A coming change in leadership at the World Bank has put the development bank back into headlines. Image: REUTERS/Johannes P. Christo
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- The World Bank was founded in 1944 with the aim to reduce levels of poverty around the world.
- The institution lends money to its 189 member countries at lower interest rates than commercial banks, or with no interest rate at all for the poorest countries.
- The bank also provides advice to member countries to help them make their economies more efficient and productive.
A coming change in leadership at the World Bank has put the development bank back into headlines—and has sparked conversation about the institution's efforts to confront 21st century crises.
Such issues include, for example, global pandemics and the climate crisis. Still, the World Bank remains an institution dedicated to reducing poverty. So how exactly does the World Bank operate and how has its mandate changed over the years?
Why was the World Bank founded?
The World Bank was set up in 1944 to help support the rebuilding of Europe and Japan following the World War II. Its official name was the International Bank for Reconstruction and Development.
It emerged as part of the Bretton Woods Agreement, which was negotiated at a United Nations Monetary and Financial Conference with the aim of creating a new system of economic order and international cooperation. Bretton Woods also led to the creation of the International Monetary Fund (IMF).
Over three-quarters of a century after it was established, the Washington DC-based bank’s main aim is to reduce levels of poverty around the world. It does this by lending money to the governments of its poorer members at lower interest rates than commercial banks would charge or, in the case of the poorest developing countries, with no interest rate.
“Without a place like the World Bank from which to borrow money, the world’s poorest countries would have few, if any, ways to finance much-needed development projects,” the bank’s website says. “The projects are essential to helping people become educated, live healthy lives, get jobs, and contribute as active citizens.”
The World Bank, IMF and regional development banks cover parts of government budgets in many countries, and can help to create a more inclusive and social global economy, the World Economic Forum says in its report Unlocking the Social Economy.
Examples of its work include helping Bangladesh set up an Income Support Program for the Poorest, which has provided cash to 600,000 poor pregnant women and mothers with children under five, to help them improve their children’s nutrition and cognitive development. It has also provided loans to Morocco to support its Integrated Disaster Risk Management and Resilience Program, which is strengthening the country’s climate change adaptation and resilience to natural disasters.
The Bank aims to reduce the percentage of people living on less than $1.90 a day to no more than 3% by 2030.
How does the World Bank work?
The bank is run like a cooperative, with its members as shareholders. The number of shares a country has is based on the size of its economy. The US is the largest shareholder, followed by Japan, Germany, the United Kingdom and France.
As shareholders, member countries are represented on a board of governors, usually by their finance ministers. This board has annual meetings alongside the IMF’s governors to decide how it can work best to reduce global poverty and help with international development.
What is the Forum doing to improve the global banking system?
The policy decisions made at this meeting are then enacted by 24 executive directors, who approve loans, country assistance strategies, and make borrowing and financial decisions. As the five largest shareholders the US, UK, France, Germany and Japan have an executive director each, while the other member countries are represented by 19 executive directors.
The World Bank is headed by a president, who is selected by the executive directors. David Malpass has recently decided to resign from this post before his five-year term ends in April 2024.
Where does the World Bank get its money?
The Bank says its financial reserves come from a variety of sources. These include:
- Fees paid by member countries.
- Funds raised in financial markets.
- Earnings on its investments.
- Contributions made by members.
- Interest payments from borrowing countries when they pay back loans.
The bank loans countries only part of the money they need for certain projects, meaning they have to get the rest from other sources or use their own funds.
What else does the World Bank do?
The World Bank doesn’t only provide money. It also provides advice to member countries, and uses the experience and knowledge of its staff in areas such as environmental best-practice or social standards to help ensure projects will be successful.
It also “lends money to hire industry experts to help countries to reshape their economies to make them more efficient and productive”, the Bank’s website says.
The World Bank is also a major publisher of reports and working papers, with over 30,000 publications covering areas such as poverty, global debt and food security.
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The views expressed in this article are those of the author alone and not the World Economic Forum.
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