How does the World Bank work? What are its objectives? How does it raise money?
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 charges.
iii. The quantum of loan service, interest rate, terms and conditions are decided by the World Bank itself.
iv. Generally banks 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.
Sources Of Capital For World Bank: Where Does The World Bank Get Its Money From?
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.