An international financial institution, World Bank primarily focuses on providing funds and grants to countries for executing capital projects. The financial assistance is provided to low- and middle-income countries. The World Bank comprises five institutions, which are IBRD (The International Bank for Reconstruction and Development), IDA (The International Development Association), IFC (The International Finance Corporation), MIGA (The Multilateral Investment Guarantee Agency) and ICSID (The International Centre for Settlement of Investment Disputes).
While most people have a basic idea about what World Bank is, there is not much clarity on how World Bank generates its own funds. For better understanding, here’s a look at who funds World Bank.
Through the International Bank for Reconstruction and Development (IBRD), the World Bank taps the world’s financial markets to raise most of its funds. IBRD has the primary mission of providing loans, guarantees, advisory services and risk management products to middle income as well as creditworthy low-income countries.
Till date, more than $500 billion worth of loans have been provided by IBRD to alleviate poverty across the globe. IBRD has consistently maintained high credit rating, which allows the organization to borrow funds from the world’s financial markets at low cost. IBRD also generates funds via its equity investments and the small margin that is earned via lending to countries.
Through the International Development Association (IDA), the World Bank raises funds through donations from member countries. Much of the funds are generated through donations by developed countries. Some of the largest donations are received by countries such as United States, Japan, United Kingdom, France, Germany, Canada, China, Italy, Netherlands, Sweden, Saudi Arabia and Switzerland.
World Bank issues bonds, something similar to the general practice associated with corporates and central banks. World Bank can easily issue bonds to raise funds, as the organization has consistently maintained triple-A credit rating. This is the highest credit rating for any organization. World Bank bonds are usually purchased by member countries and private sector institutions.
World Bank bonds are among the safest investment options for nations and private organizations. World Bank bonds can be purchased from commercial banks, security houses, dealers and brokers. Bonds issued by World Bank are broadly classified as benchmark and global bonds, local currency bonds, structured notes and USD discount notes.
Investment of undisbursed loans
Every year, there’s a specific portion of available funds that is not disbursed. This balance is invested to earn income. It is then used to meet operational expenses of World Bank’s Washington headquarters and regional offices.
When borrowing countries repay their principal, it becomes part of total funds available with World Bank. These funds are automatically allocated as available funds for any upcoming projects.