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World Bank

Updated on April 17, 2024
Article byJyotsna Suthar
Reviewed byDheeraj Vaidya, CFA, FRM

What Is World Bank?

The World Bank is a global organization that provides funding and financial assistance to developing countries. The prime purpose of this bank is to provide low-interest loans, address global issues and reduce poverty.

World Bank

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Founded after World War II, this group has been around for more than 50 years. It acts as a funding system for underdeveloped countries. It collaborates (works) with partners to help get rid of poverty. Besides, it also conducts research and provides a database on market indicators. However, this bank often creates a biased situation between the rich and emerging nations.

Key Takeaways

  • The World Bank is an international group of 189 nations trying to provide financial assistance to developing countries to reduce poverty.
  • They aim to improve these nations’ financial condition and Gross Domestic Product. The World Bank logo includes a blue outlined globe.
  • In 1944, 28 nations came forward to sign the Articles of Agreement during the Bretton Woods Conference in Washington, D.C.
  • The five institutions that form the World Bank. They are IBRD, IDA, IFC, MIGA, and ICSID.

How Does The World Bank Work?

The World Bank Group provides low-charged interest loans to poverty-driven countries. It aims to enhance the overall economic development of all nations and increase their gross domestic product (GDP). Primarily they target or observe underdeveloped nations. Originally founded at the Bretton Woods Conference in 1944, it officially began its operations in 1946. The blue outlined globe is considered the world bank logo. World Bank headquarters are in Washington, D.C.

In total, 189 member nations represent themselves on the Board of Governors. These members draft the policies of the bank during the board meetings. Despite this, the meetings occur only once a year. However, specific criteria exist for becoming a member. A country must join the IMF (International Monetary Fund) before joining the World Bank. Also, they have a right to elect 25 executive directors working in the World bank headquarters. For electing one executive director, five votes are necessary. These directors meet twice a week to execute the operations of the bank. 

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Institutions

The World bank group has five institutions under its control. Each of them performs specific functions. All these groups collectively form this international organization. Let us look at them:

#1 – International Bank for Reconstruction & Development (IBRD)

Created in 1944 aims at overseeing the reconstruction and development of devastated countries. It provides financial aid through loans to nations destroyed during the Second World War.

#2 – International Development Association (IDA)

Existing in 1960, it aims at providing funds to under-developed (poor) countries with high debt issues. Here, the loans come with no or zero interest charges. Also, the payback period can last up to 38 years.

#3 – International Finance Corporation (IFC)

Founded in 1956, it intends to provide capital to private companies in developing nations. It can be either equity or bonds.

#4 – Multilateral Investment Guarantee Agency (MIGA)

Established in 1988, MIGA aims to provide insurance against rising political risks in developing nations.

#5 – International Centre for Settlement of Investment Disputes (ICSID)

It came into existence in 1966. This body provides a platform to solve disputes within the member nations. The first case got registered in 1972.

History

Let us look at the history of the world bank for a better understanding:

1944-1945

The Second World War destroyed the economies of many nations. Thus, in July 1944, right before the war ended, 44 nations came together to discuss global issues at the UN Monetary and Financial Conference. Later, it became known as the “Bretton Woods Conference.” As a result, institutions were established, namely the Monetary and Financial Conference and IBRD. Yet, the World Bank ceased to exist. Out of the 28 delegates decided to sign the Articles of Agreement. However, the entire operations of the World Bank began on July 25, 1946.

1946-1967

The World Bank provided France’s first loan and other European nations. However, because of competition, they focused on the Asian and African continents. Thus, in 1948, Chile was the first non-European recipient to receive funding of $13.5 million. International Development Association (IDA) and the International Finance Corporation (IFC) came into power during this period.

1968- 1981

During this phase, the bank saw many (40%) countries suffering from poverty. Therefore, they decided to eradicate the cause of poverty from its root. Also, they focused their aim on climatic, environmental, education, and social issues. As a result, the lending rate increased by twelvefold times.

1982-1995

During the 1980s, the world was facing many wars and crises. Major ones included the oil crisis and the global recession of the 1980s in the United States. Thus, in 1990, MIGA was formed to provide insurance against the political risk arising in these countries. Also, the rise of the Global Environment Facility in 1991 overlooked the environmental factors in the nations.

1995-2022

By the end of 20the century, IBRD, IDA, IFC, MIGA, and other institutions collectively started working under the name “World Bank.” Besides providing loans, they also reduced corruption, poverty, gender discrimination, and others.

Functions

Let us look at the functions of the World bank that member nations must follow:

  • First, it provides low or zero-interest loans for reconstruction and development.
  • They provide financial aid to underdeveloped countries to eradicate poverty.
  • Providing government loans for improving agricultural farming, water crisis, health, and education.
  • Encouraging foreign direct investment (FDI) in developing countries.
  • Providing financial advice to developing and emerging countries for projects.

Objectives

Let us look at the objectives of the world bank that drive the organization:

  • To eliminate (remove) poverty in underdeveloped countries by giving financial support.
  • Enhance shared prosperity by raising the incomes of poor groups (40%).
  • To encourage underdeveloped countries to conduct international trade.
  • Maintain global peace by avoiding internal conflicts within member nations.
  • To safeguard the environment and natural habitat by providing the necessary support.
  • Provide long-run capital to maintain the balance of payment. Also, reduce the debt crisis in these emerging nations. 

Difference Between IMF And World Bank

Although the World Bank and IMF have similar objectives, they differ slightly. While the former primarily focuses on providing loans to emerging nations, the latter aims at reducing the debt crisis. The former existed since 1944, yet, the latter came into existence on December 25, 1945. However, in the end, both strive to maintain financial stability.

World BankIMF
Meaning An international bank that provides funding to emerging nations.A financial institution that oversees the global monetary system.
Founded Founded in 1944 but started working in 1946.December 27, 1945
Purpose To remove poverty in developing countries.To solve the global financial and macroeconomics issues.
FocusPromoting economic growth through lending. Maintaining financial stability in the world. 
Size7000 staff members2300 members
Member nations189190

Advantages And Disadvantages

One may consider some advantages and disadvantages of this bank. According to world bank data, they have funded more than 12000 projects. Also, they have helped many underdeveloped countries to create healthy economic conditions. Another world bank data states that they have provided financial help of $45.9 billion to these nations.

Besides, they also work to cut corruption, war, poverty, and other issues. However, some nations criticize them for favoring the U.S. as they receive the most funding from them. Also, many objectives stated by the bank still need to grow.

AdvantagesDisadvantages
Financial supportRich countries hold power
Low-interest loansPromote inflation
Gender equalityMisappropriate competition in the economy
Removing poverty, corruption Unfair conditions
Funding government projects Partiality in decision making
Protecting the environment and climate Failed to fulfill promises
Solve economic, social, and political issues
Offers global jobs, internships, and partnerships

Frequently Asked Questions (FAQs)

Who gives the World Bank money?

Member nations primarily provide money to the world bank. However, they also induce money through the capital markets. The United States is at the top among all member nations in making significant contributions.

Who is the chief economist of the world bank?

According to data, Indermit Gill is the chief economist and Senior World Bank President. In the last report, the bank’s chief warned about the upcoming global recession arising in the nations.

How much did Nigeria borrow from the world bank?

Nigeria’s debt amount towards the bank rose from $7.14 billion to $14.36 billion in 2021. As a result, an increase of 48 % denoted the rising loan amount of the country.

How much money does the world bank have?

In 2022, the shareholders of this bank provided collective funding of 108.5 billion. IBRD and IDA provided $70.8 billion, $32.8 billion by IFC, and $4.9 billion by MIGA.

This article has been a guide to what is World Bank & its meaning. We explain its institutions, history, functions, objectives, & compare it with IMF. You may also find some useful articles here –

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Comments

  1. Clarence Ichwekeleza says

    Very informative website.

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