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What are the Objectives and Functions of the World Bank?

Hemant Singh

World Bank is a part of the World Bank Group. It is an international financial institution that provides loans and grants to low and middle-income countries for various projects. It was established at the 1944 Bretton Woods Conference, along with the International Monetary Fund (IMF). Both IMF and the World Bank work in tandem. 

The World Bank Group comprises five international organizations that provide loans to developing countries. These are:

(1) The International Bank for Reconstruction and Development (IBRD)

(2)The International Development Association (IDA)

(3) The International Finance Corporation (IFC)

(4) The Multilateral Investment Guarantee Agency (MIGA)

(5) The International Centre for Settlement of Investment Disputes (ICSID). 

IBRD and IDA are sometimes jointly referred to as the World Bank. IBRD has 189 member nations while IDA has 173 member nations. 

Objectives of World Bank:

i. To provide long term capital to members countries for economic reconstruction and development.

ii. To induce long term capital investment for assuring BOP equilibrium and balanced development of international trade.

iii. To promote capital investment in members countries by following ways:

a. To provide a guarantee on private loans or capital investment.

b. If capital is not available even after providing a guarantee, then IBRD provides loans for productive activities on considerate conditions.

iv. To ensure the implementation of development projects so as to bring about a smooth transference from wartime to a peaceful economy.

Functions of the World Bank:

At Present, the World Bank is playing an important role in providing loans for development works to member countries, especially to underdeveloped countries. The bank provides loans for various development projects of 5 to 20 years duration.

i. Bank can grant loans to members countries up to 20 % of its share in paid-up capital.

ii. Bank also provides loans to private investors belonging to the members on its own guarantee, but private investors need to take permission of its native country. Banks charge 1% to 2% as service charge.

iii. The quantum of loan service, interest rate, terms and conditions are decided by the World Bank itself.

iv.  Generally bank grant loans for a particular project duly submitted to the bank by the member country.

v. The debtor nation has to repay either in reserve currencies or in the currencies in which the loan was sanctioned.

Capital Resource of World Bank:

The initial authorized capital of World Bank was $10,000 million, which was divided into one lakh shares of $ 1 each. The authorized capital of the World Bank has increased from $ 24 bn to $27 bn. Members countries repay the share of the World Bank in the following way:

i. Only 2% of the allotted share are repaid in gold, US dollar or SDR.

ii. Every member country is free to repay 18% of its capital share in its own currency

iii. The remaining 80% is deposited by the member country on demand by the World Bank.

World Bank Lending to India:

India has been borrowing from the World Bank for various projects in the area of poverty reduction, infrastructure and rural development etc. IDA funds are one of the most concessional external loans for the government of India and are largely used in the social sector projects that contribute to the achievement of the millennium development goals. The first World Bank loan to India was in 1948 of US$ 86 bn. The debt disbursed and outstanding as of March 2011 for IBRD is US$ 11.28 and for IDA it is US$ 27 bn.

World Bank has sanctioned 75% of its loans to developing countries of AFRICA, Asia and Latin America while only 25% was given to developed nations of Europe. But still, it is believed by most nations that the developed countries do have a good command of the governing body of the World Bank because of their largest contribution to the exchequer of the bank.

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