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STUDY OF THE FUNCTIONING OF WORLD BANK

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A PROJECT REPORT ON

WORLD BANK

SUBMITTED BY:

TEJAS THORAT

FOR THE DEGREE OF

THE BACHELOR OF MANAGEMENT STUDIES

UNIVERSITY OF MUMBAI

UNDER THE GUIDANCE OF

PROF. ANAMIKA

S.I.E.S. COLLEGE of ARTS, SCIENCE AND COMMERCE,

NERUL, NAVI MUMBAI400706

ACADEMIC YEAR 2012-2013


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A PROJECT REPORT ON

WORLD BANK


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CERTIFICATE

I, Ms. ANAMIKA hereby certify that TEJAS THORAT, student ofS.I.E.S COLLEGEOF ARTS, SCIENCE AND COMMERCE, NERUL has completed the project on

WORLD BANK in the academic year 2012-2013.

The information submitted in this project is true and original to best of my knowledge.

___________ ____________________________ ___________EXTERNAL PROJECT BMS CO-ORDINATOR PRINCIPLEEXAMINER GUIDE(Ms. ANAMIKA) (Mrs. NEERA (Mrs. RITA

KUMAR) BASU)


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DECLARATION

I, TEJAS THORATstudying in TYBMS, of S.I.E.S COLLEGE OF ARTS, SCIENCE

and COMMERCE NERUL, hereby declare that I have successfully completed this project

on WORLD BANK in the year 2012-2013 as per the requirements of Mumbai University as

a part of Bachelor in Management Studies (BMS) program.

The information presented through this project is true and original to the best of my

knowledge.

Date:

Place: Navi Mumbai

TEJAS THORAT


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ACKNOWLEDGEMENT

I, TEJAS THORAT would take this opportunity to thank the University for providing me an

opportunity to study the concept of WORLD BANK. This has been a huge learning

experience for me.

With a great pleasure I take this opportunity to acknowledge people who have made this

project work possible.

I would also like to thank my B.M.S coordinator Prof. NEERA KUMAR staff of my college,my colleagues and librarians and other people for providing their help as and when required

to complete this project.

I would also like to thank my parents for the tremendous help they have given me without

which the project would have not been possible.

TEJAS THORAT


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INDEX

Sr. No TITLE Page No.

1. EXECUTIVE SUMMARY 7

2. OBJECTIVES OF THE STUDY 8

3. WORLD BANK HITORY 9-11

4. AFFILIATES OF THE WORLD

BANK

12-15

5. INTRODUCTION 16-18

6. OPERATIONS 19-23

7. MISSION OF THE WORLD BANK 24

8. STRATERGIES 25-29

9. LOANS 30-33

10. WORLD BANK AGENCIES 34-74

11. DIFFERENCE BETWEEN IMF AND

WORLD BANK

75

12. INDIA AND WORLD BANK 76

13. CHALLENGES 77-89

14. INDIA AND WORLD BANK

PARTNERSHIP

90-98

15. CONCLUSION 99

16. BIBILOGRAPHY 100


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EXECUTIVE SUMMARY

To achieve sustainable growth and poverty reduction, developing countries need strong

institutional capacity. The World Bank devotes significant resources to building stronger

institutions and organizations

inclientcountries. It helps build capacity through a variety of means, including technical

assistance, studies, equipment, and training. This evaluation focuses on the efficacy of one

of the primary instruments for capacity buildingtraining individuals so they are better able

to contribute to their countrys development goals.

The organizational context for implementation of knowledge and skills learned was a

secondimportant determinant of successful capacity

building through training.


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OBJECTIVE OF THE STUDY

1. To study how the World Bank helps in influencing the financialmarket all over the globe.

2. To assist in the reconstruction and development of territories of members byfacilitating the investment of capital for productive purpose.

3. Topromote private investment by means of guarantee or participation in loans andother investments made by private investors.

4. To promote the long-range balanced growth of international trade and themaintenance of equilibrium in balances of payments by encouraging international

investment.

5. To assist in the reconstruction and development of territories of members byfacilitating the investment of capital for productive purpose.


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WORLD BANK HISTORY

Conceived during World War II at Breton Woods, New Hampshire, the World Bank initiallyhelped rebuild Europe after the war. Its first loan of $250 million was to France in 1947 for

post-war reconstruction. Reconstruction has remained an important focus of the Bank's work,

given the natural disasters, humanitarian emergencies, and post conflict rehabilitation needs

that affect developing and transition economies.

Today's Bank, however, has sharpened its focus on poverty reduction as the overarching goal

of all its work. It once had a homogeneous staff of engineers and financial analysts, based

solely in Washington, D.C. Today, it has a multidisciplinary and diverse staff including

economists, public policy experts, sectorial experts, and social scientists. 40 percent of staff is

now based in country offices.


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BRETTON WOODS CONFERENCE, JULY 1-22, 1944

World War II was still on; D-Day took place less than one month before. International concern over the competing currency devaluations and inflationary

tendencies which characterized the interwar years and the fear of a post-war economicdepression had been the genesis of the Conference and the Fund proposal.

The Bank was conceived of primarily as an instrument through which the physicalassets of the post-war world might be rebuilt. Development financing would come

later.


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It was the Latin American countries which were principally responsible for theemphasis on development.

Soviet Union represented at Bretton Woods, but did not subsequently ratify theArticles of Agreement of the Bank or Fund.

World Bank was the first multilateral development bank.


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(6) Consultative Group on International Agricultural Research (CGIAR)

Established May 19, 1971

Purpose: An informal association of public and private donors supporting a network of

international agricultural research centers.CGIAR convenes in Washington under chairmanship of the Bank, but with its Technical

Advisory Group (TAG) headquartered at FAO, Rome.

(7) World Bank Staff Association

Established February 28, 1972

Purpose: Working Party of twelve established by the Provisional Delegate

Assembly to investigate various aspects of establishing a staff association. Its

report recommended the formation of a staff association and outlined its functions, objectives

and general structure.

Constitution drafting committee of three established to draft a constitution and rules of

procedure.

Referendum held January-February 1972. Out of 2,998 eligible voters, 2,528 cast ballots, of

which 2,339 voted yes and 189 voted no. Nine yes votes arrived too late to be

counted.

Provisional Delegate Assembly first met on April 26, 1971; two delegates from each

department; assembly would decide whether or not there would be a staff association and, if

so, which form it would take.

(8) World BankAdministrative Tribunal

Established July 1979

Purpose: A judicate staff grievances.

September 1978: Round Table Conference on Legal Rights composed of staff and

management representatives. Conference was to examine the terms and conditions of

employment at the Bank to determine whether they should be enforceable through access to

an Administrative Tribunal.

An Appeals Committee had been established in 1976 to help to adjudicate staff grievances,

but its recommendations are not binding on the Bank.


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National courts have been reluctant to adjudicate grievances of staff against the Bank.Staff

Association played a significant role in the process of establishing the Administrative

Tribunal.Members of the Administrative Tribunal are selected by the Executive Directors

from a list drawn up by the President of the Bank after due consultation.First session began July 1, 1980 in London.

(9) Multilateral Investment Guarantee Agency

Established April 12, 1988

The purpose of the Agency is not solely to provide investment insurance. Insurance is the

main instrument of the Agency but will be used along with other instruments to create a

better investment environment based on mutual confidence between investors and their host

countries.

(10)Inspection Panel

Established September 22, 1993

Purpose: The Inspection Panel is three-member, non-judicial body created by the Board of

Executive Directors of IBRD and IDA to provide an independent forum to private citizens

who believe that their rights or interests have been or could be directly harmed by a project

financed by the Bank. Affected people may bring their concerns to the attention of the Panel

by filing a Request for Inspection.


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INTRODUCTION

The World Bank Group, originated as a result of the Bretton Woods Conference of 1944. It is

one of the worlds largest sources of development assistance and it has extended assistance to

more than 100 developing economies, bringing a mix of finance and ideas to improve living

standards and eliminate the worst forms of poverty. For each of its clients, the Bank works

with Government agencies, nongovernmental organizations and the private sectors to

formulate assistance strategies. Together with the separate International Monetary Fund, the

World Bank organizations are often called the "Bretton Woods" institutions, after Bretton

Woods, New Hampshire, where the United Nations Monetary and Financial Conference that

led to their establishment took place (1 July-22 July1944). The Bank came into formal

existence on 27 December1945 following international ratification of the Bretton Woods

agreements. Commencing operations on 25 June1946, it approved its first loan on 9 May1947

($250m to France for postwar reconstruction, in real terms the largest loan issued by the Bank

to date)

The World Bank is a vital source of financial and technical assistance to developing countries

around the world. It is not a bank in the common sense. Since it was set up in 1944 as the

International Bank for Reconstruction and Development, the number of member countries

increased sharply in the 1950s and 1960s, when many countries became independent nations.

As membership

Grew and their needs changed, the World Bank expanded and is currently made up of five

different agencies.
http://en.wikipedia.org/wiki/International_Monetary_Fundhttp://en.wikipedia.org/wiki/Bretton_Woods%2C_New_Hampshirehttp://en.wikipedia.org/wiki/Bretton_Woods%2C_New_Hampshirehttp://en.wikipedia.org/wiki/United_Nations_Monetary_and_Financial_Conferencehttp://en.wikipedia.org/wiki/July_1http://en.wikipedia.org/wiki/July_22http://en.wikipedia.org/wiki/December_27http://en.wikipedia.org/wiki/Bretton_Woods_systemhttp://en.wikipedia.org/wiki/June_25http://en.wikipedia.org/wiki/May_9http://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/Francehttp://en.wikipedia.org/wiki/May_9http://en.wikipedia.org/wiki/May_9http://en.wikipedia.org/wiki/June_25http://en.wikipedia.org/wiki/June_25http://en.wikipedia.org/wiki/Bretton_Woods_systemhttp://en.wikipedia.org/wiki/December_27http://en.wikipedia.org/wiki/December_27http://en.wikipedia.org/wiki/July_22http://en.wikipedia.org/wiki/July_22http://en.wikipedia.org/wiki/July_1http://en.wikipedia.org/wiki/United_Nations_Monetary_and_Financial_Conferencehttp://en.wikipedia.org/wiki/Bretton_Woods%2C_New_Hampshirehttp://en.wikipedia.org/wiki/Bretton_Woods%2C_New_Hampshirehttp://en.wikipedia.org/wiki/International_Monetary_Fund


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The World Bank Group consists of five closely associated institutions, each institution

playing a distinct role in the mission to fight poverty and improve standard of living for the

people in the developing world. The term World Bankrefers specifically to two of the five i.e. The International Bank for Reconstruction and

Development (IBRD) and The International Development Association (IDA). The other

institutions are The International Finance Corporation (IFC), The Multilateral Investment

Guarantee Agency (MIGA) and The International Centre for Settlement of Investment

Disputes (ICSID). While all five specialize in different aspects of development, they use their

comparative advantages to work collaboratively towards the same overarching goal-poverty

reduction.

Each institution plays a different but supportive role in the mission of global poverty

reduction and the improvement of living standards. The IBRD focuses on middle income and

creditworthy poor countries, while IDA focuses on the poorest countries in the world.

Together it provides low-interest loans, interest-free credit and grants to developing countries

for education, health, infrastructure, communications and many other purposes.

The World Bank's activities are focused on developing countries, in fields such as human

development (e.g. education, health), agriculture and rural development (e.g. irrigation, rural

services), environmental protection (e.g. pollution reduction, establishing and enforcing

regulations), infrastructure (e.g. roads, urban regeneration, electricity), and governance (e.g.

anti-corruption, legal institutions development). It provides loans at preferential rates to

member countries, as well as grants to the poorest countries. Loans or grants for specific

projects are often linked to wider policy changes in the sector or the economy.

For example, a loan to improve coastal environmental management may be linked to

development of new environmental institutions at national and local levels and to

implementation of new regulations to limit pollution.
http://en.wikipedia.org/wiki/Developing_countrieshttp://en.wikipedia.org/wiki/Governancehttp://en.wikipedia.org/wiki/Memberhttp://en.wikipedia.org/wiki/Memberhttp://en.wikipedia.org/wiki/Governancehttp://en.wikipedia.org/wiki/Developing_countries


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The World Bank is one of the most highly-regarded financial institutions in the world,

especially in the field of development economics and related research. In addition, World

Bank standards and methods have been adopted in many areas such as transparent procedures

for competitive procurement and environmental standards for project evaluation. World Bankalso engages in funding the education of promising young people from developing countries

through its graduate scholarship programs
http://en.wikipedia.org/wiki/Developing_countrieshttp://en.wikipedia.org/wiki/World_Bank_Scholarshiphttp://en.wikipedia.org/wiki/World_Bank_Scholarshiphttp://en.wikipedia.org/wiki/Developing_countries


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Each borrowers project proposal is assessed to ensure that the project is economically,

financially, socially and environmentally sound. During loan negotiations, the bank and

borrower agree on the development objectives, outputs, performance indicators andimplementation plan, as well as a loan disbursement schedule. While we supervise the

implementation of each loan and evaluate its results, the borrower implements the project or

program according to the agreed terms. As nearly 30% of our staff is based in some 100

country offices worldwide, three-fourths of outstanding loans are managed by country

directors located away from the World Bank offices in Washington.

IDA long term loans (credits) are interest free but do carry a small service charge of 0.75

percent on funds paid out. IDA commitment fees range from zero to 0.5 percent on un-

disbursed credit balances; for FY06 commitment fees have been set at 0.30 percent. For

complete information about IBRD financial products, services, lending rates and charges,

please visit the World Bank Treasury . Treasury is at the heart of IBRD's borrowing and

lending operations and also performs treasury functions for other members of the World

Bank Group.

III. GRANTSGrants are designed to facilitate development projects by encouraging innovation, co-

operation between organizations and local stakeholders participation in projects. In recent

years, IDA grantswhich are either funded directly or managed through partnershipshave

been used to:

Relieve the debt burden of heavily indebted poor countries Improve sanitation and water supplies Support vaccination and immunization programs to reduce the incidence of

communicable diseases like malaria

Combat the HIV/AIDS pandemic Support civil society organizations Create initiatives to cut the emission of greenhouse gasses
http://treasury.worldbank.org/index.htmlhttp://treasury.worldbank.org/index.html


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IV. ANALYTIC AND ADVISORY SERVICESWhile we are best known as a financier, another of our roles is to provide analysis, adviceand information to our member countries so they can deliver the lasting economic and social

improvements their people need. We do this in several ways: through economic research on

broad issues such as the environment, poverty, trade and globalization and through country-

specific economic and sector work, where we evaluate a country's economic prospects by

examining its banking systems and financial markets, as well as trade, infrastructure, poverty

and social safety net issues, for example.

We also draw upon the resources of our knowledge bank to educate clients so they can equip

themselves to solve their development problems and promote

Economic growth. By knowledge bank we mean the wealth of contacts, knowledge,

information and experience we've acquired over the years, country by country and project by

project, in our development work. Our ultimate aim is to encourage the knowledge revolution

in developing countries.

These are only some of the ways our analyses, advice and knowledge are made

available to our client countries, their government and development professionals, and the

public

Poverty Assessment Social and Structural Review. Public Expenditure Review Sector Reports Country Economic Memoranda Knowledge Sharing.

V. CAPACITYBUILDING

Another core bank function is to increase the capabilities of our own staff, our partners and

the people in developing countriesto help them acquire the knowledge and skills they need

to provide technical assistance, improve government performance and delivery of services,

promote economic growth and sustain poverty reduction programs. Linkages to knowledge-


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sharing networks such as these have been set up by the bank to address the vast needs for

information and dialogue about development:

Advisory Services and Ask Us help desks make information available by topic viatelephone, fax, email and the web. There are more than 25 advisory services at the

bank. Staff members who respond to inquiries

add value to the work of our own staff, clients and partners by responding quickly to

their knowledge needs. Often, they are the first and possibly

The only contact the public at large and the people in developing countries have with

the World Bank.

Global Development Learning Network is an extensive network of distance learningcenters that uses advanced information and communications technologies to connect

people working in development around the world.

World Bank Institute Global and Regional Programs bring together leadingdevelopment practitioners online and face-to-face to exchange experiences and to

develop skills.

B-SPAN web casting service is an Internet-based broadcasting station that presentsWorld Bank seminars, workshops and conferences on sustainable development and

poverty reduction.
http://web.worldbank.org/WBSITE/EXTERNAL/WBI/0,,contentMDK:20212524~menuPK:575919~pagePK:209023~piPK:207535~theSitePK:213799,00.htmlhttp://web.worldbank.org/WBSITE/EXTERNAL/PUBLICATION/INFOSHOP1/0,,contentMDK:20298143~menuPK:587999~pagePK:162350~piPK:165575~theSitePK:225714,00.htmlhttp://www.gdln.org/WBSITE/EXTERNAL/GDLNCHILD/0,,menuPK:1409420~pagePK:64233373~piPK:64234192~theSitePK:841731,00.htmlhttp://web.worldbank.org/WBSITE/EXTERNAL/WBI/0,,contentMDK:20212615~menuPK:575903~pagePK:209023~piPK:207535~theSitePK:213799,00.htmlhttp://info.worldbank.org/etools/BSPAN/index.asphttp://info.worldbank.org/etools/BSPAN/index.asphttp://web.worldbank.org/WBSITE/EXTERNAL/WBI/0,,contentMDK:20212615~menuPK:575903~pagePK:209023~piPK:207535~theSitePK:213799,00.htmlhttp://www.gdln.org/WBSITE/EXTERNAL/GDLNCHILD/0,,menuPK:1409420~pagePK:64233373~piPK:64234192~theSitePK:841731,00.htmlhttp://web.worldbank.org/WBSITE/EXTERNAL/PUBLICATION/INFOSHOP1/0,,contentMDK:20298143~menuPK:587999~pagePK:162350~piPK:165575~theSitePK:225714,00.htmlhttp://web.worldbank.org/WBSITE/EXTERNAL/WBI/0,,contentMDK:20212524~menuPK:575919~pagePK:209023~piPK:207535~theSitePK:213799,00.html


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MISSION OF THE WORLD BANK


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STRATEGIES:

The World Bank continually strives to improve the delivery of its aid based on the lessonslearned from experience. Recognizing that in virtually all successful past assistance efforts

the country itself was driving the agenda, the Bank strives to help governments take the lead

in preparing and implementing development strategies to shape the future of their countries.

This is the philosophy behind the Bank'sComprehensive Development Frameworkwhich,

since 1999, has guided the way its assistance has been delivered to developing countries. The

four main principles of the CDF are:

Development strategies should be comprehensive and shaped by a long-term vision, Development goals and strategies should be "owned" by the country, based on local

stakeholder participation in shaping them,

Countries receiving assistance should lead the management and coordination of aidprograms through stakeholder partnerships, and

Development performance should be evaluated through measurable results on theground, in order to adjust the strategy to outcomes and a changing world.

For low-income countries, the Bank's plans for assistance are based on Poverty

ReductionStrategies. In preparing these strategies, the government consults a wide cross-

section of local groups and combines this with an extensive analysis of the country's poverty

and economic situation. The process is designed to develop country ownership of the

strategy, as well as to foster greater openness in policymaking and increase government

commitment to policies. After the Consultations, the government identifies the country's

priorities and targets for reducing poverty over a three to five year period. The Bank and

other aid agencies then align their assistance efforts with the country's own strategy - a

proven way of boosting aid effectiveness.

The Bank's main vehicle for making strategic choices about the program design and resource

allocations for individual countries is itsCountry Assistance Strategywhich, since July

2002, has been based on PRSPs when dealing with low-income countries. In producing its

Country Assistance Strategy, the Bank conducts extensive analysis of the country's economic

and social situation in consultation with the government. Studies may be conducted into
http://www.worldbank.org/cdfhttp://www.worldbank.org/cdfhttp://www.worldbank.org/cdfhttp://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/0,,contentMDK:20120705~menuPK:41386~pagePK:41367~piPK:51533~theSitePK:40941,00.htmlhttp://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/0,,contentMDK:20120705~menuPK:41386~pagePK:41367~piPK:51533~theSitePK:40941,00.htmlhttp://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/0,,contentMDK:20120705~menuPK:41386~pagePK:41367~piPK:51533~theSitePK:40941,00.htmlhttp://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/0,,contentMDK:20120705~menuPK:41386~pagePK:41367~piPK:51533~theSitePK:40941,00.htmlhttp://www.worldbank.org/cas/http://www.worldbank.org/cas/http://www.worldbank.org/cas/http://www.worldbank.org/cas/http://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/0,,contentMDK:20120705~menuPK:41386~pagePK:41367~piPK:51533~theSitePK:40941,00.htmlhttp://web.worldbank.org/WBSITE/EXTERNAL/PROJECTS/0,,contentMDK:20120705~menuPK:41386~pagePK:41367~piPK:51533~theSitePK:40941,00.htmlhttp://www.worldbank.org/cdf


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issues such as poverty levels, agriculture, the health and education systems, environmental

policies, government procurement or financial management.

Additionally, the Bank has recently reviewed its role, activities, and effectiveness and the

development needs of countries in specific circumstances: Low Income Countries Under

Stress, Middle-Income Countries (MICs), and Small States.
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COMPREHENSIVE DEVELOPMENT FRAMEWORK

The Comprehensive Development Framework (CDF) encompasses a set of principles to

guide development and poverty reduction, including the provision of external assistance.

Poverty Reduction Strategies (PRS) underpinned by the CDF are the way forward to enhance

country ownership and the achievement of the Millennium Development Goals. We intend to

continue to direct the energy of our institutions to make this a reality

Eliminating poverty, reducing inequity, and improving opportunity for people in low- and

middle-income countries are the World Bank Group's central objectives. The CDF is an

approach by which countries can achieve these objectives. It emphasizes the interdependence

of all elements of developmentsocial, structural, human, governance, environmental,

economic, and financial.
http://www.developmentgoals.org/http://www.developmentgoals.org/


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COUNTRYASSISTANCE STRATEGY

The World Bank prepares a Country Assistance Strategy (CAS) for active borrowers from theInternational Development Association (IDA) and the

International Bank for Reconstruction and Development(IBRD). The CAS takes as its

starting point the countrys own vision for its development, as defined in a Poverty Reduction

Strategy Paper or other country-owned process. Oriented toward results, the CAS is

developed in consultation with country authorities, civil society organizations, development

partners, and other stakeholders. The purpose of the CAS is to set out a selective program of

Bank Group support linked to the countrys development strategy and based on the Bank

Groups comparative advantage in the context of other donor activities. CASs are designed to

promote collaboration and coordination among development partners in a country.

The CAS includes a comprehensive diagnosisdrawing on analytic work by the Bank, the

government, and/or other partnersof the development challenges facing the country,

including the incidence, trends, and causes of poverty. The CAS identifies the key areas

where the Bank Group's assistance

Can have the biggest impact on poverty reduction. In its diagnosis, the CAS takes into

account the performance of the Banks portfolio in the country, the countrys

creditworthiness, state of institutional development, implementation capacity, governance,

and other sectorial and cross-cutting issues. From this assessment, the level and composition

of Bank Group financial, advisory, and/or technical support to the country is determined. To

track implementation of the CAS program, the CAS is increasingly results-focused. It

includes a framework of clear targets and indicators to monitor Bank Group and country

performance in achieving stated outcomes.


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LOANS

HOW LOANS ARE MADE?

The World Bank offers two basic types of loans: investment loans for goods, work and

services to support economic and social development projects in a broad range of sectors; and

adjustment loans to support policy and institutional reforms.

During loan negotiations, the World Bank agrees with the borrowing country on the

development objective of the project or program, outputs, performance indicators (to measure

the impact and success of the project) and a plan to put it all into practice. Once a loan is

approved and becomes effective, the borrower puts the project or program into practice

according to the terms agreed with the World Bank.

The World Bank supervises how each loan is used and evaluates the results. All loans are

governed by operational policies, which make sure that operations are economically,

financially, socially and environmentally sound.

VOTING POWERS:

Like all corporate organizations, each of the agencies of the World Bank Group has

shareholders; these are the member countries. Every shareholder is allocated a certain number

of votes linked to the size of its shareholding. The votes include a specified number of

membership votes (which is the same for all members) and additional votes based on the

number of shares of the stock held. The number of votes of a member expressed as a

percentage of the total number of votes held by all shareholders is the members voting

power.

TYPES OF LOAN

The Bank has two basic types of lending instruments: investment loans and development

policy loans.Investment loans have a long-term focus (5 to 10 years), and finance goods,

works and services in support of economic and social development projects in a broad range

of sectors. Development Policy loans have a short-term focuses (1 to 3 years), and provides

quick-disbursing external financing to support policy and institutional reforms.
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Investment Lending

Investment loans provide financing for a wide range of activities aimed at creating the

physical and social infrastructure necessary for poverty alleviation and sustainable

development. Over the past two decades, investment lending has, on average, accounted for75 to 80 percent of all Bank lending.

The nature of investment lending has evolved over time. Originally focused on hardware,

engineering services, and bricks and mortar, investment lending has come to focus more on

institution building, social development, and building the public policy infrastructure needed

to facilitate private sector activity. Projects range from urban poverty reduction (involving

private contractors in new housing construction, for example) to rural development

(formalizing land tenure to increase the security of small farmers); water and sanitation

(improving the efficiency of water utilities); natural resource management (providing training

in sustainable forestry and farming); post-conflict

Reconstruction (reintegrating soldiers into communities); education (promoting the education

of girls); and health (establishing rural clinics and training health care workers).

Eligibility. Investment loans are available to International Bank for Reconstruction and

Development (IBRD) and International Development Association (IDA) borrowers not in

arrears with the Bank Group.

Disbursement. Funds are disbursed against specific foreign or local expenditures related to

the investment project, including pre-identified equipment, materials, civil works, technical

and consulting services, studies, and incremental recurrent costs. Procurement of these goods,

works, and services is an important aspect of project implementation. To ensure satisfactory

performance, the loan agreement may include conditions of disbursement for specific project

components.

Instruments. The large majority of investment loans are either Specific Investment Loans or

Sector Investment and Maintenance Loans. Adaptable Program Loans and Learning and

Innovation Loans were recently introduced to provide more innovation and flexibility. Other

instruments tailored to borrowers' specific needs are Technical Assistance Loans, Financial

Intermediary Loans, and Emergency Recovery Loans.


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Development Policy Lending

Development Policy loans provide quick-disbursing assistance to countries with external

financing needs, to support structural reforms in a sector or the economy as a whole. They

support the policy and institutional changes needed to create an environment conducive to

sustained and equitable growth. Over the past two decades, development policy lending

previously called adjustment lendinghas accounted, on average, for 20 to 25 percent of

total Bank lending.

Eligibility. Development policy loans are available to IBRD and IDA borrowers not in

arrears to the Bank Group. Eligibility for a development policy loan also requires agreement

on monitor able policy and institutional reform actions, and satisfactory macroeconomic

management. Coordination with the IMF is an essential part of the preparation of a

development policy loan.

Disbursement. Funds are disbursed in one or more stages (tranches). Tranches are released

when the borrower complies with stipulated release conditions, such as the passage of reform

legislation, the achievement of certain performance benchmarks, or other evidence of

progress toward a satisfactory macroeconomic framework.

Instruments. The new policyOP/BP 8.60applies uniformly to all development policy

lending, replacing the previous different types of lending (e.g., RILs, SALs, SECALs,

SNALs, PSALs). Development policy operations in PRSP countries may continue to be

called "PRSCs", because this is by now a well-established "brand name."

World Bank Group Agencies

The World Bank Group consists of:-

(1) The International Bank for Reconstruction Development (IBRD), established in 1945,

(2) The International Finance Corporation (IFC), established in 1956,

(3) The International Development Association (IDA), established in 1960,

(4) The Multilateral Investment Guarantee Agency (MIGA), established in 1988 and

(5) The International Centre for Settlement of Investment Disputes (ICSID), established in

1966.
http://wbln0018.worldbank.org/Institutional/Manuals/OpManual.nsf/tocall/AD55139DFE937EE585256EEF00504282?OpenDocumenthttp://wbln0018.worldbank.org/Institutional/Manuals/OpManual.nsf/tocall/AD55139DFE937EE585256EEF00504282?OpenDocumenthttp://wbln0018.worldbank.org/Institutional/Manuals/OpManual.nsf/tocall/AD55139DFE937EE585256EEF00504282?OpenDocumenthttp://en.wikipedia.org/wiki/International_Finance_Corporationhttp://en.wikipedia.org/wiki/International_Development_Associationhttp://en.wikipedia.org/wiki/Multilateral_Investment_Guarantee_Agencyhttp://en.wikipedia.org/wiki/International_Centre_for_Settlement_of_Investment_Disputeshttp://en.wikipedia.org/wiki/International_Centre_for_Settlement_of_Investment_Disputeshttp://en.wikipedia.org/wiki/Multilateral_Investment_Guarantee_Agencyhttp://en.wikipedia.org/wiki/International_Development_Associationhttp://en.wikipedia.org/wiki/International_Finance_Corporationhttp://wbln0018.worldbank.org/Institutional/Manuals/OpManual.nsf/tocall/AD55139DFE937EE585256EEF00504282?OpenDocument


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Governments can choose which of these agencies they sign up to individually. The IBRD has

184 member governments, and the other institutions have between 140 and 176 members.

The institutions of the World Bank Group are all run by a Board of 24 Executive Directors,

with each Director representing either one country (for the largest countries), or a group ofcountries. Directors are appointed by their respective governments or the constituencies.

The agencies of the World Bank are each governed by their Articles of Agreement that serve

as the legal and institutional foundation for all of their work.

I. INTERNATIONAL BANK FOR RECONSTRUCTIONAND DEVELOPMENT

HISTORY:

Commencing operations on June 25, 1946, it approved its first loan on May 9, 1947 ($250m

to France for postwar reconstruction, in real terms the largest loan issued by the Bank to

date).

The IBRD was established mainly as a vehicle for reconstruction of Europe and Japan after

World War II, with an additional mandate to foster economic growth in developing countries

in Africa, Asia and Latin America. Originally the bank focused mainly on large-scale

infrastructure projects, building highways, airports, and power plants.

As Japan and its European client countries "graduated" (achieved certain levels of income

per capita), the IBRD became focused entirely on developing countries.

Since the early 1990s the IBRD has also provided financing to the post-Socialist states of

Eastern Europe and the former Soviet Union.
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CURRENT SCENARIO:

International Bank for Reconstruction and Development (IBRD) is one of the five

institutions consisting the World Bank Group. The IBRD is an international organization

whose original mission was to finance the reconstruction of nations devastated by WWII.

Now, its mission has expanded to fight poverty by means of financing states. Its operation is

maintained through payments as regulated by member states. It came into existence

inDecember.
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The IBRD provides loans to governments, and public enterprises, always with a government

(or "sovereign") guarantee of repayment. The funds for this lending come primarily from the

issuing of World Bankbonds on the global capital markets - typically $12-15 billion per year.

These bonds are rated AAA (the highest possible) because they are backed by member states'

share capital, as well as by borrowers' sovereign guarantees. (In addition, loans that are repaid

are recycled (relent).) Because of the IBRD's credit rating, it is able to borrow at relatively

low interest rates. As most developing countries have considerably lower credit ratings, the

IBRD can lend to countries at interest rates that are usually quite attractive to them, even after

adding a small margin (about 1%) to cover administrative overheads.

MISSIONS AND PRINCIPLES:

The mission of the Bank is to:

Fight poverty with passion and professionalism for lasting results. Help people help themselves and their environment by providing resources, sharing

knowledge, building capacity and foreign partnership in the public and privatesectors.

Be an excellent institution able to attract, excite and nurture diverse and committedstaff with exceptional skills who know how to listen and learn.

The Principles of the Bank is:

Client Centric

Working in partnership Accountable for quality results dedicated to financial integrity and cost-effectiveness Inspire and be innovative

PURPOSES:

The purposes of the Bank, as laid down in its Articles of Agreement are:

To assist in the reconstruction and development of the territories of the members, byfacilitating the investment of capital for productive purposes including the restoration
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of economies destroyed by war, the reconversion of productive facilities to peace time

needs, and the encouragement of the development of productive facilities and

resources in the less developed countries.

To promote private foreign investment by means by means of guarantees orparticipation in loans and other investments made by private investors and when

private capital is not available on reasonable terms, to supplement private investments

by providing on suitable conditions, finance for productive purposes out of its own

capital funds raised by it and other resources.

To promote long-range balanced growth of internal trade and the maintenance ofequilibrium in the balance of payments, by encouraging international investments of

the productive resources of members, thereby assisting in raising productivity, the

standard of living and conditions of labour in their territories.


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GUIDING PRINCIPLES:

In its lending operation, the Bank is guided by certain policies which have been formulatedon the basis of Articles of Agreement

First, the Bank should properly assess the repayment prospects of the loans. For thispurpose, it should consider the availability of natural resources and productive plant

capacity to exploit the resources, and operate the plant and the countries past debt

record.

Secondly, the Bank should lend only for specific projects which are economically andtechnically sound and of a high priority nature. Most

Bank loans have been made for basic utilities, such as power and transport which are

prerequisites for economic development.

Thirdly, the Bank lends only to enable a country to meet the foreign exchange contentof any project cost, it normally expects the borrowing country to mobilize its domestic

resources.

Fourthly, the Bank does not expect the borrowing country to spend the loan in aparticular country, in fact, it encourages the borrowers to procure machinery and

goods for Bank financed projects in the cheapest possible market consistent with

satisfactory performance.

Fifthly, it is the Banks policy to maintain continuing relations with borrowers with aview to check the progress of the projects and keep in touch with financial and

economic developments in borrowing countries.

Lastly, the Bank indirectly attaches special importance to the promotion of localprivate enterprise.

LENDING PROGRAMMES:

The World Bank has traditionally financed all kinds of capital infrastructure such as roads

and railways, telecommunications and ports and power facilities, its development strategy

also places an emphasis on investment that can directly affectthe well-being of the masses of


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(b)Bank guarantee of late maturities with the possibility of release from all or a part ofits share, and

(c) Bank acceptance of a contingent obligation to finance an element of deferredprincipal at final maturity of a loan with level-debt service payment with floating-rate

interest and variable amounts of principal

Repayment.

II. INTERNATIONAL DEVELOPMENT ASSOCIATION:

HISTORY:

The International Bank for Reconstruction and Development (IBRD), better known as the

World Bank, was established in 1944 to help Europe recover from the devastation of World

War II. The success of that enterprise led the Bank, within a few years, to turn its attention to

the developing countries. By the 1950s, it became clear that the poorest developing countries

needed softer terms than those that could be offered by the Bank, so they could afford to

borrow the capital they needed to grow.

With the United States taking the initiative, a group of the Banks member countries decided

to set up an agency that could lend to the poorest countries on the most favorable terms

possible.

They called the agency the "International Development Association." Its founders saw IDA

as a way for the "haves" of the world to help the "have-nots." But they also wanted IDA to be

run with the discipline of a bank.

For this reason, US President Dwight D. Eisenhower proposed, and other countries agreed,

that IDA should be part of the World Bank (IBRD)


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CURRENT SCENARIO:

The International Development Association (IDA) created on September 24, 1960, is a UN

specialized agency. It is responsible for providing long-term interest-free loans to the poorest

of developing countries on terms more lenient than those of the World Bank proper, and

forms part of the World Bank Group based in Washington, D.C.

The International Development Association (IDA) provides grants and "soft loans", with

repayment periods of some 30 years and no interest, to the poorest countries (generally with

per capita incomes below $500 per year). IDA concessionary lending is funded by direct

contributions from member states, which subsidies the difference between the IBRD's costs

and the price charged to IDA borrowers.

IBRD and IDA are run on the same lines. They share the same staff and headquarters, report

to the same president and evaluate projects with the same rigorous standards. But IDA and

IBRD draw on different resources for their lending, and because IDAs loans are deeply

concessional, IDAs resources must be periodically replenished (see "IDA Funding" below).
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A country must be a member of IBRD before it can join IDA; 165 countries are IDA

members.

IDA's Articles of Agreement became effective in 1960. The first IDA loans, known as

credits, were approved in 1961 to Chile, Honduras, India and Sudan.

IDAs MISSION:

The International Development Association (IDA) is the part of the World Bank that helps

the earths poorest countries reduces poverty by providing interest-free loans and grants for

programs aimed at boosting economic growth and improving living conditions. IDA funds

help these countries deal with the complex challenges they face in striving to meet the

Millennium Development Goals. They must, for example, respond to the competitive

pressures as well as the opportunities of globalization; arrest the spread of HIV/AIDS; and

prevent conflict or deal with its aftermath.

IDAs long-term, no-interest loans pay for programs that build the policies, institutions,

infrastructure and human capital needed for equitable and environmentally sustainable

development. IDAs goal is to reduce inequalities both across and within countries by

allowing more people to participate in the mainstream economy, reducing poverty and

promoting more equal access to the opportunities created by economic growth.
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IDA's BORROWERS:

IDA lends to those countries that had an income in 2005 of less than $1,025 per person and

lack the financial ability to borrow from IBRD. Some "blend borrower" countries like India

and Indonesia are eligible for IDA loans because of their low per person incomes but are also

eligible for IBRD loans because they are financially creditworthy. Eighty-one countries are

currently eligible to borrow from IDA. Together these countries are home to 2.5 billion

people, half of the total population of the developing world. Most of these people, an

estimated 1.5 billion, survive on incomes of $2 or less a day.

IDA LENDING:

IDA credits have maturities of 20, 35 or 40 years with a 10-year grace period before

repayments of principal begins. IDA funds are allocated to the borrowing countries in relation

to their income levels and record of success in managing their economies and their ongoing

IDA projects. There is no interest charge, but credits do carry a small service charge,

currently 0.75 percent on funds paid out. See the terms of IDA lending.

In fiscal year 2006 (which ended June 30, 2006), IDA commitments totaled $9.5 billion. New

commitments in FY06 comprised 167 new operations. Fifty percent of new

commitments went to Sub Saharan Africa, 27 percent to South Asia, 11 percent to East Asia

and the Pacific, 5 percent to Eastern Europe and Central Asia, and the remainder to poor

countries in North Africa and in Latin America. The leading IDA borrowers in FY06 are

listed in Table 1.

Since 1960, IDA has lent $170 billion to 108 countries. Annual lending figures have

increased steadily and averaged about $9.1 billion over the last three years.

Most loans address basic needs, such as primary education, basic health services, and clean

water and sanitation. IDA also funds projects that safeguard the environment, improve

conditions for private business, build infrastructure, and support reforms to liberalize

countries' economies and strengthen their institutions. All these projects pave the way toward

economic growth, job creation, higher incomes and better living conditions.
http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/IDA/0,,contentMDK:20054572~menuPK:115748~pagePK:51236175~piPK:437394~theSitePK:73154,00.htmlhttp://doinlink%28%2720052347%27%2C%27null%27%2C%27http//web.worldbank.org/servlets/ECR?contentMDK=20052347&contTypePK=4610&folderPK=73450&sitePK=73154&callCR=true%27)http://siteresources.worldbank.org/IDA/Resources/IDA_Terms_06.pdfhttp://siteresources.worldbank.org/IDA/Resources/IDA_Terms_06.pdfhttp://doinlink%28%2720052347%27%2C%27null%27%2C%27http//web.worldbank.org/servlets/ECR?contentMDK=20052347&contTypePK=4610&folderPK=73450&sitePK=73154&callCR=true%27)http://web.worldbank.org/WBSITE/EXTERNAL/EXTABOUTUS/IDA/0,,contentMDK:20054572~menuPK:115748~pagePK:51236175~piPK:437394~theSitePK:73154,00.html


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FY06 Top Ten IDA Borrowers $million

Pakistan 1183

Vietnam 768

Tanzania 751

Ethiopia 505

India 500Bangladesh 462

Nigeria 422

Democratic Republic of Congo 365

Ghana 355

Afghanistan 240


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IDA FUNDING:

While the IBRD raises most of its funds on the world's financial markets, IDA is funded

largely by contributions from the governments of the richer member countries. Additional

funds come from IBRD's income and from borrowers' repayments of earlier IDA credits.

See the list of cumulative contributions to IDA Replenishments and donor shares of total

contributions.

Donors get together every three years to replenish IDA funds. Donor contributions account

for more than half of the US$33 billion in the IDA14 replenishment, which finances projects

over the three-year period ending June 30, 2008. The largest pledges to IDA14 were made by

the United States, the United Kingdom, Japan, Germany, France, Italy and Canada, but less

wealthy nations also contribute to IDA. Turkey and Korea, for example, once IDA borrowers,

are now donors. Countries currently eligible to borrow from IBRD (but not from IDA)

Brazil, Czech Republic, Hungary, Mexico, Poland, Russia, the Slovak Republic, and South

Africa are also IDA14 donors. Other contributors include Australia, Austria, Barbados,

Belgium, Denmark, Finland, Greece, Iceland, Ireland, Israel, Kuwait, Luxembourg,

Netherlands, New Zealand, Norway, Portugal, Saudi Arabia, Singapore, Slovenia, Spain,

Sweden, Switzerland and Venezuela.

To increase openness and help ensure that IDAs policies are responsive to country needs and

circumstances, representatives from each IDA region were invited to take part in the IDA13

and IDA14 replenishment negotiations.

PURPOSE:

IDA helps to reduce poverty by collaborating with other development partners, as well as

through its own programs. IDA has learned from experience that development programs are

most successful when the borrower countrynot just the government, but non-governmental

organizations (NGOs) and other representatives of civil society acquires a sense of

ownership of the programs through deep involvement in their design and execution. In each

country, IDA works with local development partners to ensure that the PRS is carried out in a

coherent way and that IDA focuses on areas where it has comparative advantage. In IDA13,

IDA targeted human-development projects in areas like education, health, social safety nets,
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water supply and sanitation (36%); law, justice and public administration (23%); industry

(18%); infrastructure (14%), and agriculture and rural development (8%).

ORIENTATION:

Sound economic policies, rural development, private business and sustainableenvironmental practices

Investment in people, in education and health, especially in the struggle againstHIV/AIDS, malaria and TB

Expansion of borrower capacity to provide basic services and ensure accountabilityfor public resources

Recovery from civil strife, armed conflict and natural disaster, and Promotion of trade and regional integration

The one billion children who live in countries that receive funds from IDA are the main

beneficiaries of IDA-backed investments in basic health, primary

Education, literacy and clean water. IDA is now the single largest source of donor funds for

basic social services in the poorest countries.

IDA also coordinates donor assistance to provide relief for poor countries that cannot manage

their debt-service burden.

Globalization the increasing integration of world markets and societies has allowed

China, India and many other developing countries to achieve faster growth through expanded

foreign direct investments and access to export markets. IDA is re-invigorating its work in

trade to assist the poorest and most marginalized countries to limit adverse disruptions from

globalization and to enhance net benefits from it. IDAs work in this area emphasizes

measures to improve the investment climate; enhance regional integration, particularly in

Africa; strengthen competitiveness; remove barriers to the markets of industrial countries;

and forge partnerships that enable acquisition of appropriate skills and infrastructure


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3. Performance Ratings

Every year World Bank staff assesses the quality of each borrower's policy performance. The

criteria and methodology of these assessments have evolved over time to incorporate lessons

from experience as well as research findings.

Beginning in 1998, the country performance assessment was broadened to include an

appraisal not only of the government's policies but also of the institutions in place to

implement them. The 16 performance criteria are grouped into four clusters

Structural Policies Policies for Social Inclusion/Equity Public Sector management and Institutions

At the time of the IDA14 replenishment negotiations the World Bank Executive Board

agreed that, starting with the results for 2005, the numerical IDA country performance ratings

would be disclosed.

The performance assessment also takes into account the performance of the country's active

project portfolio performance. The combined rating is scaledup or down depending on thestrength of the country's governance performance, resulting into the IDA Country

Performance Rating (CPR).

4. Allocation Process

The allocation of IDA's resources is determined primarily by each borrower's rating in the

annual country performance and institutional assessment. In addition, the IDA14

Agreement recommends that because the acceleration of economic and social development inSub-Saharan Africa remains foremost among IDA's priorities, these countries should receive

priority in the allocation process, provided their policy performance warrants it.

In the case of borrowers that are eligible for both IDA and IBRD funds ("Blend countries"),

the IDA allocations must also take into account those countries' creditworthiness for and

access to other sources of funds.


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Individual country performance-based allocations serve as an anchor for the formulation of

Country Assistance Strategy (CAS) lending programs.

5. Lending and Performance

IDA management monitors actual lending to each country in relation to the planning

allocations. As a result, actual lending on per capita terms is robustly correlated with

performance levels. The strong link between lending and performance has resulted in an

increasing concentration of lending to countries where policy performance is most conducive

to effective resource use

III. INTERNATIONALFINANCE CORPORATION

For several years officials of the World Bank had been supporting the creation of a new and

different entity to complement their own. The Bank had been founded to finance post-World

War II reconstruction and development projects by lending money to member governments,

and had been doing so effectively. Yet in its initial years, some senior staff had seen the need

for creating a related institution to spur greater private sector investment in poor countries.

The economies of poor countries were still in very early stages of development, lacking thehuman resources, physical infrastructure and sound institutions needed to raise incomes and

improve living standards. Private sector investment in developing countries was small, and

not much thought was given to increasing it. It was into this environment that IFC was born.


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CURRENT SCENARIO:

The International Finance Corporation (IFC) promotes sustainable private sector

investment in developing countries as a way to reduce poverty and improve people's lives.

IFC is a member of the World BankGroup and is headquartered in Washington, DC. It shares

the primary objective of all World Bank Group institutions: to improve the quality of the

lives of people in its developing member countries. IFC Mission Statement.

Established in 1956, IFC is the largest multilateral source of loan and equity financing for

private sector projects in the developing world. It promotes sustainable private sector

development primarily by:

1. Financing private sector projects located in the developing world.2. Helping private companies in the developing world mobilize financing in

international financial markets.

3. Providing advice and technical assistance to businesses and governments.
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GUIDING PRINCIPLES:

To be eligible for IFC funding, a project must meet a number of criteria. The project must:

Be located in a developing country that is amemberof IFC; Be in the private sector;
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Be technically sound; Have good prospects of being profitable; Benefit the local economy; and

Be environmentally and socially sound, satisfying IFC environmental and socialstandardsas well as those of the host country.

The following are the Guiding Principles of the IFC:

(a) Investment Proposal:

A company or entrepreneur seeking to establish a new venture or expand an existing

enterprise can approach IFC directly by submitting aninvestment proposal.

After this initial contact and a preliminary review, IFC may proceed by requesting a detailed

feasibility study or business plan to determine whether or not to appraise the project.

IFC'sproject/investment cycleillustrates the stages a business idea goes through as it

becomes an IFC-financed project.

(b) Government Cooperation

Although IFC is primarily a financier of private sector projects, it may provide finance for acompany with some government ownership, provided there is private sector participation and

the venture is run on a commercial basis. Although IFC does not accept government

guarantees for its financing, its work often requires close cooperation with government

agencies in developing countries

(c) Pricing and Financing Ceilings:

To ensure the participation of investors and lenders from the private sector, IFC limits thetotal amount of own-account debt and equity financing it will provide for any single project.

For new projects the maximum is 25 percent of the total estimated project costs, or, on an

exceptional basis, up to 35 percent in small projects.

IFC provides a wide variety of financial products and services to its clients and can offer a

mix of financing and advice that is tailored to meet the needs of eachproject. However, the

bulk of the funding, as well as leadership and management responsibility, lies with private

sector owners.
http://www.ifc.org/ifcext/enviro.nsf/Content/EnvSocStandardshttp://www.ifc.org/ifcext/enviro.nsf/Content/EnvSocStandardshttp://www.ifc.org/ifcext/enviro.nsf/Content/EnvSocStandardshttp://www.ifc.org/ifcext/about.nsf/Content/Investment_Proposalshttp://www.ifc.org/ifcext/about.nsf/Content/Investment_Proposalshttp://www.ifc.org/ifcext/about.nsf/Content/Investment_Proposalshttp://www.ifc.org/ifcext/about.nsf/Content/Project_Cyclehttp://www.ifc.org/ifcext/about.nsf/Content/Project_Cyclehttp://www.ifc.org/ifcext/about.nsf/Content/Project_Cyclehttp://www.ifc.org/ifcext/about.nsf/Content/Project_Cyclehttp://www.ifc.org/ifcext/about.nsf/Content/Investment_Proposalshttp://www.ifc.org/ifcext/enviro.nsf/Content/EnvSocStandardshttp://www.ifc.org/ifcext/enviro.nsf/Content/EnvSocStandards


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LENDING PROGRAMMES:

IFC's equity and quasi-equity investments are funded out of its net worth: the total of paid in

capital and retained earnings. Strong shareholder support, triple-A ratings and the substantial

paid-in capital base have allowed IFC to raise funds for its lending activities on favorable

terms in the international capital markets. Retained earnings now represent almost three-

quarters of IFC's net worth of $9.8 billion (end-June 2006).

Within the World Bank Group, the World Bank finances projects with sovereign guarantees,

while the IFC finances projects without sovereign guarantees. This means that the IFC is

primarily active in private sector projects, although some projects in the public sector (at the

municipal or sub-national level) have recently been funded.

Private sector financing is IFC's main activity, and in this respect is a profit-oriented financial

institution (and has never had an annual loss in its 50-year history). Like a bank, IFC lends or

invests its own funds and borrowed funds to its customers and expects to make a sufficient

risk-adjusted return on its global portfolio of projects.

IFC's activities, however, must meet a second test of contributing to a reduction in poverty in

line with its mandate. In practice, this is broadly interpreted, but considerable time and effort

is devoted to both

(i) selecting projects with positive developmental outcomes, and(ii) Improving the developmental outcome of projects by various means.

Apart from its core investment activities, IFC also carries out technical cooperation projects

in many countries to improve the investment climate. These activities may be linked to a

specific investment project, or, increasingly, to broader goals such as improving the

legislative environment for a specific industry. IFC's technical cooperation projects are

generally funded by donor countries or from IFC's own budget.


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National export credit agencies often lack the ability and capacity to offer politicalrisk insurance.

GUIDING PRINCIPLES:

Confidence, security, and credibility. MIGA gives private investors the confidence and

comfort they need to make sustainable investments in developing countries. As part of the

World Bank Group, and having as our shareholders both host countries and investor

countries, MIGA brings security and credibility to an investment that is unmatched. Our

presence in a potential investment can literally transform a "no-go" into a "go." We act as a

potent deterrent against government actions that may adversely affect investments.

And even if disputes do arise, our leverage with host governments frequently enables us to

resolve differences to the mutual satisfaction of all parties.


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Market leader. MIGA is a leader when it comes to assessing and managing political risks,

developing new products and services, and finding innovative ways to meet client needs. But

we don't stop there. We also provide expert advice to help countries attract and retain quality

foreign investment, and a host of online services to make sure investors know about businessopportunities in our developing member countries.

Complex deals. MIGA can be the difference between make or break, by providing that all-

critical lynchpin that enables a complex transaction to go ahead. MIGA offers innovative

coverage of the nontraditional sub-sovereign risks that often accompany water and other

infrastructure projects. We can also cover interest rate hedging instruments, as we did for a

power project in Vietnam, as well as provide capital markets guarantees, which we recently

did for residential mortgage-backed securities in Latvia.

PRI market. MIGA complements the activities of other investment insurers and works with

partners through its coinsurance and reinsurance programs. By doing so, we are able to

expand the capacity of the political risk insurance industry to insure investments, as well as to

encourage private sector insurers into transactions they would not have otherwise undertaken

LENDING PROGRAMMES:

MIGA provides guarantees against noncommercial risks to protect cross-border investment in

developing member countries. Guarantees protect investors against the risks of Transfer

Restriction, Expropriation, War and Civil Disturbance, and Breach of Contract (for contracts

between the investor/project

enterprise and the authorities of the host country). These coverages may be purchased

individually or in combination.
http://www.miga.org/sitelevel2/level2.cfm?id=1082http://www.miga.org/sitelevel2/level2.cfm?id=1081http://en.wikipedia.org/wiki/Guaranteehttp://en.wikipedia.org/wiki/Guaranteehttp://www.miga.org/sitelevel2/level2.cfm?id=1081http://www.miga.org/sitelevel2/level2.cfm?id=1082


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V. INTERNATIONAL CENTRE FOR SETTLEMENT OF INVESTMENTDISPUTES


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HISTORY:

In the past, the World Bank as an institution and the President of the Bank in his personal

capacity have assisted in mediation or conciliation of investment disputes betweengovernments and private foreign investors. The creation of the International Centre for

Settlement of Investment Disputes (ICSID) in 1966 was in part intended to relieve the

President and the staff of the burden of becoming involved in such disputes. But the Bank's

overriding consideration in creating ICSID was the belief that an institution specially

designed to facilitate the settlement of investment disputes between governments and foreign

investors could help to promote increased flows of international investment.

ICSID was established under the Convention on the Settlement of Investment Disputes

between States and Nationals of Other States (the Convention) which came into force on

October 14, 1966.
http://www.worldbank.org/icsid/basicdoc/basicdoc.htmhttp://www.worldbank.org/icsid/basicdoc/basicdoc.htmhttp://www.worldbank.org/icsid/basicdoc/basicdoc.htmhttp://www.worldbank.org/icsid/basicdoc/basicdoc.htm


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CURRENT SCENARIO:

The International Centre for Settlement of Investment Disputes (ICSID), an institution of

the World Bank group, was founded in 1966 pursuant to the Convention on the Settlement of

Investment Disputes between States and Nationals of Other States (the ICSID Convention or

Washington Convention). As of May 2005, 155 countries had signed the ICSID Convention.

ICSID is an autonomous international organization. However, it has close links with the

World Bank. All of ICSID's members are also members of the Bank. Unless a government

makes a contrary designation, its Governor for the Bank sits ex officio on ICSID's

Administrative Council. The expenses of the ICSID Secretariat are financed out of the Bank's

budget, although the costs of individual proceedings are borne by the parties involved.

ICSID has an Administrative Council, chaired by the World Bank's President, and a

Secretariat. It provides facilities for the conciliation and arbitration of investment disputes

between member countries and individual investors.

During the past decade, with the proliferation ofbilateral investment treaties (BITs), most of

which refer present and future investment disputes to the ICSID, the caseload of the ICSID

has substantially increased. As ofJune 30, 2005, ICSID had registered 184 cases more than

30 of which were pending against Argentina Argentina's economic crisis and subsequent

Argentine government measures led several foreign investors to file cases against

Argentina.ICSIDs headquarters are located inWashington, D.C.
http://en.wikipedia.org/wiki/World_Bank_grouphttp://en.wikipedia.org/wiki/1966http://en.wikipedia.org/wiki/Arbitrationhttp://en.wikipedia.org/wiki/Bilateral_Investment_Treatyhttp://en.wikipedia.org/wiki/June_30http://en.wikipedia.org/wiki/2005http://en.wikipedia.org/wiki/Argentinahttp://en.wikipedia.org/wiki/Washington%2C_D.C.http://en.wikipedia.org/wiki/Washington%2C_D.C.http://en.wikipedia.org/wiki/Washington%2C_D.C.http://en.wikipedia.org/wiki/Argentinahttp://en.wikipedia.org/wiki/2005http://en.wikipedia.org/wiki/June_30http://en.wikipedia.org/wiki/Bilateral_Investment_Treatyhttp://en.wikipedia.org/wiki/Arbitrationhttp://en.wikipedia.org/wiki/1966http://en.wikipedia.org/wiki/World_Bank_group


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DIFFERENCE BETWEEN IMF AND WORLD BANK:

Sr.No

IMF WORLD BANK

1.

Purpose Monetary Institution Development Institution

2.

Activities Stabilisation of the

international monetary

system. Finance of

temporary balance of

payment deficits.

Promotion of economic growth

and development in developing

countries.

3. Source of

funds

Official reserves and

countries currencies.

Special Drawing Rights

(SDRs).

Capital quotas. Issues in the

international market.

4. Eligible

Borrowers

All members Developing countries.

5. Outlook Short Term Long-Term

6. Credit Horizon 3-5 year loans

(maximum 10 years)

15-20 year loan

(maximum 50 years)

7. Staff 2,700 9,500

INDIA & THE WORLD BANK

With some 1.1 billion people, diverse regions, and a vibrant democracy, India has been

making progress on a scale, size and pace that is unprecedented in its own history. In the

nearly 60 years since its independence, the country has been successful on a number of

fronts:


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It has maintained electoral democracy Banished the specter of famines Reduced absolute poverty by more than half

Dramatically improved literacy Vastly improved health conditions Become one of the worlds fastest growing economies with average growth rates of

8% over the past three years

Emerged as a global player in information technology, business process outsourcing,telecommunications, and pharmaceuticals

Is now the worlds fourth largest economy in purchasing power parity terms.


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CHALLENGES

The countrys achievements have, however, created new challenges. Some of the most

prominent are:

1. Improving theDelivery of Core Public Services

As incomes rise, citizens are demanding better delivery of core public services such as water

and power supply, education, policing, sanitation, roads and public health. And as physical

access to services improves, issues of quality have become more central.

Education:While India has made huge progress in getting more children into primary

school, learning outcomes have yet to make more headway.

Health: Although population growth has fallen below 2% per year due to declining fertility,

there has been little improvement in maternal mortality rates. Despite falling child mortality,

rates remain high as they are strongly related to child malnutrition where little progress has

been made.

Infrastructure: Power networks, roads, transportation systems and ports are facing huge

demands from Indias rapidly growing economy. But, shortages are eroding the countrys

competitiveness and hurting the growth of labor-intensive enterprises, particularly export-

oriented manufacturing which has the potential to absorb Indias fast-growing working

population.


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2. Making Growth More Inclusive

Substantial disparities persist within the country. In a marked departure from previous

decades, reforms of the 1990s were accompanied by a visible increase in income inequality.

Although this continues to be relatively low by global standards, disparities between urban

and rural areas, prosperous and lagging states, skilled and low-skilled workers are growing.

Inequality can have huge social costs, and evidence of social unrest in some disadvantaged

regions is growing.

Agriculture: Slow agricultural growth is a concern for policymakers as some two-thirds of

Indias people depend on rural employment for a living. Current agricultural practices are

neither economically nor environmentally sustainable andIndia's yields for many agricultural


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commodities are low. Poorly maintained irrigation systems and almost universal lack of good

extension services are among the factors responsible. Farmers' access to markets is hampered

by poor roads, rudimentary market infrastructure, and excessive regulation.

Jobs: While the services sector booms with promising job opportunities for skilled workers,

some 90% of Indias labor force remains trapped in low productivity informal sector jobs.

Lagging States:Faster economic growth has seen rising inter-state disparities. While Indias

higher-incomestates have successfully reduced poverty to levels comparable with richer Latin

American countries, its poorer states - Assam, Bihar, Chhattisgarh, Jharkhand, Madhya

Pradesh, Orissa, Rajasthan, and Uttar

Pradesh - have not kept pace and are lagging behind their more prosperous counterparts.

3. Sustaining Growth

Maintaining high growth will also require attention to some basics:

Fiscal deficit: While the country has improved its fiscal indicators recently, further

improvements will be needed to reduce risks to fiscal stability and, more importantly, to

create the space to fund the countrys large infrastructure needs and ambitious social

development programs.

Trade Deficit: The trade deficit is large and has widened due to high oil prices and increased

non-oil imports. Nevertheless, Indias vulnerability to an external crisis remains limited due

to its large foreign exchange reserves - which now exceed US$160 billion - its low levels of

external debt, and buoyant exports of services.

Ongoing Reform: Redoubling of reforms that address the basic constraints to growth is

essential, as international experience shows that the recipe for slow growth is complacency

about pushing ahead with reforms in times when growth.

Priorities:Government policy and programs are looking beyond maintaining rapid growth to

making this growth more inclusive. The 11thPlan approach paper lays out the Governments

priorities in this direction. A variety of Government initiatives have been launched: to build


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rural infrastructure (Bharat Nirman), address employment (NREGA), uplift rural health

(NRHM), address primary education (SSA), and renew urban infrastructure (NURM).But for

these and other programs to be effective, it is increasingly being recognized that deeper

institutional reforms are needed to strengthen capacity and enforce accountabilities at alllevels.

Public sector services reform: Indias core public services such as healthcare, education,

power, water supply and transportation need urgent improvement. This will require systemic

reform of the public sector service providers, implementingeffective systems of accountability

to citizens, decentralizing responsibilities, and expanding the role of non-state service

providers.

Infrastructure:Indianeeds to invest an additional 3-4% of GDP on i

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