The World Bank is an international financial institute. With an aim of reducing poverty, World Bank provides leveraged loans to poorer countries for capital programs. The World Bank includes only two institutes and is different from the World Bank Group. The two groups of the World Bank include International Bank for Reconstruction and Development (IBRD) and International Development Association (IDA).
Nowadays, World Bank is focusing on the achievement of the Millennium Development Goals (MDGs). It is lending at the interest rates that reveals a small mark up over its own borrowings from capital markets. MDGs aim to lend “middle income countries”. IDA also provides loans to low income countries with no or little access to international credit markets at low or no interest. The first group of World Bank, International Bank for Reconstruction and Development is a market based nonprofit organization. IBRD uses its high rating to lower the interest rates on loan. On the other hand, International Development Association is supported by periodic grants which are given by the member companies.
The major mission of the bank is to get development and to reduce poverty by aiding development countries and their inhabitants. The bank provides them an environment for investment, sustainable growth and jobs. Thus the bank promotes economic growth through investment and also gives a chance to the poor to share the fruit of economic growth. According to the World Bank, there are five key factors that are necessary for economic growth. These factors help in the creation of business environment.
The first factor is to build capacity by educating government officials and strengthening governments. The second factor is the creation of infrastructure by providing protection of individuals and property rights, the honoring of contracts and installment of legal and judicial systems for the establishment of business. Development of financial system is another important key factor of economic growth. The strong systems support endeavors to finance large corporate ventures from micro credit. Corruption is a big hurdle in economic growth so; eradication of corruption is a big factor which supports economic growth of a country. Research, training and consultancy also contribute in economic growth. The World Bank offers opportunities to conduct training programs, for research on development issues and consultancy.
In the world’s financial markets, the funds for all the operations of bank are obtained through the IBRD’s sale of AAA-rated bonds. The IDA gets its funds from forty donor countries and from loan repayments. These donor countries refill the funds of bank every three years.
The two basic types of loans which are offered by the bank include development policy loans and investment loans. Social and economic developments projects are supported by the investment loans. On the other hand, development policy loans support countries’ policy and institutional reforms by providing quick disbursing finance. IDA’s credit cards are interest free and IBRD offers loans with low interest rate.
The World Bank also provides analytical and advisory services to its member states. The bank not only provides financial support but also provide such services which are required in many under-developed countries for the implementation of the lasting economic and social improvements. Moreover, the bank also provides necessary knowledge to the members to resolve their development problems.
In conclusion, the World Bank is playing a very important in the world economy and it has been always appeared as a helping hand for the developing and under-developed economies.
