World Bank

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.

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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.

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. 

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 Bank	IMF
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.
Focus	Promoting economic growth through lending.	Maintaining financial stability in the world.
Size	7000 staff members	2300 members
Member nations	189	190

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.

Advantages	Disadvantages
Financial support	Rich countries hold power
Low-interest loans	Promote inflation
Gender equality	Misappropriate 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)

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