What Is the World Bank, and What Does It Do?

World Bank

Investopedia / Candra Huff

What Is the World Bank?

The World Bank is an international organization dedicated to providing financing, advice, and research to developing nations to aid their economic advancement. The bank predominantly acts as an organization that attempts to fight poverty by offering developmental assistance to middle- and low-income countries.

As of 2022, the World Bank identified 17 goals that it aims to achieve by 2030. The top two are stated in their mission statement. The first is to end extreme poverty by decreasing the number of people living on less than $1.90 a day to below 3% of the world population. The second is to increase overall prosperity by increasing income growth in the bottom 40% of every country in the world.

Key Takeaways

  • The World Bank is an international organization that provides financing, advice, and research to developing nations to help advance their economies.
  • The World Bank and International Monetary Fund (IMF)—founded simultaneously under the Bretton Woods Agreement—both seek to serve international governments.
  • The World Bank has expanded to become known as the World Bank Group with five cooperative organizations, sometimes known as the World Banks.
  • The World Bank Group offers a multitude of proprietary financial assistance, products, and solutions for international governments, as well as a range of research-based thought leadership for the global economy at large.
  • The World Bank's Human Capital Project seeks to help nations invest in and develop their human capital to produce a better society and economy.

Understanding the World Bank

The World Bank is a provider of financial and technical assistance to individual countries around the globe. The bank considers itself a unique financial institution that sets up partnerships to reduce poverty and support economic development.

The World Bank supplies qualifying governments with low-interest loans, zero-interest credits, and grants, all to support the development of individual economies. Debt borrowings and cash infusions help with global education, healthcare, public administration, infrastructure, and private-sector development. The World Bank also shares information with various entities through policy advice, research and analysis, and technical assistance. It offers advice and training for both the public and private sectors.

Examples of What the World Bank Does

The World Bank provides financing, advice, and other resources to developing countries in the areas of education, public safety, health, and other areas of need. Often, nations, organizations, and other institutions partner with the World Bank to sponsor development projects.

Human Capital Project

In 2017, the World Bank created the Human Capital Project, which seeks to help countries invest in and develop their people to be productive citizens and active contributors to their economy. World leaders are urged to prioritize investments in education, healthcare, and social protections, and, in return, they will realize a stronger economy full of healthy, thriving adults.

The Human Capital project outlines how governments should invest in providing quality, affordable childcare to support and improve child development, increase women's access to better employment opportunities, and increase economic growth, to name a few.

To build human capital globally, the World Bank has identified several areas of focus: the Human Capital Index (HCI), measurement and research, and country engagement.

Created in October 2018, the Human Capital Index summarizes a nation's investments in its human capital, specifically concerning health and education. The index is used to identify what is lost from the lack of investments in human capital; it also prompts leaders to think of how to remedy these deficiencies.

Beyond analyzing human capital, the World Bank measures the effectiveness of a nation's educational and healthcare systems. Doing so helps them identify what should be continued and what should be changed. It can also give insight on where to allocate resources.

Country engagement requires a country to take a "whole government" approach to addressing factors that compromise human capital. The nation, its leaders, and influencers band together to champion reducing poverty and increasing shared prosperity.

National Immunization Support Project

In April 2016, the World Bank approved the National Immunization Support Project for Pakistan. This project, costing an estimated $377.41 million, aims to increase the equitable distribution of vaccines to children ages 0 to 23 months.

The project consists of five components that are designed to enhance the country's vaccine distribution to the most vulnerable. The first component creates a governance structure and addresses logistics, monitoring, and evaluation systems. The second component involves performance planning and the alignment of skilled human resources.

The third component increases the awareness of and promotes the program among Pakistan's citizens, as well as addresses how their schools' curriculum aligns with this initiative. The fourth component makes it possible to obtain the necessary equipment to widely distribute vaccines and increase the supply chain for vaccines. Lastly, the fifth component includes being able to expand the program's reach and enhance research and development in this field.

Learning for the Future

The Learning for the Future project was created to enhance children's readiness for school and the effectiveness of secondary instruction in specific Kyrgyz Republic communities. The project consists of two components: increasing the equitable access of early childhood education and improving the effectiveness of instruction in secondary education.

To meet these objectives, the program establishes 500 community-based kindergarten programs, which will allow for the enrollment of 20,000 children. To increase the effectiveness of instruction, the project finances a training program for 500 new teachers and provides digital resources to complement existing learning resources (e.g., textbooks). The project also assesses how well students learn, cognitively and non-cognitively.

World Bank Financials

The World Bank is an organization, rather than a bank. Therefore, its financials are not comparable to traditional financial institutions.

Within the organization operates different sectors: the International Bank of Reconstruction and Development (IBRD), the International Development Association (IDA), the International Finance Corporation (IFC), and the Multilateral Investment Guarantee Agency (MIGA).

As of 2020, the World Bank has loaned the most money, $39.58 billion, to India.

The IBRD, the original World Bank, loans money to creditworthy low-income or middle-income countries. For the fiscal year ended June 30, 2021, the IBRD recorded net interest revenues of $2,444 million and allocable income of $1,248 million. Its equity-to-loans ratio was 22.6%.

The IDA issues credits, or interest-free loans, to the poorest nations. For the fiscal year ended June 30, 2021. the World Bank recorded an adjusted net income of $394 million and a deployable strategic capital (DSC) ratio of 30.4%, which is the available capital divided by the capital needed to support the portfolio.

IFC provides funds and guidance to the private sector for the purpose of helping developing nations stay on a growth trajectory. For the fiscal year ended June 30, 2021, the World Bank recorded net income gain of $4,209 million and a total comprehensive income gain of $5,075 million. Its Capital Utilization Ratio (CUR) ratio was 67%.

Lastly, MIGA insures investments to the poorest countries to help reduce poverty and improve the welfare of a nation's citizens. For the fiscal year ended June 30, 2021, MIGA recorded net interest revenues of $81 million.

For the fiscal year 2021, the World Bank has distributed $30,522.65 million in IBRD loans, $23,931.96 in interest-free loans or credits, and $12,048.95 million in grants.

History of the World Bank

The World Bank was created in 1944 out of the Bretton Woods Agreement, which was secured under the auspices of the United Nations in the latter days of World War II. The Bretton Woods Agreement included several components: a collective international monetary system, the formation of the World Bank, and the creation of the International Monetary Fund (IMF).

Since their founding, both the World Bank and the International Monetary Fund have worked toward many of the same goals. The original goals of both the World Bank and IMF were to support European and Asian countries needing financing to fund post-war reconstruction efforts.

Both the World Bank and IMF outlasted the collective international monetary system which was central to the Bretton Woods Agreement. President Nixon halted the Bretton Woods international monetary system in the 1970s. However, the World Bank and IMF remained open and continued to thrive on providing worldwide aid.

The World Bank and IMF are headquartered in Washington, D.C. The World Bank has staff in more than 170 offices worldwide.

Though titled as a bank, the World Bank, is not necessarily a bank in the traditional, chartered meanings of the word. The World Bank and its subsidiary groups operate within their own provisions and develop their own proprietary financial assistance products, all with the same goal of serving countries' capital needs internationally.

The World Bank’s counterpart, the IMF, is structured more like a credit fund. The differing in the structuring of the two entities and their product offerings allows them to provide different types of financial lending and financing support. Each entity also has several of its own distinct responsibilities for serving the global economy.

World Banks

Through the years, the World Bank has expanded from a single institution to a group of five unique and cooperative institutional organizations, known as the World Banks or collectively as the World Bank Group. The first organization is the International Bank for Reconstruction and Development (IBRD), an institution that provides debt financing to governments that are considered middle income. The second organization within the World Bank Group is the International Development Association (IDA), a group that gives interest-free loans to the governments of poor countries.

The International Finance Corporation (IFC), the third organization, focuses on the private sector and provides developing countries with investment financing and financial advisory services. The fourth part of the World Bank Group is the Multilateral Investment Guarantee Agency (MIGA), an organization that promotes foreign direct investments in developing countries. The fifth organization is the International Centre for Settlement of Investment Disputes (ICSID), an entity that provides arbitration on international investment disputes.

World Bank FAQs 

What Is the Purpose of the World Bank?

The World Bank is an organization that provides funds, advice, and research to developing nations to help advance their economy and combat poverty.

Who Owns the World Bank?

No person, organization, government, or nation owns the World Bank. It is an organization made up of member countries, represented by a Board of Governors. This Board governs the organization, creates policies, and appoints executive directors. The executive directors govern the Bank's business and budget, and grant loan approvals. The president and managers manage the day-to-day operations.

Where Does the World Bank Get Its Money?

The World Bank receives funding from wealthy nations and from the issuance of debt securities, such as bonds.

Which Country Is the World Bank In?

The World Bank is headquartered in Washington D.C.; however, it has locations in more than 170 countries, including Benin, Argentina, and China.

Who Is the CEO of the World Bank?

The World Bank is led by President David Malpass. The organization's Board of Directors is comprised of four separate Boards, one for each division of the World Bank. Each Board oversees the operations of their respective sector. For example, the Board for the International Bank for Reconstruction and Development (IBRD) oversees the operations for that segment, and the Board for the International Development Agency (IDA) oversees the operations for that segment.

Article Sources
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  7. The World Bank Group. "Learning for the Future Project."

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  17. The World Bank Group. "MIGA – Financial Statements."

  18. The World Bank Group. "World Bank Group Finances: IBRD/IDA Summary."

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