The World Bank Group (WBG) is a family of five international organizations that make leveraged loans to developing countries. It is the world’s largest and most famous development bank and is an observer at the United Nations Development Group (UNSDG). The bank is headquartered in Washington, D.C., in the United States. (From The World Bank UPSC likes to ask lots of questions)
The World Bank Group is one of the most important international organizations in the world. Its mission is to fight poverty and promote development. The group is made up of five institutions: the International Bank for Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), and the International Centre for Settlement of Investment Disputes (ICSID).
The IBRD, which is also known as the World Bank, provides loans to countries for development projects. The IDA helps countries with low incomes by giving them grants and loans. The IFC invests in private companies in developing countries. The MIGA guarantees investments in developing countries. And finally, the ICSID settles investment disputes between companies and governments.
- 189 member countries
- HQ : Washington, DC (USA)
- World War II, or the Second World War, started in 1939 and lasted till 1945. It involved allies and axis powers, which constituted a vast majority of the world’s countries.
- The destruction and devastation were huge, and countries, especially in Europe, needed support to rebuild again.
- So, the famous Bretton Woods Conference, also known as the United Nations Monetary and Financial Conference, was held in July 1944 at Bretton Woods in New Hampshire, USA.
- The participating 44 nations agreed upon various issues to support the world financially.
- The major achievements were the decisions to create the IMF( international monetary fund) and the International Bank for reconstruction and development (IBRD).
- The IBRD evolved over time to be known as the World Bank Group, which now comprises five developmental institutions.
- The aim with which the World Bank started was reconstruction of the countries, but with changing times it has now evolved into the development of poor and developing nations.
World Bank Group
The World Bank Group; Is an international financial institution that provides loans and grants to countries worldwide. The group comprises five organizations: the International Bank for Reconstruction and Development, the International Development Association, the International Finance Corporation, the Multilateral Investment Guarantee Agency, and the International Centre for Settlement of Investment Disputes.
The World Bank Group is headquartered in Washington, D.C., and has more than 10,000 employees in over 100 countries. The group’s mission is to end poverty and promote sustainable development.
The World Bank Group provides loans for projects that improve infrastructure, health, education, and environmental sustainability. The group also provides grants for research and capacity building.
It consists of 5 developmental institutions.
- The International Bank for Reconstruction and Development (IBRD)
- International Development Association (IDA)
- The International Finance Corporation (IFC)
- Multilateral Investment Guarantee Agency (MIGA)
- The International Centre for the Settlement of Investment Disputes (ICSID)
Important reports released by World Bank
- Global Economic Prospects
- Ease of doing business index
- World Development Report
Let us take a look at each Institution in World Bank Group in brief.
International Bank for Reconstruction and Development (IBRD)
- The bank performs the task of, as the two words in its name, reconstruction and development.
- Reconstruction was the main aim with which the bank started in 1944, and now it’s the development of poor and middle-income nations.
- IBRD and IDA together are known as the World Bank.
- To be a member of IBRD, a nation has to first subscribe to membership of the IMF.
- IBRD lends loans primarily to poor and middle-income group countries at a nominal interest rate and with a comfortably longer period of maturity, but ensures the credit worthiness of the country first so that the loan can be recovered.
- The purpose behind all this lending is the same: to ensure the reconstruction and development of its member nations.
How this lending becomes special.
Private entities avoid investment as well as lending to poor nations, which further impacts these poor nations badly, but IBRD comes to the rescue here as they provide loans to these nations at an affordable rate as well as with a longer maturity. This ultimately boosts the growth and development of these nations.
Purpose of loans provided by IBRD.
- long-term human as well as social development.
- policy and institutional reforms in developing nations.
- It creates an investment ecosystem and promotes access to financial markets for these poor and middle-income nations.
IBRD gets its Money from where?
- IBRD earns revenue by floating bonds in world capital markets. IBRD’s having high credit worthiness receives investment at a low cost.
- IBRD earns returns on its equity regularly, as well as interest on its lending. This keeps the corpus of IBRD well maintained.
India and IBRD
- India is the largest borrower from the World Bank (IBRD + IDA).
- India is one of the founding members of IBRD, IFC, and IDA.
- World Bank assistance in India started in 1948 when funding for the Agricultural Machinery Project was approved.
- India has an Executive Director on the Board of Directors of MIGA/IFC/IDA/IBRD. The
- The Executive Director from India represents a constituency comprising four countries: India, Bangladesh, Bhutan, and Sri Lanka.
- The main sectors for IBRD assistance have been roads and highways; energy; urban infrastructure (including water and sanitation); disaster management; the financial services sector; and rural credit projects.
International Development Association (IDA)
- The main characteristic of IDA which distinguishes it from other world bank institutions is that it provides loans and grants to poor countries at a very low interest rate, almost zero, and the tenure of loans is very long, approximately 25 to 38 years. On top of that, there is a grace period of 5 to 10 years also. These loans are termed “soft loans.”
- These loans are highly beneficial for poor countries to develop themselves, which is the agenda of IDA.
- The IDA’s focus is to give loans and grants to poor member nations to uplift their economic growth, remove their societal inequalities, and lead to the betterment of the living conditions of people living in these poor nations.
- IDA measures the per capita income of a country and gives loans and grants only to those poor nations whose per capita income lies below a certain level ( IDA keeps updating the threshold as per time demands).
- The major sectors of IDA assistance are health, education, agriculture, and poverty reduction.
- India is one of the founding members of IBRD, IFC and IDA.
- India is the largest borrower from World Bank (IBRD + IDA)
International Finance Corporation (IFC)
- IFC works to bring development to member nations through promotion and investment in the private sector only.
- The International Finance Corporation, Washington DC, (IFC), was established in 1956 as an affiliate of the World Bank, but as a separate entity, to promote the growth of the private sector in member nations, which would ultimately contribute towards the economic development of those nations.
India and IFC
- India is one of the founding members of the IFC. IFC finances investments with its own resources and by mobilizing capital in the international financial markets.
- IFC’s single-largest country exposure is India.
- IFC has scaled up its presence and activities in the Low Income States and NE States (LIS) in India.
IFC is working in the following areas in India.
- Promoting the investment climate for private sector development and thus promoting inclusive growth also.
- Financial Inclusion is promoted by working on the financial services and initiatives related to the sustainability of the microfinance sector, including micro credit bureau, risk mitigation initiatives, code of conduct setting, etc.
- Working in the Renewable Energy Sector (Solar and Biomass) and cleaner fuel production, as well as focusing on the key sub sectors like agribusiness,
- Developing PPP transactions with the focus on social services sectors such as health and education, and climate change impact projects.
International Centre for Settlement of Investment Disputes (ICSID)
- It provides facilities for conciliation and arbitration of international investment disputes.
- It is the world’s foremost institution working to settle international investment disputes.
- Member states have agreed to accept ICSID as a forum to settle investor-state disputes in their international investment treaties.
- ICSID promotes a dispute resolution process between investors and states, thus promoting an international investment ecosystem.
- ICSID works on principles of conciliation, arbitration, and fact finding. A dedicated ICSID team is assigned to each case and provides expert guidance to resolve disputes.
India is not a member of ICSID, mainly for two reasons
- Convention rules for arbitration are favourable for developed nations.
- There is no scope for review of the award by Indian courts even if the ruling contradicts India’s public policies.
Multilateral Investment Guarantee Agency (MIGA)
- As the name says, investment guarantee, this institution provides guarantees in the form of insurance to various kinds of investment by the private sector in developing countries.
- MIGA provides political risk insurance to investors as well as lenders in developing countries, which boosts economic growth and reduces poverty in the country. Such insurance attracts FDI into a country.
- India became a member of MIGA in 1994.
World Bank Group and India
|IBRD||India is one of the founding members and the largest recipient of loans.|
|IDA||India is one of the founding members and though India has crossed the per-capita threshold limit to receive loans, India will keep on receiving Loans as an exception.|
|IFC||India is one of the founding members and the first set of Masala bonds of India released internationally were issued with the aid from IFC.|
|ICSID||India is NOT a Member|
|MIGA||India is a Member but not a founding member. Became a member in 1994.|
World Bank Reforms
Basically two major reforms are long pending in the working of the World Bank Group.
- Structural Adjustment Programme– The World Bank lends to its member nations but the loans are often attached with conditions which include reforms or changes in the receiving country’s economic policies, structural reforms, etc., which are often disruptive and perceived as imposed. This process can become more democratic by involving all the stakeholders before attaching any conditionalities.
- The emergence of new economic powers like India and China needs to be given due importance in the functioning of the World Bank Group, which is still dominated by the rich, developed and industrialised Western nations.
Download World Bank UPSC Detailed
In conclusion, the World Bank Group is an important player in the global economy and its work helps to improve the lives of millions of people around the world. Its focus on poverty alleviation, infrastructure development, and environmental sustainability makes it a key partner in achieving the Sustainable Development Goals. As the world continues to face challenges such as climate change, pandemics, and economic inequality, the World Bank Group will continue to be a vital institution in addressing these issues.
Few important Links which can be useful for further reading about this topic: