AKHIL RANJAN GUPTA MBA2019-010

Industry Analysis

The World Bank is a Multilateral Development Bank (MDB). An MDB is an international financial
institution (IFI) chartered by two or more countries for the purpose of encouraging economic
development in poorer nations. Multilateral development banks consist of member nations from
developed and developing countries. MDBs provide loans and grants to member nations to fund
projects that support social, infrastructure, and economic development, such as the building of new
roads, providing clean water to communities, fighting poverty, and many others.

The core competency of MDBs is to lend money to governments in developing countries and
economies in transition. These funds, in turn, can be used to cover shortfalls in budgets or to allow
governments to continue program development without having to increase their debts by borrowing
from the international capital markets. As a result of providing this financial assistance, MDBs
introduce their policy agendas into the governments to which they lend money. Therefore, we can
conclude that MDBs are competing in the global capital markets. Thus, it can be said that MDBs
compete with investment banks for their clients and not with other official development institutions.

This makes sense if we look at the reason why MDBs were created. The initial idea to create MDBs
was simple and perfectly adapted to the opportunities and constraints of the capital markets in the
postwar era. With capital flows restricted, as well as financially risky, many governments were
unable to attract foreign private capital to finance public sector activities.

When interest rates in industrialized ("OECD countries") are low, capital is abundant and
opportunities to earn a good return are scarce. Private investors start looking at emerging markets
as a potential source of income. In the 1990s, emerging market funds became an investment option
for many institutional and private investors in OECD countries. High rates of return made this
industry extremely attractive. Many investors, such as MDBs, who traditionally imposed tougher
non-financial conditions on the borrowers, saw themselves competing with emerging market funds
that provided money to governments in developing countries without proper safeguards. The
immediate impact on MDBs was a reduction in lending volume to their clients.

Opportunities and Threats

• MDBs might be crowded out because private investors can become very selective. This
leaves MDBs only the high-risk, low return, and small volume candidates.

• MDBs should strengthen their political outreach activities to constituencies in developed

countries to counterbalance arguments for their radical reform.

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• To promote their political agenda, (reaching MDBs) and to respond to their political
constituencies, MDBs should diversify their lending towards lower to middle income
countries in the region such as Peru, Ecuador and Colombia, where their development
impact could be higher.

• Demand for lending from MDBs, in particular Argentina, Brazil and Mexico will increase over
the next years.

• MDBs are to reduce the processing time of MDBs' loans and their preparation costs, making
them more competitive with other private and public institutions.

World Bank shares are not publicly traded; hence we can’t comment on the market share/market
capitalization. The capital is contributed by its 189-member counties. It doesn’t belong to any
industry since it is an international development organization like The United Nations.

Abbreviations

IBRD The international Bank for Reconstruction and

Development Global Institutions

(Organizations of The World

IFC International Financial Corporation Bank)

IDA International Development Association

AfDB African Development Bank

ADB Asian Development Bank

Regional Institutions
AIIB Asian Infrastructure Investment Bank

CAF Charities Aid Foundation

EBRD European Bank for Reconstruction and

Development

IADB Inter-American Development Bank

Below is the chart representing the % of the total asset held by MDBs. Where IBRD, IFC, and IDA are
the organization group of The World Bank which is the global institutions and other regional players.

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Porter’s 5 Forces

• Potential Entrance – High Barrier to entrance. The capacity to enter this market is extremely
difficult. From the public sector perspective, some governments tried to create new MDBs
to satisfy specific needs of a group of countries or sectors of the economy. However, due to
the extremely high capital requirements and the need to rely on the political support of the
constituencies in capital providing countries, the chances for such an initiative are low. For
example, the MERCOSUR trade pact (formed by Argentina, Brazil, Paraguay, and Uruguay)
tried to create a sub-regional development bank similar to the CAF. However, due to a
significant lack of capital, the initiative never materialized. It seems simple for a private
investment fund to enter the international capital markets for sovereign debt lending.
However, looking at the existing risks and the limited capacity to identify potentially viable
investments in recipient countries, such an initiative becomes extremely complex and
daring.
Based on this risk, the threat of entry to this market is rather low.

• Buyers – High Power towards buyer. – The main buyers for a MDBs are government, and in
particular their ministries of finance. They also have to keep in mind an additional factor
that could have a significant influence on the power relation between MDBs and the
governments that MDB's net income depends heavily on revenue generated from loans to
middle income countries. To stay alive financially, MDBs also need the big borrowers the

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same way smaller countries need MDBs to cover their financing. This situation, also known
among the staff of MDBs as "pressure to lend,".

• Substitutes – Low threat of substitutes. Potential substitutes of MDB's are official funds
provided by Governments through official development assistance ("ODA") and
nongovernmental organizations ("NGOs"). ODA is mentioned as a potential substitute, in the
form of grants, for lending activities of MDBs. due to ODA's highly politicized nature its low
per capita graduation threshold, and the nature of its grants the potential for ODA to
replace MDB is rather low. Bilateral aid is also perceived as a complement to resources
provided from the MDBs, and not as a substitute. The reason for this is that (with the
exception of military aid) grants are normally smaller and targeted towards specific
activities, whereas MDBs use a more programmatic approach. Grant money based on non-
economic considerations is also provided to projects that are not viable from an economic
perspective.
• Suppliers - Due to government backing no immediate threat, however potentially high.
MDBs are based on the support they receive from their shareholders as well as their array of
financial policies and practices. Shareholder support is reflected in the capital backing MDBs
have received from their members, and in debt servicing obligations. To raise funds, MDBs
issue debt securities in a variety of currencies to both institutional and retail investors. These
securities are generally rated "B" or higher, and in the particular case of the World Bank they
are rated "AAA". These borrowings, coupled with their equity, are used to fund lending and
investment activities as well as general operations.

• Competition in the industry – Competition among the MDB is moderate as these

institutions offer similar terms to the government. As, a result, they compete for the
business in a market that is limited by the capacity of the country to take a loan.
Competition is also due to private cash flows.

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Company Analysis

The World Bank Is an International Financial Institution with a unique global partnership of
189member countries and offices in over 130 locations. The institution maintains a lot of
transparency and thus, all financial information is only available on its Company website. The total
Net Disbursement stood at 10091 for IBRD and 12221 for IDA in the financial year 2019, and the
Fixed Asset base for the companies stood at 283031 and 188553 respectively. The number of
employees working for the World bank group is more than 10000 employees in more than 130
offices worldwide.

Financial Analysis concerning The World Bank with its competitors is difficult as the MDBs among
themselves does not compete. Even The World Bank comes under Global institution and the other
MDBs like American Development Bank (AfDB), Asian Development Bank (ADB), Asian Infrastructure
Investment Bank (AIIB) comes under Regional Institution. Below there are some Financials As per the
MDBs.

EBR
Particulars IBRD IFC IDA AfDB ADB AIIB CAF IADB
D
Gross loan 3 4 6 9 6 77 6 7 5
growth (%)
Liquid 18 48 18 37 16 91 33 47 25
assets/adjuste
d total assets
(%)
Liquid 35 85 501 52 35 - 55 71 36
assets/gross
debt (%)
Gross 51.6 56.3 3.5 71 47.2 - 58.8 65.9 69.7
debt/adjusted
total assets (%)
Risk-adjusted 27 32 85 21 40 163 16 29 21
capital ratio
after
adjustments
(%)

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Net 1.7 5 -3.2 0.6 1.5 1.6 2 1.3 2.6

income/averag
e shareholders'
equity
Sources: - https://www.spglobal.com/ratings/en/research/articles/191016-
supranationalsspecialedition-2019comparative-data-for-multilateral-lending-institutions-11200126

RAC Ratio: - Risk-adjusted capital ratio is used to gauge a financial institution's ability to continue
functioning in the event of an economic downturn. It is calculated by dividing a financial institution's
total adjusted capital by its risk-weighted assets (RWA).

The threat/opportunity for The World Bank with respect to valuation of the bond is the Profit/Loss
which occurs due to the discounting curve associated with the currency in which the trade is issued.
So, if there is a depreciating discounting curve the Market Value of the bond will be less and vice
versa.

Project Management

The Project title provided by The World Bank Group was “Review and Verification of the Master
Data”. The activity involved reviewing and verification of the bonds and swaps trades. The project
was aligned with the financial perspective section of the balance score card. By verifying the trade
set we were able to rectify the impacts in the profit and loss of the organization. Any issue with the
trade setup will have an impact on the financial reporting for the firm. The deliverables for the
project was to review the term sheets for bonds and swaps with the Summit and Numerix One View
application so there be no errors in the trade set up. As the organization was migrating from Summit
to One View, we were also required to let the organization know if there were any deficiencies in the
new templates which can be verified by the concerned departments. After the verification of the
allotted trades, there was also a test run done by the system which helps us identify the errors if
any.

Performance Management

Due to the pandemic the internship was delayed by a month and I joined The World Bank as a
ShortTerm Temporary (STT) as on 22 nd April 2020. Initially we were trained in the system applications
which we had to use for our project. This training took a month and we started working on the
activity after the training session was over. I continued performing the given task till the last date of
my internship which was 30th June 2020. The expectation from the intern was the person should be
able to identify errors with the trade set up when the organization transfers the data from Summit

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to Numerix One View. If any error was identified in the process the intern had to raise an
observation so that it can be further looked upon.

To track the progress of the project the organization had a daily status call at 11:30 AM which lasted
for about 45 minutes on an average. Even if I needed any assistance, we were always welcomed by
the guide to talk regarding our grievances. The goal of the entire team was to help the organization
in transferring the data from the old platform to the new one. As the application was new it had
many issues with the template at the initial stage. I have shared many observations which in my
opinion could be good for the new platform. A number of by recommendations were also
considered for changes with the teams. Since the new application was taking a lot of time to rectify
the issues, they were not able to scrape out the previous application. This way they ended up using
both the platforms until year end. Many of the issues in the new application have now been rectified
and others are being worked upon.

Learning

My internship was based on bond and swap trade verification. Since we did not have topic in first
year, I did not had any knowledge about it except for the terms. Due to the work from home
situation I got enough time to study about what swaps are and how they function practically in the
market scenario. I would even approach my mentor in case I would have any doubts after studying.

From the IT technology front. I learned about two platform Summit and Numerix One View which is
used to save the trade details. I learned what things one should consider when migrating from one
application to another.

From the behavioral perspective I learned how to deal with people. World Bank being culturally
diverse organization, the standup team call would be with the entire team based out in different
location and countries.

I would observe and listen to what people would say in the calls even if it did not pertain to my
project. I learned it is very important to be polite even if you do not agree with your colleagues. One
should analyze the situation before reacting and jumping to conclusion.

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Intelligence

The World Bank does not recruit directly from the college. They provide the job description which
can be accessible from their website which is open to all. The interns are only hired if there is any
project available and the organization needs an extra hand. The department in which I had got the
internship was only because they needed extra hand to verify the trades setup. Anyone willing to
join the organization can apply for the internship/job from their online portal.

Feedback

Organization: - The bank could have planned the activity in a smoother manner, since at times when
the team would be busy with monthly closing activities, they were not able to give us enough time
which led to not enough work for us for 3 – 4 days.

Myself: - The pandemic situation was unexpected and I had never thought that we would have to
work remotely from home. Working from home involves more communication over emails and
phones. Had I known this I would have had spent some time in developing my writing skills, and
interaction skills.

I should have tried to understand where in the financial does my project impact, and in the present
scenario how is the bank managing to finalize numbers when both systems are live. This would have
given me an opportunity to study the financials of the company, and I would also have been able to
ask doubts about other areas of Profit and Loss and Balance Sheet.

This would also have been an opportunity to know more about an MDB and its operations which I
now realize I have missed.

IFMR GSB: - I would suggest if the college can include a subject on basics of financial markets in the
first-year curriculum. As per my experience majority of the internships companies in the financial
sector has requirements related to financial market and its products. It would become easy for
students to become aware of the fundamentals of financial markets and would help in clearing the
interviews for the internship. Regarding the process of placing students it would be an additional
advantage if the companies provide the job description in advance so that the students can prepare
according to the exact requirements of the organization. It would also help the candidate to decide
whether he/she is interested in the domain requirement and whether or not to opt for the
interview.

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