World Bank UPSC like to ask lots of questions from this topic:
Table of Contents
- 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 power which constituted a vast majority of the world’s countries.
- The destruction and devastation was 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 achievement was decision to create IMF( international monetary fund) and International bank for reconstruction and development (IBRD)
- The IBRD evolved over time to be known as the World Bank Group which now comprises 5 developmental institutions.
- The aim with which the World Bank started was reconstruction of the countries, but with changing times it has now evolved into development of poor and developing nations.
World Bank Group
It consists of 5 developmental institutions.
- International Bank for Reconstruction and Development (IBRD)
- International Development Association (IDA)
- International Finance Corporation (IFC)
- Multilateral Investment Guarantee Agency (MIGA)
- 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 development of poor and middle income nations.
- IBRD and IDA together is known as the World Bank.
- To be a member of IBRD, the nation has to first subscribe to the 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 credit worthiness of the country first so that loan can be recovered back also.
- The purpose behind all this lending is the same, to ensure 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 in for rescue here as they provide loans to these nations at an affordable rate as well as with 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.
- 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 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 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, in the Board of Directors of MIGA/ IFC / IDA/ IBRD. The
- Executive Director from India represents a constituency comprising four countries: India, Bangladesh, Bhutan and Sri Lanka.
- Main sectors for IBRD assistance have been in roads & highways, energy, urban infrastructure (including water & sanitation), disaster management, 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 loan is very long approx. 25 to 38 years on top of that there is a grace period of 5 to 10 years also. These loans are termed as Soft loans.
- These loans are highly beneficial for poor countries to develop themselves, which is the agenda of IDA.
- The IDA 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 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 threshold as per time demands)
- The major sectors of IDA assistance are health, education, agriculture and poverty reduction sectors.
- 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 in member nations through promotion and investment in Private sector only.
- The International Finance Corporation, Washington DC, (IFC) 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 its member countries.
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.
- India represents IFC’s single-largest country exposure.
- 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 the 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 Renewable Energy Sector (Solar and Biomass) and cleaner fuel production, as well as focus on the key sub sectors like agribusiness;
- Developing PPP transactions with the focus on social services sectors as health and education, and climate change impact projects.
International Centre for Settlement of Investment Disputes (ICSID)
- 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 Investors- State disputes in their international investment treaties.
- ICSID promotes disputes resolution process between investors and states thus it promotes international investment ecosystem.
- ICSID works on principles of Conciliation, arbitration and fact findings. 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.
- No scope to review the award by Indian courts even if ruling contradicts India’s public policies.
Multilateral Investment Guarantee Agency (MIGA)
- As the name says, investment guarantee, this institution provides guarantee 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 conditionalities which include reforms or change in the receiving countries 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 as India, 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.
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