The World Bank is an international financial institution which lends money to developing countries so that they can carry out capital programmes – building the infrastructure necessary for society, economy or enterprise to operate. This might mean things like cars, roads, homes, council tax,power grids and other physical structures; or it might mean things like organization, financial institutions, law enforcement etc for governmental infrastructure. This then can provide those developing countries with the capital they need to facilitate their growth and organization. The bank itself will oversee many philanthropic strategies – such as poverty reduction strategies and the ‘clean air initiative’ to help improve air quality in cities.
The World Bank is made up of two groups the ‘International Bank for Reconstruction and Development’ and the ‘International Development Association’. The ‘World Bank Group’ is a term used to include these two institutions as well as three others (the International Finance Corporation, Multilateral Investment Guarantee Agency and International Center for Settlement of Investment Disputes).
The World Bank was formed at the Bretton Woods Conference in 1944 and is based in Washington D.C. It is custom for the World Bank to be headed by an American, and the current president is Robert B Zoellick. However there are 187 member countries who act as ‘shareholders’ allowing them to vote on matters pertaining to the bank. However different countries have different voting power.
The first loan was issued to France and was worth $250 million. Lending started gradually and carefully in order to instil trust in the bank. As of 1947 the loans moved to focus more on non-European countries, and until 1968 all loans were provided only for projects that allowed the borrower to pay loans back (such as power plants or highway systems that would generate profit). After this point the lending moved to meet the needs of people in the developing world and the amount of money lent was greatly increased.
This shift was mostly the result of one Robert McNamara – then the president. He used a technocratic managerial style and moved policies toward improving agriculture and literacy and building schools. A new process allowed potential borrowers to get the funding they needed faster. To fund these projects he used the global band market – so that investors can buy IBRD bonds. Other loans also help to finance these projects.
While this of course reduced poverty, it also increased debt in the developing world which of course may be unsustainable. The loans granted by the World Bank to developing countries are generally low interest or no interest. Some profits from the bank at the end of the fiscal year go back to the financial reserves, or are used to help developing countries with debt relief. This, combine with the Debt Initiative for Heavily Indebted Poor Countries, aims to reduce some of the debt and deflect some of the criticisms that have been leveled at the World Bank.