The World Bank, was established in 1945 under Bretton Woods Agreement of 1944 to tackle the problem of international investment. The Headquarter of World Bank is at Washington D.C. Since the IMF was designed to provide temporary assistance in correcting balance of payments difficulties and institutions was also needed to assist long-term investment purpose. Thus, IBRD was established for promoting long-term investment loans on reasonable terms.
It is an inter-governmental institution, corporate in form, the capital stock of which is entirely owned by its member-governments. Initially, only nations that were members of the IMF could be members of the World Bank; this restriction on membership was subsequently relaxed. World Bank makes loans to countries to enhance economic development. It maintains profit oriented objectives. It engages in co-financing agreements to extend economic impact.
Capital Resources of World Bank
The initial authorized capital of the World Bank was $ 10,000 million, which was divided in 1 lakh shares of $ 1 lakh each. The authorized capital of the Bank has been increased from time to time with the approval of member countries.
On June 30, 1996, the authorized capital of the Bank was $ 188 billion out of which $ 180.6 billion (96% of total authorized capital) was issued to member countries in the form of shares.
Member countries repay the share amount to the World Bank in the following ways:
1. 2% of allotted share are repaid in gold, US dollar or Special Drawing Rights (SDR).
2. Every member country is free to repay 18% of its capital share in its own currency.
3. The remaining 80% share deposited by the member country only on demand by the World Bank.
Objectives of World Bank
According to the Clause I of the agreement made at the time of establishment of World Bank, it was assigned the following Objectives:
- To provide long-run capital to member countries for economic reconstruction and development.
- To induce long-run capital investment for assuring Balance of Payments (BoP) equilibrium and balanced development of international trade.
- To provide guarantee for loans granted to small and large units and other projects of member countries.
- To ensure the implementation of development projects so as to bring about a smooth transference from a war-time to peace economy.
- To promote capital investment in member countries by the following ways;(a) To provide guarantee on private loans or capital investment.(b) If private capital is not available even after providing guarantee, then IBRD provides loans for productive activities on considerate conditions.
Role/ Functions of World Bank
- Provides Technical Assistance.
- Imparts Training.
- Coordinates Development Assistance.
- Settlement of International Disputes.
- Provides Financial Assistance to World Welfare Institutions.
- Conducts Economic Research.
- Establishing Subsidiary Institutions.
- Promote growth of international trade and help maintain BOP equilibrium of the member countries.