environment brought on by a global recession.
B-Loan and Export Credit:
In January 1983, the Executive Director authorised the establishment of
a new set of financing instruments to help the Banks borrowers increase and stabilise
flows of private capital on approved terms by linking part of commercial bank flows
to IBRD operations. These instruments which comprises the B-loan pilot programme,
include three options i.e.
(a) Direct Bank participation in the late maturities of a B-Loan.
(b) Bank guarantee of late maturities with the possibility of release from all or a part
of its share, and
(c) Bank acceptance of a contingent obligation to finance an element of deferred
principal at final maturity of a loan with level-debt service payment with floating-
rate interest and variable amounts of principal repayment.
INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT
SUBSCRIPTIONS AND VOTING POWER OF MEMBER COUNTRIES
TOTAL SUBSCRIPTIONS VOTING POWER
AFGHANISTAN 30.0 .02 550 .03
ALBANIA 83.0 .05 1,080 .07
ALGERIA 925.2 .59 9,502 .59
ANGOLA 267.6 .17 2,926 .18
ANTIGUA AND BARBUDA 52.0 .03 770 .05
ARGENTINA 1,791.1 1.14 18,161 1.12
ARMENIA 113.9 .07 1,389 .09
AUSTRALIA 2,446.4 1.56 24,714 1.53
AUSTRIA 1,106.3 .70 11,313 .70
AZERBAIJAN 164.6 .10 1,896 .12
BAHAMAS, THE 107.1 .07 1,321 .08
BAHRAIN 110.3 .07 1,353 .08
BANGLADESH 485.4 .31 5,104 .32
BARBADOS 94.8 .06 1,198 .07
BELARUS 332.3 .21 3,573 .22
BELGIUM 2,898.3 1.84 29,233 1.81
BELIZE 58.6 .04 836 .05
BENIN 86.8 .06 1,118 .07
BHUTAN 47.9 .03 729 .05
BOLIVIA 178.5 .11 2,035 .13
BOSNIA AND HERZEGOVINA 54.9 .03 799 .05
BOTSWANA 61.5 .04 865 .05
BRAZIL 3,328.7 2.12 33,537 2.07
BRUNEI DARUSSALAM 237.3 .15 2,623 .16
BULGARIA 521.5 .33 5,465 .34
BURKINA FASO 86.8 .06 1,118 .07
BURUNDI 71.6 .05 966 .06
CAMBODIA 21.4 .01 464 .03
CAMEROON 152.7 .10 1,777 .11
CANADA 4,479.5 2.85 45,045 2.78
II. INTERNATIONAL DEVELOPMENT ASSOCIATION:
The International Bank for Reconstruction and Development (IBRD), better known as the
World Bank, was established in 1944 to help Europe recover from the devastation of
World War II. The success of that enterprise led the Bank, within a few years, to turn its
attention to the developing countries. By the 1950s, it became clear that the poorest
developing countries needed softer terms than those that could be offered by the Bank, so
they could afford to borrow the capital they needed to grow.
With the United States taking the initiative, a group of the Bank’s member countries
decided to set up an agency that could lend to the poorest countries on the most
favourable terms possible. They called the agency the "International Development
Association." Its founders saw IDA as a way for the "haves" of the world to help the
"have-nots." But they also wanted IDA to be run with the discipline of a bank. For this
reason, US President Dwight D. Eisenhower proposed, and other countries agreed, that
IDA should be part of the World Bank (IBRD).
The International Development Association (IDA) created on September 24, 1960, is a
UN specialized agency. It is responsible for providing long-term interest-free loans to the
poorest of developing countries on terms more lenient than those of the World Bank
proper, and forms part of the World Bank Group based in Washington, D.C.
The International Development Association (IDA) provides grants and "soft loans", with
repayment periods of some 30 years and no interest, to the poorest countries (generally
with per capita incomes below $500 per year). IDA concessionary lending is funded by
direct contributions from member states, which subsidise the difference between the
IBRD's costs and the price charged to IDA borrowers.
IBRD and IDA are run on the same lines. They share the same staff and headquarters,
report to the same president and evaluate projects with the same rigorous standards. But
IDA and IBRD draw on different resources for their lending, and because IDA’s loans
are deeply concessional, IDA’s resources must be periodically replenished (see "IDA
Funding" below). A country must be a member of IBRD before it can join IDA; 165
countries are IDA members.
IDA's Articles of Agreement became effective in 1960. The first IDA loans, known as
credits, were approved in 1961 to Chile, Honduras, India and Sudan
The International Development Association (IDA) is the part of the World Bank that
helps the earth’s poorest countries reduce poverty by providing interest-free loans and
grants for programs aimed at boosting economic growth and improving living conditions.
IDA funds help these countries deal with the complex challenges they face in striving to
meet the Millennium Development Goals. They must, for example, respond to the
competitive pressures as well as the opportunities of globalization; arrest the spread of
HIV/AIDS; and prevent conflict or deal with its aftermath.
IDA’s long-term, no-interest loans pay for programs that build the policies, institutions,
infrastructure and human capital needed for equitable and environmentally sustainable
development. IDA’s goal is to reduce inequalities both across and within countries by
allowing more people to participate in the mainstream economy, reducing poverty and
promoting more equal access to the opportunities created by economic growth.
IDA lends to those countries that had an income in 2005 of less than $1,025 per person
and lack the financial ability to borrow from IBRD. Some "blend borrower" countries
like India and Indonesia are eligible for IDA loans because of their low per person
incomes but are also eligible for IBRD loans because they are financially creditworthy.
Eighty-one countries are currently eligible to borrow from IDA. Together these countries
are home to 2.5 billion people, half of the total population of the developing world. Most
of these people, an estimated 1.5 billion, survive on incomes of $2 or less a day.
IDA credits have maturities of 20, 35 or 40 years with a 10-year grace period before
repayments of principal begins. IDA funds are allocated to the borrowing countries in
relation to their income levels and record of success in managing their economies and
their ongoing IDA projects. There is no interest charge, but credits do carry a small
service charge, currently 0.75 percent on funds paid out. See the terms of IDA lending.
In fiscal year 2006 (which ended June 30, 2006), IDA commitments totaled $9.5 billion.
New commitments in FY06 comprised 167 new operations. Fifty percent of new
commitments went to Sub Saharan Africa, 27 percent to South Asia, 11 percent to East
Asia and the Pacific, 5 percent to Eastern Europe and Central Asia, and the remainder to
poor countries in North Africa and in Latin America. The leading IDA borrowers in
FY06 are listed in Table 1.
Since 1960, IDA has lent $170 billion to 108 countries. Annual lending figures have
increased steadily and averaged about $9.1 billion over the last three years. Most loans
address basic needs, such as primary education, basic health services, and clean water and
sanitation. IDA also funds projects that safeguard the environment, improve conditions
for private business, build infrastructure, and support reforms to liberalize countries'
economies and strengthen their institutions. All these projects pave the way toward
economic growth, job creation, higher incomes and better living conditions.
FY06 Top Ten IDA Borrowers $million
Democratic Republic of Congo 365
While the IBRD raises most of its funds on the world's financial markets, IDA is funded
largely by contributions from the governments of the richer member countries. Additional
funds come from IBRD's income and from borrowers' repayments of earlier IDA credits.
See the list of cumulative contributions to IDA Replenishments and donor shares of total
Donors get together every three years to replenish IDA funds. Donor contributions
account for more than half of the US$33 billion in the IDA14 replenishment, which
finances projects over the three-year period ending June 30, 2008. The largest pledges to
IDA14 were made by the United States, the United Kingdom, Japan, Germany, France,
Italy and Canada, but less wealthy nations also contribute to IDA. Turkey and Korea, for
example, once IDA borrowers, are now donors. Countries currently eligible to borrow
from IBRD (but not from IDA) –Brazil, Czech Republic, Hungary, Mexico, Poland,
Russia, the Slovak Republic, and South Africa – are also IDA14 donors. Other
contributors include Australia, Austria, Barbados, Belgium, Denmark, Finland, Greece,
Iceland, Ireland, Israel, Kuwait, Luxembourg, Netherlands, New Zealand, Norway,
Portugal, Saudi Arabia, Singapore, Slovenia, Spain, Sweden, Switzerland and Venezuela.
To increase openness and help ensure that IDA’s policies are responsive to country needs
and circumstances, representatives from each IDA region were invited to take part in the
IDA13 and IDA14 replenishment negotiations. The number of borrower representatives
was expanded – to a total of nine – during the IDA14 replenishment negotiations. In both
IDA13 and IDA14, background policy papers were publicly released, as well as drafts of
the replenishment reports prior to their finalization.
IDA helps to reduce poverty by collaborating with other development partners, as well as
through its own programs. IDA has learned from experience that development programs
are most successful when the borrower country – not just the government, but non-
governmental organizations (NGOs) and other representatives of civil society – acquires
a sense of ownership of the programs through deep involvement in their design and
execution. The borrower country now leads in preparing the Poverty Reduction Strategy
(PRS) that establishes priorities for IDA support. In each country, IDA works with local
development partners to ensure that the PRS is carried out in a coherent way and that
IDA focuses on areas where it has comparative advantage. In IDA13, IDA targeted
human-development projects in areas like education, health, social safety nets, water
supply and sanitation (36%); law, justice and public administration (23%); industry
(18%); infrastructure (14%), and agriculture and rural development (8%).
• Sound economic policies, rural development, private business and sustainable
• Investment in people, in education and health, especially in the struggle against
HIV/AIDS, malaria and TB
• Expansion of borrower capacity to provide basic services and ensure
accountability for public resources
• Recovery from civil strife, armed conflict and natural disaster, and
• Promotion of trade and regional integration
IDA carries out analytical studies to build the knowledge base that allows intelligent
design of policies to reduce poverty. IDA also advises governments on ways to broaden
the base of economic growth and protect the poor from economic shocks.
The one billion children who live in countries that receive funds from IDA are the main
beneficiaries of IDA-backed investments in basic health, primary education, literacy and
clean water. IDA is now the single largest source of donor funds for basic social services
in the poorest countries.
IDA also coordinates donor assistance to provide relief for poor countries that cannot
manage their debt-service burden.
Globalization – the increasing integration of world markets and societies – has allowed
China, India and many other developing countries to achieve faster growth through
expanded foreign direct investments and access to export markets. IDA is re-invigorating
its work in trade to assist the poorest and most marginalized countries to limit adverse
disruptions from globalization and to enhance net benefits from it. IDA’s work in this
area emphasizes measures to improve the investment climate; enhance regional
integration, particularly in Africa; strengthen competitiveness; remove barriers to the
markets of industrial countries; and forge partnerships that enable acquisition of
appropriate skills and infrastructure
IDA's 81 eligible borrowers have very significant needs for concessional funds. But the
amounts of funds available for lending which is virtually fixed once donations are
pledged by donor governments, tends to be well below the countries' need. IDA therefore
must allocate scarce resources among eligible borrowing countries. This note describes
how this is done on the basis of borrowers' policy performance and institutional capacity
in order to concentrate resources where they are likely to be most helpful in reducing
Three criteria are used to determine which countries are eligible to borrow IDA
• Relative poverty, defined as GNP per capita below an established
threshold, US$1025 (as of July 1, 2006).
• Lack of creditworthiness to borrow on market terms and therefore a need for
concessional resources to finance the country's development program.
• Good policy performance, defined as the implementation of economic and social
policies that promote growth and poverty reduction.
2. Allocation Criteria
The main factor that determines the allocation of IDA resources among eligible countries
is each country's performance in implementing policies that promote economic growth
and poverty reduction. This bas been assessed by the Country Policy and Institutional
Assessment (CPIA). To fully underscore the role of the CPIA in the IDA Performance
Based Allocations, the overall country score is referred to as the IDA Resource
Allocation Index (IRAI). In addition to the IRAI, portfolio performance and governance
also feature in the allocation process. Together, the IRAI, portfolio performance and
governance constitute the IDA Country Performance Rating (CPR). In addition to the
CPR, population and per capita income also determine IDA allocations.
3. Performance Ratings
Every year World Bank staff assesses the quality of each borrower's policy performance.
The criteria and methodology of these assessments have evolved over time to incorporate
lessons from experience as well as research findings. Beginning in 1998, the country
performance assessment was broadened to include an appraisal not only of the
government's policies but also of the institutions in place to implement them. The 16
performance criteria are grouped into four clusters
• Structural Policies
• Policies for Social Inclusion/Equity
• Public Sector management and Institutions
At the time of the IDA14 replenishment negotiations the World Bank Executive Board
agreed that, starting with the results for 2005, the numerical IDA country performance
ratings would be disclosed.
The performance assessment also takes into account the performance of the country's
active project portfolio performance. The combined rating is scaled up or down
depending on the strength of the country's governance performance, resulting into the
IDA Country Performance Rating (CPR).
4. Allocation Process
The allocation of IDA's resources is determined primarily by each borrower's rating in the
annual country performance and institutional assessment. In addition, the IDA14
Agreement recommends that because the acceleration of economic and social
development in Sub-Saharan Africa remains foremost among IDA's priorities, these
countries should receive priority in the allocation process, provided their policy
performance warrants it. In the case of borrowers that are eligible for both IDA and IBRD
funds ("Blend countries"), the IDA allocations must also take into account those
countries' creditworthiness for and access to other sources of funds. Individual country
performance-based allocations serve as an anchor for the formulation of Country
Assistance Strategy (CAS) lending programs.
5. Lending and Performance
IDA management monitors actual lending to each country in relation to the planning
allocations. As a result, actual lending on per capita terms is robustly correlated with
performance levels. The strong link between lending and performance has resulted in an
increasing concentration of lending to countries where policy performance is most
conducive to effective resource use.
INTERNATIONAL DEVELOPMENT ASSOCIATION
VOTING POWER OF MEMBER COUNTRIES
PART I COUNTRIES
AUSTRALIA 195,130 1.24
AUSTRIA 108,386 .69
BELGIUM 172,388 1.10
CANADA 442,902 2.82
DENMARK 158,811 1.01
FINLAND 94,474 .60
FRANCE 654,788 4.16
GERMANY 1,043,130 6.63
GREECE 39,635 .25
ICELAND 36,795 .23
IRELAND 44,943 .29
ITALY 426,350 2.71
JAPAN 1,626,574 10.34
KUWAIT 84,679 .54
LUXEMBOURG 40,561 .26
NETHERLANDS 330,811 2.10
NEW ZEALAND 45,489 .29
NORWAY 161,004 1.02
PORTUGAL 42,015 .27
RUSSIAN FEDERATION 44,455 .28
SLOVENIA 34,947 .22
SOUTH AFRICA 43,501 .28
SPAIN 113,072 .72
SWEDEN 304,694 1.94
SWITZERLAND 173,112 1.10
UNITED ARAB EMIRATES 1,367 .01
UNITED KINGDOM 794,820 5.05
UNITED STATES 2,102,894 13.37
III. INTERNATIONAL FINANCE CORPORATION
For several years officials of the World Bank had been supporting the creation of a new
and different entity to complement their own. The Bank had been founded to finance
post-World War II reconstruction and development projects by lending money to member
governments, and had been doing so effectively. Yet in its initial years, some senior staff
had seen the need for creating a related institution to spur greater private sector
investment in poor countries. The economies of poor countries were still in very early
stages of development, lacking the human resources, physical infrastructure and sound
institutions needed to raise incomes and improve living standards. The responsibility for
development was almost universally assigned to the public sector. Private sector
investment in developing countries was small, and not much thought was given to
increasing it. It was into this environment that IFC was born.
The International Finance Corporation (IFC) promotes sustainable private sector
investment in developing countries as a way to reduce poverty and improve people's
IFC is a member of the World Bank Group and is headquartered in Washington, DC. It
shares the primary objective of all World Bank Group institutions: to improve the quality
of the lives of people in its developing member countries. IFC Mission Statement.
Established in 1956, IFC is the largest multilateral source of loan and equity financing for
private sector projects in the developing world. It promotes sustainable private sector
development primarily by:
1. Financing private sector projects located in the developing world.
2. Helping private companies in the developing world mobilize financing in
international financial markets.
3. Providing advice and technical assistance to businesses and governments.
MISSION and PRINCIPLES:
Our mission is to promote sustainable private sector investment in developing countries,
helping to reduce poverty and improve people's lives
Shared Principles and Practices
IFC, a member of the World Bank Group, is a global investor and advisor that is
committed to promoting sustainable projects in our developing member countries that are
economically beneficial, financially and commercially sound, and environmentally and
We believe that sound economic growth is key to poverty reduction; that it is grounded in
the development of entrepreneurship and successful private investment; and that a
conducive business environment is needed for the latter to thrive and contribute to
improving people's lives.
We seek to continuously improve our performance by responding to clients promptly,
sharing our successes, and learning from our experience. The following are the
principles of IFC:
(a) Added Value:
IFC adds value to our developing member countries by:
• Taking educated risks that the private sector will not take alone;
• Pioneering opportunities in frontier countries and sectors, to maximize our
projects' demonstration effect and catalytic role;
• Innovating by developing new products and services that better meet our clients'
• Providing quality advice when the private sector is unwilling or unable to do so;
• Sharing knowledge to promote successful private investment, entrepreneurship,
and enabling business environments;
• Integrating fully best environmental, social, and corporate governance practices in
all our work; and
• Being responsive to their needs and those of our private sector clients in a timely
• Holding ourselves and our clients to the highest professional and ethical
• Recognizing, in every investment, the importance and value of good corporate
• Seeking to be transparent, accountable, and equitable; and
• Being honest, open and fair in our dealings with each other, with our clients and
with local communities.
(c) Environmental and Social Sustainability:
• Ensuring that our projects attain high environmental and social standards;
• Consulting with local communities on project-specific environmental and social
impacts and opportunities;
• Working with responsible clients and other lenders, and local NGOs; and
• Listening actively and responding to stakeholders and their concerns.
To be eligible for IFC funding, a project must meet a number of criteria. The project
• Be located in a developing country* that is a member of IFC;
• Be in the private sector;
• Be technically sound;
• Have good prospects of being profitable;
• Benefit the local economy; and
• Be environmentally and socially sound, satisfying IFC environmental and social
standards as well as those of the host country.
The following are the Guiding Principles of the IFC:
(a) Investment Proposal:
A company or entrepreneur seeking to establish a new venture or expand an existing
enterprise can approach IFC directly by submitting an investment proposal.
After this initial contact and a preliminary review, IFC may proceed by requesting a
detailed feasibility study or business plan to determine whether or not to appraise the
IFC's project/investment cycle illustrates the stages a business idea goes through as it
becomes an IFC-financed project.
(b) Government Cooperation
Although IFC is primarily a financier of private sector projects, it may provide finance
for a company with some government ownership, provided there is private sector
participation and the venture is run on a commercial basis.
Although IFC does not accept government guarantees for its financing, its work often
requires close cooperation with government agencies in developing countries.
(c) Pricing and Financing Ceilings:
To ensure the participation of investors and lenders from the private sector, IFC limits the
total amount of own-account debt and equity financing it will provide for any single
For new projects the maximum is 25 percent of the total estimated project costs, or, on an
exceptional basis, up to 35 percent in small projects. For expansion projects, IFC may
provide up to 50 percent of the project cost, provided its investments do not exceed 25
percent of the total capitalization of the project company.
IFC provides a wide variety of financial products and services to its clients and can offer
a mix of financing and advice that is tailored to meet the needs of each project. However,
the bulk of the funding, as well as leadership and management responsibility, lie with
private sector owners.
IFC's equity and quasi-equity investments are funded out of its net worth: the total of paid
in capital and retained earnings. Strong shareholder support, triple-A ratings, and the
substantial paid-in capital base have allowed IFC to raise funds for its lending activities
on favorable terms in the international capital markets. Retained earnings now represent
almost three-quarters of IFC's net worth of $9.8 billion (end-June 2006).
Within the World Bank Group, the World Bank finances projects with sovereign
guarantees, while the IFC finances projects without sovereign guarantees. This means
that the IFC is primarily active in private sector projects, although some projects in the
public sector (at the municipal or sub-national level) have recently been funded.
Private sector financing is IFC's main activity, and in this respect is a profit-oriented
financial institution (and has never had an annual loss in its 50-year history). Like a bank,
IFC lends or invests its own funds and borrowed funds to its customers and expects to
make a sufficient risk-adjusted return on its global portfolio of projects.
IFC's activities, however, must meet a second test of contributing to a reduction in
poverty in line with its mandate. In practice, this is broadly interpreted, but considerable
time and effort is devoted to both
(i) selecting projects with positive developmental outcomes, and
(ii) improving the developmental outcome of projects by various means.
Apart from its core investment activities, IFC also carries out technical cooperation
projects in many countries to improve the investment climate. These activities may be
linked to a specific investment project, or, increasingly, to broader goals such as
improving the legislative environment for a specific industry. IFC's technical cooperation
projects are generally funded by donor countries or from IFC's own budget.
IFC: Votes and Subscriptions
INTERNATIONAL DEVELOPMENT ASSOCIATION
VOTING POWER OF MEMBER COUNTRIES
PART I COUNTRIES
AUSTRALIA 195,130 1.24
AUSTRIA 108,386 .69
BELGIUM 172,388 1.10
CANADA 442,902 2.82
DENMARK 158,811 1.01
FINLAND 94,474 .60
FRANCE 654,788 4.16
GERMANY 1,043,130 6.63
GREECE 39,635 .25
ICELAND 36,795 .23
IRELAND 44,943 .29
ITALY 426,350 2.71
JAPAN 1,626,574 10.34
KUWAIT 84,679 .54
LUXEMBOURG 40,561 .26
NETHERLANDS 330,811 2.10
NEW ZEALAND 45,489 .29
NORWAY 161,004 1.02
PORTUGAL 42,015 .27
RUSSIAN FEDERATION 44,455 .28
SLOVENIA 34,947 .22
SOUTH AFRICA 43,501 .28
SPAIN 113,072 .72
SWEDEN 304,694 1.94
SWITZERLAND 173,112 1.10
UNITED ARAB EMIRATES 1,367 .01
UNITED KINGDOM 794,820 5.05
IV. MULTILATERAL INVESTMENT GUARANTEE AGENCY
The Multilateral Investment Guarantee Agency (MIGA) is a member of the World
Bank group. It was established to promote foreign direct investment into developing
countries. MIGA was founded in 1988 with a capital base of $1 billion and is
headquartered in Washington, D.C.
MIGA promotes foreign direct investment into developing countries by insuring investors
against political risk insurance, advising governments on attracting investment, sharing
information through on-line investment information services, and mediating disputes
between investors and governments. MIGA also requires host country government
approval for every project. MIGA tries to work with host governments - resolving claims
before they are filed.
As a member of the World Bank Group, MIGA's mission is to promote foreign direct
investment (FDI) into developing countries to help support economic growth, reduce
poverty, and improve people's lives.
Foreign direct investors can play a critical role in reducing poverty, by building roads, for
example, providing clean water and electricity, and above all, providing jobs. By taking
on these tasks, the private sector can help economies grow and avert the need for
governments to use funds better spent on acute social needs, while taking advantage of
the opportunity to make profitable investments.
MIGA's operational strategy plays to our foremost strength in the marketplace—
attracting investors and private insurers into difficult operating environments. The
agency's strategy focuses on specific areas where we can make the greatest difference:
• Infrastructure development is an important priority for MIGA, given the
estimated need for $230 billion a year solely for new investment to deal with the
rapidly growing urban centers and underserved rural populations in developing
• Frontier markets—high-risk and/or low-income countries and markets—represent
both a challenge and an opportunity for the agency. These markets typically have
the most need and stand to benefit the most from foreign investment, but are not
well served by the private market.
• Investment into conflict-affected countries is another operational priority for the
agency. While these countries tend to attract considerable donor goodwill once
conflict ends, aid flows eventually start to decline, making private investment
critical for reconstruction and growth. With many investors wary of potential
risks, political risk insurance becomes essential to moving investments forward.
• South-South investments (investments between developing countries) are
contributing a greater proportion of FDI flows. But the private insurance market
in these countries is not always sufficiently developed and national export credit
agencies often lack the ability and capacity to offer political risk insurance.
Confidence, security, and credibility. MIGA gives private investors the confidence and
comfort they need to make sustainable investments in developing countries. As part of
the World Bank Group, and having as our shareholders both host countries and investor
countries, MIGA brings security and credibility to an investment that is unmatched. Our
presence in a potential investment can literally transform a "no-go" into a "go." We act as
a potent deterrent against government actions that may adversely affect investments. And
even if disputes do arise, our leverage with host governments frequently enables us to
resolve differences to the mutual satisfaction of all parties.
Market leader. MIGA is a leader when it comes to assessing and managing political
risks, developing new products and services, and finding innovative ways to meet client
needs. But we don't stop there. We also provide expert advice to help countries attract
and retain quality foreign investment, and a host of online services to make sure investors
know about business opportunities in our developing member countries.
Complex deals. MIGA can be the difference between make or break, by providing that
all-critical lynchpin that enables a complex transaction to go ahead. MIGA offers
innovative coverage of the nontraditional sub-sovereign risks that often accompany water
and other infrastructure projects. We can also cover interest rate hedging instruments, as
we did for a power project in Vietnam, as well as provide capital markets guarantees,
which we recently did for residential mortgage-backed securities in Latvia.
PRI market. MIGA complements the activities of other investment insurers and works
with partners through its coinsurance and reinsurance programs. By doing so, we are able
to expand the capacity of the political risk insurance industry to insure investments, as
well as to encourage private sector insurers into transactions they would not have
MIGA provides guarantees against noncommercial risks to protect cross-border
investment in developing member countries. Guarantees protect investors against the
risks of Transfer Restriction, Expropriation, War and Civil Disturbance, and Breach of
Contract (for contracts between the investor/project enterprise and the authorities of the
host country). These coverages may be purchased individually or in combination.
MIGA can cover only new investments. These include:
• new, greenfield investments;
• new investment contributions associated with the expansion, modernization, or
financial restructuring of existing projects; and
• acquisitions involving privatization of state enterprises.
Unlike other insurers, MIGA is backed by the World Bank Group and its member
MIGA: Votes and Subscriptions
MULTILATERAL INVESTMENT GUARANTEE AGENCY
SUBSCRIPTIONS AND VOTING POWER OF MEMBER COUNTRIES
TOTAL SUBSCRIPTIONS VOTING POWER
CATEGORY I COUNTRIES
AUSTRALIA 30.19 1.73 3,285 1.50
AUSTRIA 13.66 .79 1,632 .75
BELGIUM 35.77 2.06 3,843 1.76
CANADA 52.25 3.00 5,491 2.51
CZECH REPUBLIC 7.84 .45 1,050 .48
DENMARK 12.65 .73 1,531 .70
FINLAND 10.57 .61 1,323 .60
FRANCE 85.65 4.92 8,831 4.04
GERMANY 89.36 5.14 9,202 4.21
GREECE 4.93 .28 759 .35
ICELAND .90 .05 356 .16
IRELAND 6.50 .37 916 .42
ITALY 49.70 2.86 5,236 2.39
JAPAN 89.79 5.16 9,245 4.23
LUXEMBOURG 2.04 .12 470 .21
NETHERLANDS 38.22 2.20 4,088 1.87
NORWAY 12.32 .71 1,498 .68
PORTUGAL 6.73 .39 939 .43
SLOVENIA 1.80 .10 446 .20
SPAIN 22.65 1.30 2,531 1.16
SWEDEN 18.49 1.06 2,115 .97
SWITZERLAND 26.43 1.52 2,909 1.33
UNITED KINGDOM 85.65 4.92 8,831 4.04
UNITED STATES 325.64 18.71 32,830 15.01
1,029.73 59.17 109,357 50.00
CATEGORY II COUNTRIES
AFGHANISTAN 1.18 .07 384 .18
INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENT
In the past, the World Bank as an institution and the President of the Bank in his personal
capacity have assisted in mediation or conciliation of investment disputes between
governments and private foreign investors. The creation of the International Centre for
Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the
President and the staff of the burden of becoming involved in such disputes. But the
Bank's overriding consideration in creating ICSID was the belief that an institution
specially designed to facilitate the settlement of investment disputes between
governments and foreign investors could help to promote increased flows of international
ICSID was established under the Convention on the Settlement of Investment Disputes
between States and Nationals of Other States (the Convention) which came into force on
October 14, 1966
The International Centre for Settlement of Investment Disputes (ICSID), an
institution of the World Bank group, was founded in 1966 pursuant to the Convention on
the Settlement of Investment Disputes between States and Nationals of Other States (the
ICSID Convention or Washington Convention). As of May 2005, 155 countries had
signed the ICSID Convention.
ICSID is an autonomous international organization. However, it has close links with the
World Bank. All of ICSID's members are also members of the Bank. Unless a
government makes a contrary designation, its Governor for the Bank sits ex officio on
ICSID's Administrative Council. The expenses of the ICSID Secretariat are financed out
of the Bank's budget, although the costs of individual proceedings are borne by the
ICSID has an Administrative Council, chaired by the World Bank's President, and a
Secretariat. It provides facilities for the conciliation and arbitration of investment disputes
between member countries and individual investors.
During the past decade, with the proliferation of bilateral investment treaties (BITs), most
of which refer present and future investment disputes to the ICSID, the caseload of the
ICSID has substantially increased. As of June 30, 2005, ICSID had registered 184 cases
more than 30 of which were pending against Argentina – Argentina's economic crisis and
subsequent Argentine government measures led several foreign investors to file cases
ICSID’s headquarters are located in Washington, D.C.
EVALUATION OF INTERNATIONAL MONETARY FUNDS (IMF) &
The International Monetary Fund (IMF) and the World Bank were the outcomes of the
international conference of 44 nations held at Bretton Woods in July 1944 to plan the
post-war monetary system. Despite their common origin, the IMF and World Bank are
independent institutions with different objectives.
The World Bank was established at the Bretton Woods Conference at the same time as
the IMF. Its purpose was to help war-ravaged countries rebuild. The earliest recipients of
its loans were the European countries and Japan. By the early 1960s, these countries no
longer needed World Bank assistance, and its lending was redirected to the newly
independent and emerging nations of Africa, Asia, Latin America, and the Middle East,
and, in the 1990s, to the transition countries of Central and Eastern Europe.
The IMF and the World Bank complement each other's work. While the IMF's focus is
chiefly on macroeconomic and financial sector issues, the World Bank is concerned
mainly with longer-term development and poverty reduction. Its loans finance
infrastructure projects, the reform of particular sectors of the economy, and broader
Countries must join the IMF to be eligible for World Bank membership.
The contribution made by IMF and World Bank in helping the member countries in
different ways cannot be ignored. Studies show that the project assisted by the World
Bank group could make significant impact in the respective countries. IMF has played an
important role in providing international liquidity and in the structural adjustment
programmes. There is, however a wide gap between the aspirations and achievements. A
criticism often made is that these institutions, which are dominated by the developed
countries, have not been paying adequate attention to the needs of the developing
The objective of the Bretton Woods Conference was to establish global monetary and
financial system to promote stable exchange rates, foster the growth of world trade, and
international movement of capital in the desired directions.
At the time of establishment of these institutions, most of the developing countries were
colonies and therefore, not represented at the Bretton Woods. The major concern of these
institution was, naturally the major problem of the main participants, i.e. the developed
countries, and “there was an almost inevitable lack of concern for the interests of the
developing countries.” Even after the developing countries have outnumbered the
developed ones in the total membership of these institutions, the dominance of the
developed countries continues because the voting system which gives clear control to the
However, concern for developing countries was not completely absent; the mandate of
the World Bank included the provision of development assistance. But in the early post-
war years, financing the reconstruction of war devastated Europe and Japan received
much more attention than the crying development needs of the developing countries. The
proposal for Special United Nations Fund for Economic Development (SUNFED), which
would offer large-scale aid on easy terms to developing countries, was rejected in the
1950s mainly because developed countries objected to the United Nations becoming
involved in financial aid to developing countries.
The view that in the international management of balance of payment disequilibrium,
there should be pressure to adjust on both surplus countries and deficit countries, rather
than only on those in deficit, was also ignores. In fact, Keynes’ original proposal for an
International Clearing Union (the prototype for the IMF) included the possibility of a
penalty on surplus countries-one percent of the surplus pr month to encourage them to
make adjustments, too.
Again, only very little could be done by the IMF in solving the international liquidity
problem of the developing countries in comparison with those of the developed countries.
Indeed developing countries need much larger attention of the multilateral institution than
the developed countries for various reasons. The developed countries have the capability
for, and ready access to commercial borrowing whenever the reserves run short. The
United States, which has had the largest deficit among the developed countries, has also
had option of running permanent deficit since other countries have been content to hold
The situation for the developing countries is quite different. Due to their poor
economic conditions, the relative burden of their payment deficit is much more that that
of the absolute burden; the absolute deficit itself has been huge. Not only that the
commercial borrowing capability of these nations are limited, the accessibility has also
been limited because of their poor creditworthiness. It may be recalled that, in the early
1990s when Indias Foreign Exchange reserves position became very critical, the sources
of short-term commercial borrowings dried up due to fall in the credit rating. To make
matters worse, because of poor credit ratings, the developing countries have had to pay an
average rate of interest which was about four times the rate applied to the developed
countries on commercial borrowing.
Against the background, the IMF system has been ironic as far as the developing
countries are concerned. The unconditional borrowing rights based on the quota highly
discriminate against the developing countries. What is more draconic has been the
allocation of SDRs, the created liquid assets, in proportion to the quota.
One of the important problems of the developing countries is the increase in the debt
service due to the payment commitments of the past debt. There has been a transfer of
large amounts of funds from the developing countries to the creditors as debt services.
This has not been compensated by an increased flow from the IMF to the developing
countries. During certain period, IMF was actually withdrawing funds from developing
countries. “The Bretton Woods institution thus failed many developing countries at their
times of great need.”
Stiglitz very categorically observes that a half century after its founding, it is clear that
the IMF has failed in its mission. It has not done what it was supposed to do-provide
funds for countries facing an economic downturn, to enable the country to restore itself to
close to full employment. In spite of the fact that our understanding of economic process
has increased enormously during the last fifty years, and in spite IMF’s efforts during the
past quarter century, crises around the world have been more frequent and (with the
exception of the Great Depression) deeper, by some reckoning, close to hundred
countries have faced crises. Worse, many of the policies that the IMF pushed, in a
particular premature capital market liberalization, have contributed to global instability.
And once a country was in crisis, IMF funds and programs not only failed to stabilize the
situation but in many cases actually made matters worse, especially for the poor. The
IMF failed in its original mission of promoting global stability; it has also been no more
successful in the new mission that it has undertaken, such as guiding the transition of
countries from communism to a market economy.
One problem as far as the proper functioning of the IMF is concerned, has been that it
has not had any control over the rich nations. It could not, therefore, avert the breakdown
of the Bretton Woods monetary systems. It has been rightly observed that “the World
Bank is no closer to meeting its mandate either. It was established to borrow the savings
of the rich nations and to lend them to the poor nations- to finance sound development
projects and programmes, particularly where private investments failed or was
inadequate. In fact, it has done little to recycle global surplus to deficit nations.”
Only a small portion of the total World Bank assistance is in the form of soft loans
(IDA credits). The IDA now represents only 30 percent of the World Bank lending. The
major part of the World Bank lending to many developing countries like India is on
commercial terms. This is one of the reasons for the increase in their debt-service
The IBRD lending rates now ‘float’ in line with the world market rates. “This is a
major shift from the Banks original role of cushioning developing countries against
fluctuations in market interest rates. The Bank was supposed to raise capital and lend it
rates that it could afford to subsidies because of its own strength and that of its industrial
Another limitation is the size of funds available to the Bank. The availability of funds
depends on, inter alia, the willingness of the developed countries to contribute. It is
pointed out that the United States which is the largest contributor, is not only reluctant to
increase its own contribution, but also reluctant to let other countries to do so since its
own voting power would be correspondingly reduced.
In short “the quantity and composition of World Bank lending is clearly inadequate for
the challenges it faces in developing countries.”
Some of the failures of IMF-World Bank have been highlighted above. One should as
the same time recognize the useful role they have played all these years by extending
different types of assistance to the different categories of countries. The increase in the
membership of these institutions is clear evidence of their utility. Although the
communists in the past had described these institution as organs of capitalist imperialism,
several communist countries have become members of these institutions and recently all
the states of former Soviet Union and East European countries have becomes members.
DIFFERENCE BETWEEN IMF AND WORLD BANK
IMF WORLD BANK
Purpose Monetary Institution Development Institution
Activities Stabilisation of the
system. Finance of
temporary balance of
Promotion of economic growth
and development in developing
3. Source of
Official reserves and
Special Drawing Rights
Capital quotas. Issues in the
All members Developing countries.
5. Outlook Short Term Long-Term
6. Credit Horizon 3-5 year loans
(maximum 10 years)
15-20 year loan
(maximum 50 years)
7. Staff 2,700 9,500
INDIA & THE WORLD BANK
With some 1.1 billion people, diverse regions, and a vibrant democracy, India has been
making progress on a scale, size and pace that is unprecedented in its own history. In the
nearly 60 years since its independence, the country has been successful on a number of
• It has maintained electoral democracy
• Banished the specter of famines
• Reduced absolute poverty by more than half
• Dramatically improved literacy
• Vastly improved health conditions
• Become one of the world’s fastest growing economies with average growth rates
of 8% over the past three years
• Emerged as a global player in information technology, business process
outsourcing, telecommunications, and pharmaceuticals
• Is now the world’s fourth largest economy in purchasing power parity terms.
The country’s achievements have, however, created new challenges. Some of the most
1. Improving the Delivery of Core Public Services
As incomes rise, citizens are demanding better delivery of core public services such as
water and power supply, education, policing, sanitation, roads and public health. And as
physical access to services improves, issues of quality have become more central.
Education: While India has made huge progress in getting more children into primary
school, learning outcomes have yet to make more headway.
Health: Although population growth has fallen below 2% per year due to declining
fertility, there has been little improvement in maternal mortality rates. Despite falling
child mortality, rates remain high as they are strongly related to child malnutrition where
little progress has been made.
Infrastructure: Power networks, roads, transportation systems and ports are facing huge
demands from India’s rapidly growing economy. But, shortages are eroding the country’s
competitiveness and hurting the growth of labor-intensive enterprises, particularly export-
oriented manufacturing which has the potential to absorb India’s fast-growing working
2. Making Growth More Inclusive
Substantial disparities persist within the country. In a marked departure from previous
decades, reforms of the 1990s were accompanied by a visible increase in income
inequality. Although this continues to be relatively low by global standards, disparities
between urban and rural areas, prosperous and lagging states, skilled and low-skilled
workers are growing. Inequality can have huge social costs, and evidence of social unrest
in some disadvantaged regions is growing.
Agriculture: Slow agricultural growth is a concern for policymakers as some two-thirds
of India’s people depend on rural employment for a living. Current agricultural practices
are neither economically nor environmentally sustainable and India's yields for many
agricultural commodities are low. Poorly maintained irrigation systems and almost
universal lack of good extension services are among the factors responsible. Farmers'
access to markets is hampered by poor roads, rudimentary market infrastructure, and
Jobs: While the services sector booms with promising job opportunities for skilled
workers, some 90% of India’s labor force remains trapped in low productivity informal
Lagging States: Faster economic growth has seen rising inter-state disparities. While
India’s higher-income states have successfully reduced poverty to levels comparable with
richer Latin American countries, its poorer states - Assam, Bihar, Chhattisgarh,
Jharkhand, Madhya Pradesh, Orissa, Rajasthan, and Uttar Pradesh - have not kept pace
and are lagging behind their more prosperous counterparts.
3. Sustaining Growth
Maintaining high growth will also require attention to some basics:
Fiscal deficit: While the country has improved its fiscal indicators recently, further
improvements will be needed to reduce risks to fiscal stability and, more importantly, to
create the space to fund the country’s large infrastructure needs and ambitious social
Trade Deficit: The trade deficit is large and has widened due to high oil prices and
increased non-oil imports. Nevertheless, India’s vulnerability to an external crisis remains
limited due to its large foreign exchange reserves - which now exceed US$160 billion -
its low levels of external debt, and buoyant exports of services.
Ongoing Reform: Redoubling of reforms that address the basic constraints to growth is
essential, as international experience shows that the recipe for slow growth is
complacency about pushing ahead with reforms in times when growth is high.
Government policy and programs are looking beyond maintaining rapid growth to
making this growth more inclusive. The 11th
Plan approach paper lays out the
Government’s priorities in this direction.A variety of Government initiatives have been
launched: to build rural infrastructure (Bharat Nirman), address employment (NREGA),
uplift rural health (NRHM), address primary education (SSA), and renew urban
But for these and other programs to be effective, it is increasingly being recognized that
deeper institutional reforms are needed to strengthen capacity and enforce
accountabilities at all levels.
Public sector services reform: India’s core public services such as healthcare,
education, power, water supply and transportation need urgent improvement. This will
require systemic reform of the public sector service providers, implementing effective
systems of accountability to citizens, decentralizing responsibilities, and expanding the
role of non-state service providers.
Infrastructure: India needs to invest an additional 3-4% of GDP on infrastructure to
sustain its current levels of growth and to spread the benefits of growth more widely.
Although this will clearly require a government role, the relative roles of the government
and private sector need to be defined.
Agricultural and rural development: Raising agricultural productivity requires a return
to investments in agricultural technology and infrastructure. Getting the rural economy
moving will also require facilitating rural - non-farm - entrepreneurship. The bright spot
on the horizon is that the private sector is now looking at the rural areas as a potentially
important market and is increasing its investments accordingly, thereby opening up new
opportunities for Indian farmers.
Labor regulations: India’s labor regulations - among the most restrictive and complex in
the world - have constrained the growth of the formal manufacturing sector where these
laws have their widest application. Better designed labor regulations can attract more
labor- intensive investment and create jobs for India’s unemployed millions and those
trapped in poor quality jobs. Given the country’s momentum of growth, the window of
opportunity must not be lost for improving the job prospects for the 80 million new
entrants who are expected to join the work force over the next decade.
Lagging states: Lagging states need to bring more jobs to their people by creating an
attractive investment destination. Reforming cumbersome regulatory procedures,
improving rural connectivity, establishing law and order, creating a stable platform for
natural resource investment that balances business interests with social concerns, and
providing rural finance are important.
HIV/AIDS: The disease has the potential to upset much of the India’s recent progress.
While less than one percent of the adult population is currently estimated to be infected,
the numbers will soon be greater than any other country in the world because of India's
Other strategic challenges: These require long-term vision and urgent action: