World Bank: Purpose, power, functions and history

Nations of the world have rallied towards having a standard financial system that appeals to its economic inputs and offers an overall developed financial sector. With the world divided among political lines, with the East adopting communism and the west largely adopting capitalism; the demand for a non-bias, international body offering credible financial advice to countries on the improvement of their economies is in high demand.

The World Bank is an example that is highly demanded among nations; the bank is an international body aimed at offering the best advice on finance, economy, and advancement to nations of the world, particularly developing nations. This article offers the most significant information on the World Bank.

History of the World Bank

After World War II, nations that participated in the war lost a huge part of their infrastructure, and there arose a great demand for funding reconstruction projects following the war. In 1944, the United Nations established the World Bank through the Bretton Woods Agreement. T

he Bretton Woods Agreement was a proposal following an investigation into the demand for funding reconstruction projects by nations; the proposal recommended among others that a World Bank be created and nations possess a collective international monetary system. 

The recommendations of the Bretton Wood Agreement were adopted and the World Bank was formed. The World Bank issued its first reconstruction loan to France in 1947. 

Recommend International Monetary Fund (IMF): Purpose, power, function & history

Purpose of the World Bank

The World Bank was created to offer financial advice and assistance on economic improvement to nations across the world. The World Bank was established with the main objective of pulling nations from a financial crisis, reducing poverty and offering detailed support to nations’ economic progress. 

Since its creation, the World Bank has supported governments of the world with varying grants, low or zero-interest loans and development support programs to aid global healthcare, unemployment, infrastructure, housing, education and others. 

Over the years, the major purpose for creating the World Bank has shifted from the usual provision of financial advice to the actual support of poor economies. The bank is currently tailored to reduce the global poverty rate to an all-time low by the end of 2030. As of January 2023, the World Bank, through its portal, claims to have over 15 goals it intends to accomplish before the year 2030; among these goals include the goal to increase global wealth to 40% and reduce global poverty to below 3%. 

Organizational powers of the World Bank

The World Bank is an independent non-governmental organization created to foster certain objectives in the economies of countries. The World Bank, technically, does not act as a bank, nor does it act as a global central bank, rather it acts as a financial analyst and adviser for nations’ economic improvement. 

When it comes to the overall powers of the World Bank, these powers are shared into five broadly independent organizations with the World Bank as the parent company. These five organizations each have varying functions independent from one another. The organizations are detailed below:

1. International Bank of Reconstruction and Development (IBRD)

The IBRD offers loans to nations from across the globe; as of 30 June 2022, the IBRD had a net interest revenue of $3,990,000,000 which was an upward shift from its $2,444,000,000 recorded in 2021. the bank also had an allowable income of $806,000,000 a drop from $1,248,000,000 recorded in June 2021 and an equity-to-loans ratio at 22%.

2. International Development Association (IDA)

The IDA undertakes functions similar to the IBRD, in that it offers loans to nations. Nonetheless, while the IBRD is mostly concerned with the credit rating of nations before offering loans, the IDA is concerned with the nation’s economy. 

The IDA offers loans to the poorest of nations only. These loans are usually zero-interest or low-interest payable loans. At the fiscal year ending June 2022, the IDA’s annual commitment was over $37 billion, out of which over $13 billion went on grants alone.

3. International Finance Corporation (IFC)

The IFC offers the private sector, mostly in developing or underdeveloped nations, advice and loans for these corporations to match up to those of developed economies. The IFC is also responsible for offering corporate governance advice to enable the economic development of poor nations’ private sectors. 

4. Multilateral Investment Guarantee Agency (MIGA)

MIGA is responsible for encouraging and advising foreign direct investments (FDI) from developed economies into developing economies with increased hopes of aiding economic progress in poor and middle-income nations as well as eradicating poverty and improving the general living of the people. 

5. International Centre for Settlement of Investment Disputes (ICSID)

ICSID is a body responsible for the settlement of investment disputes at the international level.

Functions of the World Bank

The World Bank’s functions have evolved into more complex multiple forms since its creation. The general function of the bank is to foster the economic growth and prosperity of nations; over the years, the World Bank has worked to achieve this major goal through the varying functions listed below.

1. It assists countries in construction loans

Perhaps the basic function of the World Bank can be argued to grant loans to nations for construction purposes.

This loan option is offered majorly to poor nations, middle-income nations and nations ravaged by wars. The World Bank’s first loan was a construction loan to France in the year 1947. 

2. Offering financial advice to nations

The World Bank offers extensive financial advice to nations with the general direction of improving the overall development of nations’ economic outlook.

To do this, the World Bank offers developing economies various advice that is aimed at improving a variety of sectors in the nation’s economy.

3. It offers development loans to poor economies

This is one of the most significant functions of the World Bank, the bank offers zero or little-interest loans to poor, middle-income, developing and underdeveloped economies.

These loans are aimed at improving numerous sectors in the country’s economy, from education to agriculture, health and others.

4. Promoting foreign investment

The World Bank promotes foreign investments into the economies of poor and middle-income nations to foster growth and reduce poverty.

To do this, the bank offers loans to corporations willing to make foreign direct investments in poor and middle-income nations.

Also readWorld Trade Organization (WTO): Purpose, power, function & history

Conclusion

The World Bank has remained consistent in achieving its goals for over a decade; since its inception, the bank has played a strong role in the development of economies all over the globe. This article provides all there is to know about the World Bank.

Frequently Asked Questions (FAQ)

Where is the World Bank’s headquarters?

The World Bank is currently headquartered in Washington D.C., USA.

Does the World Bank have offices in other parts of the globe?

Yes, the World Bank has a total of 170 offices across the world. 

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Richard Okoroafor

Richard Okoroafor

Richard is a brilliant legal content writer who doubles as a finance lawyer. He brings his wealth of legal knowledge in corporate commercial transactions to bear, offering the best value that exceeds expectations.

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