World Bank - Objectives, Role and Function

World Bank - Objectives, Role and Function

Role & Objectives:

• The World Bank is a Global Financial Organization which provides fund to the developing countries to perform various development programs.
• It was created at the “Bretton Woods Conference” in the month of July of 1944.
• The head-quarter of the World Bank is situated in Washington D.C of USA.
• The organization is created to meet the purpose of “Reduction of Poverty” throughout the world.
• The current President of World Bank is Jim Young Kim.
•  At present 188 countries are the members of the World Bank.
• The World Bank is the member of both of the World Bank Group and United Nations Development Group.
• It is comprised of two organizations i.e. International Development Association (IDA) and International Bank for Reconstruction and Development (IBRD).
• The President of World Bank is selected from the largest shareholder.
• The President is assisted by other members who are represented by the Board of Governors.
• To be a member of the World Bank, a country must purchase the shares of the “World Bank Group” according to the rules, regulations and agreements.
• US, France, Germany, UK and Japan are the Biggest Shareholders of World Bank Group.
• Every biggest Shareholder country has an Executive Director.
• The management of World Bank Group includes the Board of Executive Directors, Board of Governors, Advisory Committee, Loan Committee, President and other members.
• The “Board of Governors” of World Bank Group consists of one Governor (Minister of Finance of that particular country) and one Alternate Governor (Central Bank Governor).
• The Governors are appointed by every member country for 5 years term.
• The Governor can vote according to the financial contribution to the total capital of the Bank.
• The Board must meet every month to perform its duties.
• The Board of Executive Directors gives appointment to the President.
• The total number of Executive Directors is 21. Out of which 6 are appointed by US, UK, France, Germany and Japan (largest shareholders).
• The remaining members are appointed by the other member countries of the World Bank Group.
• The meeting of the Executive Directors must be held in every month to continue the regular work.
• The Loan Committee and Advisory Committee help the World Bank to execute its duty properly.
• The Advisory Committee has 7 experts who are appointed by the Board of Governors.
• The Executive Directors form the Loan Committee which provides loan according to the economies of the member countries.
• One country can be the member of the World Bank Group after getting approval by the 75% of all member countries.
• A member nation can resign from the membership of the World Bank Group voluntarily or in case of any violation of the rules of the Bank.

Functions of World Bank -

• The World Bank provides fund to reconstruct and develop the member nations.
• It can spread the peace throughout the world on the basis of the financial terms.
• It provides help to redevelop the nations which are destroyed by several wars.
• It helps to the developing and less developed countries by providing fund to them.
• It promotes the balanced growth of the International trade.
• It promotes the private investment from foreign countries.
• It maintains the equilibrium of payments of the member countries.
• It helps to increase the standard of living and labour conditions of the developing and developed countries.
• The money provided by the World Bank is invested only for the productive purposes.
• It also provides several technical services to the member countries. A training center and a staff College are also developed by the World Bank to meet this purpose.
• It can provide loan up to 25% of the share of that particular country.
• The interest rate and loan amount along with the terms and conditions are made by the World Bank.
• The borrower countries have to repay the loan by either in Reserve Currencies or in that currency in which the loan is given.
• The World Bank Group consists of five Global Organizations which provide loan to the less developed and developing countries.
• The World Bank is the biggest Development Banking Organization of the world.
• It also acts as the observer at United Nations Development Group (UNDG).
• The World Bank provides loan according to three lending procedures i.e. loan from the own fund, loans from the borrowed capital and loans the Bank’s Guarantee.
• India borrows from World Bank through the IDA and IBRD for several development initiatives in areas like infrastructure, poverty reduction, rural development etc.
• Generally IDA provides fund for the projects in social sector in India.
• IBRD provides loan for the infrastructure projects in India.
• The World Bank has 30 founder members including India.
• The IBRD (International Bank for Reconstruction and Development) and the 4 associates [International Development Association (IDA), International Finance Organization (IFO), Multilateral Investment Guarantee Agency (MIGA) and International Center for the Settlement of Invest Disputes (ICSID)] of the organization together are known as World Bank Group.
• India is a member of IBRD, IDA, MIGA and IFO but not a member of ICSID.

5 Global Orgaisation of World Bank

IBRD-

• It stands for International Bank for Reconstruction and Development.
• It is the oldest of all the associates of World Bank Group and was established in the 1945.
• It provides loan to the less developed and developing countries at low interest rate.
• The loans are provided focusing various areas like irrigation, agriculture, healthcare, family welfare, urban development, dairy development etc.

IDA-

• It stands for International Development Agency.
• It is called the “Soft Window” of World Bank.
• It was established in the year of 1960.
• The IDA provides infrastructural assistance to its member countries.
• The interest-free loans, which are known as Credits, are given by the IDA to develop the economic services in the poorest countries.
• It offers a grace-period of 10 years and hold the maturity from 35 years to 40 years.
• IBRD and IDA together are known as World Bank while all the organizations refer to the World Bank Group.

MIGA-

• It stands for the Multilateral Investment Guarantee Agency.
• It was established in the year of 1988.
• It encourages direct foreign investment in a nation by giving security against investment in case of any loss caused by the political disturbances.
• This security is given as the Political Risk Insurance.

IFC-

• It stands for International Finance Corporation.
• It is the “Private Arm” of World Bank. 
• The IFC was established in the year of 1956.
• It provides loan to the Private Sector Organizations of the member countries with comparatively low commercial interest.
• It provides advice for various private-public projects in a partnership with the Private Investors.
• It invests only in case of special contribution to compliment the role as the FFI (Foreign Financial Investor) of the market investors.
• It works to promote the private investment by both of the local and foreign investors.
• It helps the Government to privatize weak public enterprises as Capital Market Investor.

ICSID-

• It stands for International Center for Settlement of Investment Disputes.
• In is functional body which solves the Investment disputes.
• It solves the disputes related to the investment between the host countries ( where the investment is made) and foreign companies.
• The decisions of the ICSID are bound on the involved parties.
• It was established in 1966 under the “Convention on Settlement of Investment Disputes” between the States and the National of the other States.