The significance of the world’s largest financial institution, the World Bank, cannot be overemphasized. Being an organization that plays a crucial role in supporting economic development and poverty reduction efforts globally, the World Bank has become a topic of emphasis when talking about the global economic condition.
The World Bank is an international financial institution that provides financial and technical assistance to developing countries. It is more of an organization than just a bank and it is a globally renowned financial institution that has greatly impacted many economies with its outstanding financial services.
With 189 countries from around the globe, the World Bank is on a cogent mission to curb poverty in member countries and support the development of such countries’ economies by partnering with them. Notably, the Bank has a counterpart known as the International Monetary Fund (IMF) which has a structure like a credit fund.
Notably, the World Bank is owned and managed by member countries with various executives led by its president. Its primary goal is to reduce poverty and improve living standards worldwide, which the Bank aims to achieve by lending money to the governments of its poorer members.
The World Bank’s Goals and Objectives
The World Bank has a target of 17 goals which it plans to achieve by 2030 and its objectives are not far-fetched from its primary goal as a group which entails giving financial support to underdeveloped countries to curb poverty.
The Bank has successfully helped member countries in this aspect with the help of funds generated from the capital markets via induction. Raising the income of poor members by improving shared prosperity is another key goal of the World Bank. Projects are being set up by the World Bank to achieve this goal. Poor member countries finance their project from this initiative, and this has helped people in getting educated, obtaining jobs, and becoming better citizens of their member countries.
The encouragement of international trade in underdeveloped countries by the World Bank is another objective of the institution. In addition to this, the World Bank makes provision for adequate empowerment to protect the environment and natural habitat and reduce debt challenges in developing countries.
History of World Bank
The World Bank was established in 1944 during the Bretton Woods Conference (UN Monetary and Financial Conference). Its initial purpose was to aid in the reconstruction of war-torn Europe after World War II. When it first began its operation in 1946, it was officially named The International Bank for Reconstruction and Development (IBRD). At that time, it was included 38 member countries.
Over the years, its focus expanded to include the development of projects in various regions. It is recognized as one of the world’s largest research centres. The World Bank uses the knowledge from its various departments to advise countries in crucial areas such as health, education, nutrition, law, justice, finance, and the environment.
The World Bank Institute is another part of the World Bank that specializes in training government and other officials.
How Does the World Bank Function?
The World Bank’s decision-making process involves member countries’ representatives who decide on funding projects. It raises funds through issuing bonds in international financial markets and also receives contributions from member countries. The funds are then used for development projects and technical assistance.
The bank gives out low-interest loans to member countries to support their development projects, these loan interests are far lower than the ones obtained in commercial Banks and have longer duration of repayment.
The World Bank is also actively engaged in giving financial advice to member countries, as said earlier to have a vast knowledge on finances.
The World Bank has a group of institutions, each has a specific focus and role within the group. The organization has its headquarters in Washington D.C. The five constituents institutions are:
- International Centre for Settlements of Investment Dispute (ICSID). This institution operates independently of the IBRD, it is saddled with the responsibility of settling foreign Investment disputes and their host via arbitration or conciliation.
- Multilateral Investment Guarantee Agency (MIGA). It is providing developing countries with loan guarantees and foreign investors insurance against loss caused by non-commercial risks.
- International Finance Corporation (IFC). In collaboration with private investors, this institution provides loans, loan guarantees, and equity financing to business undertakings, especially in developing countries.
- International Development Association (IDA). Low-income developing countries are provided with long-term loans which are interest-free, as well as policy advice and technical assistance. The institution is financed via contributions from developed countries.
- The International Bank for Reconstruction and Development (IBRD). This institution makes provision of loans to middle-income developing countries at market rate of interest.
Notably, member countries are represented by a Board of Governors, who are the ultimate policymakers at the World Bank. Generally, the governors are member countries’ ministers of finance or ministers of development. They meet once a year at the Annual Meetings of the Boards of Governors of the World Bank Group and the International Monetary Fund.
Functions of the World Bank
The key functions of the World Bank can be summarized as follows:
- Human Capital Projects. The World Bank establishes human capital projects that seek to help developing countries improve the productivity of their citizens and make them contribute to the country’s economy actively.
- National Immunization Support Projects. The World Bank approved this project first in 2016 for Pakistan, it aimed at increasing the equitable distribution of vaccines to children within the age range of 0-23 months.
- Learning for the future. This was established to improve children’s availability for school and the effectiveness of secondary instructions in some communities.
World Bank vs IMF
Despite the similarities in the objectives, the World Bank and IMF have quite a number of differences.
Firstly, the World Bank provides funds to developing countries while the IMF on the other hand oversees the Monetary system globally.
Secondly, the World Bank aims at eradicating poverty in developing countries while the IMF provides solutions to global financial issues.
Besides, the World Bank is a larger organization, it has over 7000 staff members, while the IMF has about 2300 employees.
The World Bank plays a crucial role in supporting economic development and poverty reduction efforts. Its multifaceted approach, financial resources, and technical expertise make it a significant player in the international development landscape.
There is still a need for growth in the objectives stated by the World Bank, as it is also set to curb corruption, war and other challenges in member countries but these are not yet achieved.