The World Bank is an international development organization owned by 187 countries. Its role is to reduce poverty by lending money to the governments of its poorer members to improve their economies and to improve the standard of living of their people.
The Bank is also one of the world's largest research centers in development. It has specialized departments that use this knowledge to advise countries in areas like health, education, nutrition, finance, justice, law and the environment.
Another part of the Bank, the World Bank Institute, offers training to government and other officials in the world through local research and teaching institutions.
How the World Bank was established
The World Bank was established in 1944 to help rebuild Europe and Japan after World War II. Its official name was the International Bank for Reconstruction and Development (IBRD). When it first began operations in 1946, it had 38 members. Today, most of the countries in the world are members.
Do we need a World Bank?
Without a place like the World Bank from which to borrow money, the world’s poorest countries would have few, if any, ways to finance much-needed development projects. The projects are essential to helping people become educated, live healthy lives, get jobs, and contribute as active citizens.
How the World Bank is organized
The World Bank has created new organizations within itself that specialize in different activities. All these organizations together are called the World Bank Group. It consists of:
• IBRD lends to low- and middle-income countries;
• International Development Association (IDA) lends to low-income countries;
• International Finance Corporation (IFC) lends to the private sector;
• Multilateral Investment Guarantee Agency (MIGA) encourages private companies to invest in foreign countries; and
• International Centre for Settlement of Investment Disputes (ICSID) helps private investors and foreign countries work out differences when they don't agree.
How decisions are made
The Bank is run like a giant cooperative, where its members are shareholders and is operated for the benefit of those using its services. The number of shares a country has is based roughly on the size of its economy. The United States is the largest single shareholder, followed by Japan, Germany, the United Kingdom, and France. The rest of the shares are divided among the other member countries.
A Board of Governors represents the Bank's government shareholders. Generally, these governors are country ministers, such as Ministers of Finance or Ministers of Development. The governors are the ultimate policymakers in the World Bank. They meet once a year at the Bank's Annual Meetings.
At the Annual Meetings, all of the Bank's and International Monetary Fund ‘s (IMF) governors decide how best to address global development issues and decide what the world should focus on in the upcoming year (and near future) to help reduce poverty in the world.
Since the governors meet only once a year, they give specific duties to their Executive Directors, who work on-site at the Bank. 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 Executive Directors.
The Bank's 24 Executive Directors oversee the Bank's business, including approving loans and guarantees, new policies, the administrative budget, country assistance strategies, and borrowing and financial decisions.
Loans and the World Bank
The Bank lends money to middle-income countries at interest rates lower than the rates on loans from commercial banks. In addition, the Bank lends money at no interest to the poorest developing countries, those that often cannot find other sources of loans. Countries that borrow from the Bank also have a much longer period to repay their loans than commercial banks allow and don't have to start repaying for several years.
Source of money
The Bank borrows the money it lends. It has good credit because it has large, well-managed financial reserves. This means it can borrow money at low interest rates from capital markets all over the world to then lend money to developing countries on very favorable terms.
The Bank's financial reserves come from several sources - from funds raised in the financial markets, from earnings on its investments, from fees paid in by member countries, from contributions made by members (particularly the wealthier ones) and from borrowing countries themselves when they pay back their loans.
The Bank lends only a portion of the money needed for a project. The borrowing country must get the rest from other sources or use its own funds. Eventually, since the country has to pay back its loans, it ends up paying for most, if not all, of the project itself.
World Bank loans help countries:
• Supply safe drinking water
• Build schools and train teachers
• Increase agricultural productivity
• Manage forests and other natural resources
• Build and maintain roads, railways, and ports
• Extend telecommunications networks
• Generate and distribute energy
• Expand health care
The Bank also tries to encourage investment and lending by countries, companies, and private investors. It also lends money to hire industry experts to help countries to reshape their economies to make them more efficient and productive.
Money isn’t the only type of support that the Bank provides. Often, it is the advice and experience the Bank's staff brings to a project or the environmental and social standards it applies that are also important.
How Does a Project Work?
• A project begins when a country identifies a need, develops a plan, and asks the Bank for a loan. Experts from the borrowing country and the World Bank then study the plan carefully.
• Bank staff carefully review the project and ask questions like: Will the project help the country's economy? Will it benefit the poorest people and increase economic opportunities for women? What impact would it have on the environment, both now and in the future? Can other funding sources be found? Will the country be able to maintain the project once funding ends?
• Negotiations take place on how to implement the strategy. Once an agreement is reached, and the loans are approved, work can begin. The Bank carefully monitors progress and pays out the loan in installments.
• Assessing the effect of projects the Bank supports is essential in developing countries. Resources are scarce and must be used where they can have the largest effect. Monitoring helps project managers know if programs are reaching the people they are aimed at or if these programs are ineffective and wasteful. Monitoring and assessment also provide information and data on which future projects are designed.