The World Bank Group (WBG) is a self-stated humanitarian body specialising in the provision of financial and technical assistance to developing nations around the globe. Based in Washington, D.C., the WBG has 10,000 employees in more than 100 international offices. Featuring 189 member nations, the WBG is a premier conduit of economic development.
Although often a polarising figure, the WBG has been a leading aid purveyor to countries and municipalities since the 1940s. In the modern era, these programs are conducted in accordance with two primary goals to be achieved by 2030:
- "End extreme poverty by decreasing the percentage of people living on less than US$1.90 a day to no more than 3%"
- "Promote shared prosperity by fostering income growth of the bottom 40% for every country"
Given a philanthropic approach to lending, the WBG regularly participates in the vast issuance of grants, low and zero-interest loans. For the fiscal year ending 30 June 2017, disbursements totalling US$17,861 million were made to countries, municipalities and partners from various geographic locales. These funds are considered to be investments in infrastructure, environmental management, education, health care and many other project designations.
To accompany the capital investiture, advanced analytics and financial expertise are also provided. Cutting-edge technology, research tools and ongoing collaboration are additional resources offered to support the efficient economic development of participants.
The WBG was founded as the International Bank for Reconstruction and Development (IBRD) in 1944. A product of the summit at Bretton Woods, New Hampshire, it was created along with the International Monetary Fund (IMF) to spearhead rebuilding efforts in the post-World War II era.
The initial function of the WBG was the issuance of loans to governments in need of funding for WWII reconstruction projects. Devastation in war-torn regions was extensive, as was the demand for new infrastructure. Initial funding jump-started the construction of dams, electrical grids, roads and agricultural facilities in especially hard-hit European areas.
As concerns surrounding WWII reconstruction were satisfied, economic development and prosperity became primary focuses of the WBG. The creation of private-lending departments the International Finance Corporation (1956) and International Development Association (1960) shifted attention to the goal of eradicating poverty through economic growth. This was largely addressed by providing capital to IMF member nations in Africa, Asia and Latin America.
Over the decades, the monetary value of WBG efforts has grown exponentially. Shortly after its official launch, the WBG extended a total of four loans worth US$497 million for the year of 1947. In comparison, 302 outstanding loans were issued for 2015, totaling an estimated US$60 billion.
As time passed, the cooperative funding system based on IMF quotas became supplemented with private investiture. Since 2012, the WBG has conducted business under the leadership of president Jim Yong Kim, a proponent of integrating private equity into operations. A medical doctor by trade, Kim has encouraged business partnerships with private institutions including insurance companies and commercial banks. From a capital intensive standpoint, the approach has proven successful and raises more than US$7 billion annually in private equity.
The WBG consists of 189 member countries from all reaches of the globe. In order to gain membership, a nation must first join the IMF in adherence to the IBRD Articles of Agreement drafted in 1944. Once a member of the IMF, a nation is able to participate in WBG decision making, fund raising, or recieve aid dispersments.
Member nations are directly involved in the decision making processes of the WBG. According to the original Articles of Agreement, a Board of Governors acts as the de facto authority that addresses the pressing issues and concerns of the day. This body is made up of appointees from each member nation, including one acting governor and one alternate, subject to a five-year term.
The duties and powers of the Board of Governors is as follows:
- Admit or suspend members
- Manage capital stocks
- Distribute net income
- Interpret and amend the Articles of Agreement
- Foster cooperation with other international organisations
- Suspend operations
In addition to the Board of Governors, the WBG features five separate Boards of Directors that effectively manage their respective partnered organisation. Upon the acceptance of a nation to the WBG, conditional membership may be extended to the following organisations and the affiliated Board of Directors:
|International Bank of Reconstruction and Development (IBRD)||189|
|International Development Association (IDA)||173|
|International Finance Corporation (IFC)||184|
|Multilateral Investment Guarantee Agency (MIGA)||181|
|International Center for Settlement Of Investment Disputes (ICSID)||154|
Each of these departments act as an arm of the WBG, specialising in unique operational and administrative matters. The stated objectives and core functions of each body are as follows:
- IBRD: Provides loans, advisory services, and guarantees to middle-income and credit worthy low-income nations. In addition, the IBRD addresses evolving international and local challenges.
- IDA: Provides aid to the world's most impoverished nations. Its primary objective is to reduce poverty via the provision of loans and grants designed to promote economic growth and improve the quality of life.
- IFC: The private equity management bureau of the WBG, tasked with raising investment capital, giving financial advice and managing assets. Since 1956, the IFC has furnished businesses with more than US$265 billion in private equity.
- MIGA: Provides "guarantees," similar to standard insurance policies, on projects being conducted in developing nations. A few of the risks MIGA provides protection against are civil disturbance, war, breach of contract and currency instability.
- ICSID: Acts as an arbitrator in order to resolve any conflicts that arise from business arrangements between countries, businesses, and lenders. Services provided include legal council, financial review, and the provision of formal hearing venues and proceedings.
When taken in total, these five entities form the WBG. They are commissioned with the handling of day-to-day affairs and ensuring business practices are conducted in an efficient manner.
Performance And Controversy
As the world's single largest development lender, the WBG has furnished many nations with the capital needed to promote economic growth. For the year 2018, US$47.08 billion in commitments were made to projects in various member nations. Since its inception, the WBG has funded 13,476 projects in 173 countries.
The following are the five leading destinations of assistance:
|Country||Projects||Value (USD, Billions)|
Although the accomplishments of WBG programs are lauded by advocates, significant controversy surrounds lending practices, terms and organisational structure. While technically considered to be a non-profit, its fundraising and business methods are often scrutinised.
Affiliations with unsavory business partners, unintended negative project impacts, conditions imposed on borrowers and the "absolute immunity" that WBG bodies enjoy are issues critics cite as detrimental to global well-being. Subsequently, judicial actions have been pursued against the WBG in various international courts.
Among the high-profile cases is Jam v. IFC, a direct challenge of the organisation's absolute immunity status. Jam v. IFC stems from the controversial construction of the Tata Mundra coal power plant, funded by the WBG. The environmental impact of Tata Mundra negatively influenced the livelihoods and health of people residing in surrounding communities. As a result, legal action from affected parties ensued, bringing into question culpability on behalf of the WBG and IFC. The case is slated to be heard by the U.S. Supreme Court in late 2018.
Beginning in the post-WWII era, the WBG has been a global leader in the facilitation of economic development and reconstruction. Through the provision of financing, insurance, and expertise, the WBG focuses on the core mission of reducing poverty while improving the quality of life worldwide.
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Senior Market Specialist
Russell Shor (MSTA, CFTe, MFTA) is a Senior Market Specialist at FXCM. He joined the firm in October 2017 and has an Honours Degree in Economics from the University of South Africa and holds the coveted Certified Financial Technician and Master of Financial Technical Analysis qualifications from the International Federation…