World Bank: Objectives & Functions

The World Bank, established in 1944, is an international financial institution that provides loans and grants to the governments of low- and middle-income countries for development projects. It plays a crucial role in the global economy and is often a topic of interest for aspirants preparing for the UPSC (Union Public Service Commission) examination.

This article aims to provide a comprehensive guide to understanding the World Bank, its functions, and its significance in the context of the UPSC syllabus.

World Bank

The World Bank is an international financial institution with the primary objective of reducing poverty and promoting sustainable development. It provides financial and technical assistance to developing countries for development projects and programs.

Objectives of World Bank

The World Bank has a set of primary objectives that guide its operations and initiatives. These objectives are:

• Alleviating poverty and improving living conditions in developing countries.
• Promoting sustainable development practices.
• Reducing income inequality and promoting shared prosperity.
• Fostering inclusive and sustainable economic growth.
• Building resilience to shocks and challenges.
• Enhancing access to education, healthcare, and social services.
• Supporting infrastructure development.

Headquarters

The headquarters of the World Bank is located in Washington, D.C., United States. It serves as the central hub for coordinating the Bank’s operations and activities.

Publications

Some notable publications of the world bank include:

• World Development Report
• Global Economic Prospects Report
• Ease of Doing Business
• World Development Report
• Universal Health Coverage Index
• Remittance Report
• Logistics Performance Index

Membership in World Bank

The World Bank currently has 189 member countries. These member countries represent a wide range of economies, geographies, and development levels. The membership of the World Bank includes countries from all regions of the world, including low-income, middle-income, and high-income nations.

Membership Criteria

To become a member of the World Bank Group, countries must fulfill certain conditions and requirements. Here are the membership criteria for the various institutions within the World Bank Group:

1. The first requirement to join the World Bank Group is to become a member of the International Monetary Fund (IMF).
2. To access the International Development Association (IDA), International Finance Corporation (IFC), and Multilateral Investment Guarantee Agency (MIGA), countries must first become members of the IBRD.
3. Membership in the International Centre for Settlement of Investment Disputes (ICSID) is contingent upon meeting certain conditions:
   • Countries must be members of the IBRD.
   • They should be parties to the Statute of the International Court of Justice (ICJ).
   • An invitation from the ICSID Administrative Council is required, which is granted through a two-thirds majority vote by its members.

Share Holdings of Members

Here is a list of major shareholders in the World Bank Group, based on historical data:

1. United States
2. Japan
3. Germany
4. United Kingdom
5. France
6. China
7. India
8. Brazil
9. Russia
10. Canada

Voting Powers

Each member country is assigned a number of votes in proportion to its shareholding. The voting power of each member is determined by the number of votes they hold, and major decisions require a certain threshold of voting power to be passed.

Also Read: Asian Development Bank

History & Formation of World Bank

The history of the World Bank dates back to the mid-20th century, with its establishment and subsequent evolution playing a crucial role in global development. Let’s take a journey through the key milestones and transformations that have shaped the history of the World Bank.

The Bretton Woods Conference (1944): In July 1944, representatives from 44 countries gathered in Bretton Woods, New Hampshire, United States, to establish a framework for international economic cooperation after World War II. The conference led to the creation of two key institutions:

• International Monetary Fund (IMF)
• International Bank for Reconstruction and Development (IBRD)

Note: The International Bank for Reconstruction and Development (IBRD) later became part of the World Bank Group.

International Bank for Reconstruction and Development (IBRD): The IBRD was created during the Bretton Woods Conference as an institution to provide financial assistance for the reconstruction of war-torn Europe and the development of other countries. Its primary goal was to provide long-term loans for infrastructure projects such as roads, bridges, and power plants. The IBRD officially began operations in June 1946.

International Development Association (IDA): In 1960, the World Bank established the International Development Association (IDA) to provide grants and low-interest loans to the world’s poorest countries. The IDA focuses on countries with limited ability to borrow from the IBRD due to their low-income status.

Expansion and Evolution: Over the years, the World Bank Group expanded its activities and established additional institutions. These include:

• International Finance Corporation (IFC) in 1956
• Multilateral Investment Guarantee Agency (MIGA) in 1988
• International Centre for Settlement of Investment Disputes (ICSID) in 1966

Note: IBRD and IDA are often collectively referred to as the World Bank.

World Bank Group

The World Bank Group is a collection of five international organizations that work together to achieve their shared mission of reducing poverty and promoting shared prosperity. These organizations are:

• International Bank for Reconstruction and Development (IBRD) – 1945
• International Development Association (IDA) -1960
• International Finance Corporation (IFC) – 1956
• Multilateral Investment Guarantee Agency (MIGA) – 1988
• International Centre for Settlement of Investment Disputes (ICSID) – 1966

Note: India is among the founding members of the IBRD, IFC, and IDA within the World Bank Group.

1. International Bank for Reconstruction and Development (IBRD)

The International Bank for Reconstruction and Development (IBRD) is the largest development bank in the world. It provides loans, guarantees, advisory services, and risk management tools to creditworthy middle-income and low-income countries. With 189 member countries, the IBRD focuses on promoting economic development, reducing poverty, and improving living conditions.

Further, IBRD financing covers a wide range of sectors, including infrastructure development, education, healthcare, agriculture, and environmental protection. The bank offers long-term loans with low-interest rates and flexible repayment terms to support sustainable development projects.

In addition to providing financial assistance, the IBRD also offers technical expertise and knowledge sharing to help countries enhance their investment climate, strengthen institutions, and improve policies. By working with sovereign governments and collaborating with other international organizations, the IBRD plays a vital role in driving inclusive and sustainable development worldwide.

Note: IBRD and IDA are often collectively referred to as the World Bank.

2. International Development Association (IDA)

The International Development Association (IDA) stands out from other World Bank institutions due to its provision of loans and grants to poor countries at extremely low interest rates, often close to zero.

These loans have long tenures, typically ranging from 25 to 38 years, accompanied by a grace period of 5 to 10 years. Known as “soft loans,” they offer significant advantages to impoverished nations, aligning with IDA’s mission of facilitating their development.

IDA’s primary focus is on providing financial support to low-income member countries, aiming to stimulate their economic growth, reduce societal inequalities, and improve living conditions for their populations. The association determines eligibility for loans and grants based on a country’s per capita income, extending assistance solely to those nations whose per capita income falls below a certain threshold.

The key sectors targeted for IDA assistance include health, education, agriculture, and poverty reduction. By directing resources to these areas, IDA aims to address critical needs and promote sustainable development in impoverished nations.

3. International Finance Corporation (IFC)

The International Finance Corporation (IFC) is a member of the World Bank Group that was established in 1956. It has a primary objective of promoting sustainable private-sector investment in developing countries. To achieve this goal, the IFC provides various forms of financial support, including loans, equity investments, guarantees, and advisory services, to private companies operating in these countries.

The IFC focuses its efforts on key sectors such as infrastructure, manufacturing, agriculture, and financial services. With a presence in over 185 countries, primarily in emerging markets, the IFC plays a crucial role in mobilizing private-sector capital to support development projects and promote economic growth.

In addition to financial assistance, the IFC offers advisory services and technical assistance to help improve the business operations of its clients. This includes providing guidance on sustainable practices, climate change mitigation, and promoting gender equality within the private sector.

Partnership and collaboration are integral to the IFC’s approach. It works closely with governments, businesses, and other stakeholders to create an enabling environment for private-sector investment and to maximize development impact.

4. Multilateral Investment Guarantee Agency (MIGA)

The Multilateral Investment Guarantee Agency (MIGA) lives up to its name by offering investment guarantees in the form of insurance to private sector investments in developing countries. Its primary focus is on providing “political risk insurance”, which plays a critical role in attracting foreign direct investment (FDI) into these nations.

By providing coverage against political risks such as expropriation, breach of contract, and political violence, MIGA helps mitigate the perceived risks associated with investing in developing countries. This insurance serves as a powerful tool in boosting economic growth, reducing poverty, and promoting sustainable development in these countries.

India & MIGA

India recognized the benefits of MIGA’s services and became a member of the agency in 1994. As a member, India gains access to MIGA’s comprehensive range of guarantees and insurance products, enabling it to promote and safeguard investments made by Indian companies in developing countries.

This membership not only strengthens India’s position as an investor but also demonstrates its commitment to fostering economic development and poverty reduction in other nations.

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

The International Centre for Settlement of Investment Disputes (ICSID) was established in 1966 under the ICSID Convention to provide a platform for the resolution of international investment disputes. ICSID has earned global recognition as the foremost institution dedicated to settling such disputes.

Member states have agreed to accept ICSID as a forum for the settlement of investor-state disputes in their international investment treaties, highlighting its credibility and effectiveness. Moreover, ICSID plays a vital role in promoting an international investment ecosystem by offering a comprehensive dispute-resolution process that instils confidence and stability for investors.

Operating on principles of conciliation, arbitration, and fact-finding, ICSID assigns a dedicated team to each case, providing expert guidance for dispute resolution. Through its work, ICSID strengthens the rule of law in international investment and contributes to a transparent and predictable investment environment.

Note: India is not a member of ICSID

Functions of the World Bank

The World Bank serves several important functions in the global development landscape:

• Providing financial resources through loans, grants, and credits.
• Offering policy advice and technical assistance to member countries.
• Conducting research and sharing knowledge on development issues.
• Supporting capacity building and institutional strengthening.
• Collaborating with partners for effective development cooperation.
• Mitigating risks and promoting private sector investment.
• Advocating for policies and reforms that drive sustainable development.

India & World Bank

World Bank-Funded Projects in India

Here are some notable World Bank-funded projects in India:

• Skill India Mission
• Clean India Mission (Swachh Bharat Abhiyan)
• National Ganga River Basin Project
• Pradhan Mantri Gram Sadak Yojana
• National Rural Livelihoods Project
• Integrated Child Development Services (ICDS)
• National AIDS Control Support Project
• MSME Growth Innovation and Inclusive Finance Project
• Sarva Shiksha Abhiyan (SSA)
• Green National Highways Corridor Project
• National Nutrition Mission

Conclusion

In conclusion, the World Bank plays a crucial role in fostering global development and reducing poverty. Through its diverse institutions and financial resources, it provides support to member countries in various sectors, including infrastructure, education, healthcare, and agriculture. By offering financial assistance, technical expertise, and policy advice, the World Bank aims to promote sustainable economic growth and improve the living conditions of people around the world.

Further, the World Bank operates in close collaboration with governments, civil society organizations, and other stakeholders to address development challenges and create a more prosperous and equitable world. With its mission to end poverty and promote shared prosperity, the World Bank continues to play a vital role in shaping the global development agenda.

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