World Bank

Report on

World Bank

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 World Bank

The World Bank, established in 1944, is headquartered in Washington, D.C. It has more than
10,000 employees in more than 100 offices worldwide.

The World Bank is a vital source of financial and technical assistance to developing countries
around the world. Its mission is to fight poverty with passion and professionalism for lasting
results and to help people help themselves and their environment by providing resources,
sharing knowledge, building capacity and forging partnerships in the public and private
sectors
World Bank is not actually a bank; it is made up of two unique development institutions
owned by 187 member countries: the International Bank of Reconstruction and
Development (IBRD) and the International Development Association (IDA).
Each institution plays a different but collaborative role in advancing the vision of inclusive
and sustainable globalization. The IBRD aims to reduce poverty in middle-income and
creditworthy poorer countries, while IDA focuses on the world's poorest countries.
Their work is complemented by that of the International Finance Corporation (IFC),
Multilateral Investment Guarantee Agency (MIGA) and the International Centre for the
Settlement of Investment Disputes (ICSID).
Together they provide low-interest loans, interest-free credits and grants to developing
countries for a wide array of purposes that include investments in education, health, public
administration, infrastructure, financial and private sector development, agriculture and
environmental and natural resource management.

The challenge of the World Bank is to reduce global poverty.

The Bank focuses on achievement of the Millennium Development Goals that call for the
elimination of poverty and sustained development. The eight Millennium Development
Goals of World Bank are:
 Eradicate extreme poverty and hunger
 Achieve universal primary education
 Promote gender equality and empower women
 Reduce child mortality
 Improve maternal health
 Combat HIV/AIDS, malaria and other diseases
 Ensure environmental sustainability
 Develop a global partnership for development

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Mission of World Bank is

“To fight poverty with passion and professionalism for lasting results. To help people help
themselves and their environment by providing resources, sharing knowledge, building
capacity and forging partnerships in the public and private sectors. ”

The World Bank is like a cooperative, where its 187 member countries are shareholders. The
shareholders are represented by a Board of Governors, who are the ultimate policy makers
at the World Bank. Generally, the governors are member countries' ministers of finance or
ministers of development. They meet once a year at the Annual meetings of the Boards of
Governors of the World Bank Group and the International Monetary Fund.

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Operations, Products & Services

The World Bank's two closely affiliated entities, the International Bank for Reconstruction
and Development (IBRD) and the International Development Association (IDA) provide low
or no interest loans (credits) and grants to countries that have unfavourable or no access to
international credit markets. Unlike other financial institutions, World Bank does not
operate for profit. The IBRD is market-based, and uses its high credit rating to pass the low

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interest they pay for money on to borrowers—developing countries. They pay their own
operating costs.

Fund Generation

IBRD lending to developing countries is primarily financed by selling AAA-rated bonds in the
world's financial markets. While IBRD earns a small margin on this lending, the greater
proportion of its income comes from lending out its own capital. This capital consists of
reserves built up over the years and money paid in from the Bank's 185 member country
shareholders. IBRD’s income also pays for World Bank operating expenses and has
contributed to IDA and debt relief.

IDA is the world's largest source of interest-free loans and grant assistance to the poorest
countries. IDA's funds are replenished every three years by 40 donor countries. Additional
funds are regenerated through repayments of loan principal on 35-to-40-year, no-interest
loans, which are then available for re-lending. IDA accounts for more than 40% of World
Bank lending.

The World Bank offers a wide range of lending and non-lending solutions to meet the
world's development challenges.

INVESTMENT AND DEVLOPMENT POLICY OPERATIONS

Investment operations focus on the long-term (5 to 10 years) and finance goods, works and
services that support economic and social development projects. These investment projects
encompass a broad range of sectors - from agriculture to urban development, rural
infrastructure, education and health.
Development policy operations typically run from one to three years, and provide quick-
disbursing external financing to support government policy and institutional reforms.
Originally designed to provide support for macroeconomic policy reforms, development
policy loans, credits and grants now focus more on structural, financial sector and social
policy reforms - improving, for example, the management of public resources, the
functioning of the judiciary or promoting good governance.
In all the projects it finances, the World Bank takes its responsibility to shareholders, donors
and investors seriously. The Bank works diligently to make sure that procurement for
projects is conducted appropriately, so that loan and other funds are used for their intended
purposes.

BANKING PRODUCTS

The World Bank promotes an efficient use of financial resources through traditional and
innovative financial services, including the use of adequate risk mitigation tools. The

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International Bank for Reconstruction and Development (IBRD) offers eligible member
countries access to a full menu of banking products and services for risk management, and
flexible solutions for managing currency, interest rate and commodity risk exposures.
The banking products provide ample flexibility to customize terms like repayment
schedules, currency selection, including local currency, and interest rate fixity.

TRUST FUNDS AND GRANTS

Trust funds are financial and administrative arrangements the World Bank has with an
external donor that leads to grants, credits, loans or guarantees for high-priority
development needs, such as technical assistance, advisory services, debt relief, post-conflict
transition and co-financing. Trust funds are accounted for separately from the Bank's own
resources.
The Bank also provides grants that are either funded directly or managed through
partnerships. Most grants are designed to encourage new ideas, approaches and solutions
to development problems; organizations working together; and participation by
stakeholders at national and local levels.

GUARANTEES

The World Bank Guarantee program meets the growing need many commercial lenders
have for products that lesson political risk, when they consider financial investment in
developing countries where there is an extra element of risk.
The Bank's basic objective in offering guarantees is to pull together private capital for
investment projects on a "lender of last resort" basis. The Bank's presence in these
transactions is seen by investors as a stabilizing factor, because of the World Bank's long
term relationship with the countries and the policy support the Bank provides to the
governments.

NON-LENDING ACTIVITIES

The World Bank's vast research, analytical and technical capabilities are a vital part of the
Bank's contribution to development. Use of these services can help member governments
adopt better policies, programs and reforms that lead to greater economic growth and
poverty reduction. Products range from reports on key economic and social issues, to policy
notes, to knowledge-sharing workshops and conferences.

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Loans:

Through the IBRD and IDA, World Bank offers two basic types of loans and
credits: Investment operations and Development policy operations.

Countries use investment operations for goods, works and services in support of economic
and social development projects in a broad range of economic and social sectors.
Development policy operations (formerly known as adjustment loans) provide quick-
disbursing financing to support a country’s policy and institutional reforms.

Each borrower’s 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 and
implementation plan, as well as a loan disbursement schedule. It supervises the
implementation of each loan and evaluates its results; the borrower implements the project
or program according to the agreed terms. As more than 30% of staff is based in over 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
undisbursed credit balances. For FY09 commitment fees have been set at 0.0 percent.

Trust Funds and Grants:

Donor governments and a broad array of private and public institutions make deposits in
Trust funds that are housed at the World Bank. These donor resources are leveraged for a
broad range of development initiatives. The initiatives vary significantly in size and
complexity, ranging from multibillion dollar arrangements—such as Carbon Finance; the
Global Environment Facility; the Heavily Indebted Poor Countries Initiative; and the Global
Fund to Fight AIDS, Tuberculosis, and Malaria—to much smaller and simpler freestanding
ones.

The Bank also mobilizes external resources for IDA concessionary financing and grants as

well as funds for non-lending technical assistance and advisory activities to meet the
special needs of developing countries, and for co-financing of projects and programs.

Direct World Bank grants to civil society organizations emphasize broad-based

stakeholder participation in development, and aim to strengthen the voice and influence
of poor and marginalized groups in the development process.

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IDA grants—which are either funded directly or managed through partnerships—have

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 gases

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Financing

World Bank Debt Products

The World Bank issues a range of products designed for different investor groups chooses
timing, currency and maturity of new issues according to market demand, seeks to price
fairly in the primary market, monitors the secondary market performance of its issues, and
aims for broad geographic placement to a wide range of investors who trade on different
signals. 

Benchmark and Global Bonds

World Bank benchmark bonds offer institutional investors high secondary market liquidity
and spread performance. “Global” benchmarks are issued in major international currencies. 

Non Core currencies

World Bank bonds offer retail and institutional investors potential yield pick-up in their local
currency without credit risk. 

Structured Notes

World Bank bonds offer institutional investors customized terms such as yield and
currencies for enhanced yield potential. 

Discount Notes

The World Bank Discount Notes Program offered in the US$ and Eurodollar markets provide
flexible and customized short-term debt instruments with maturities from 1-360 days. 

Sustainable Investment products

Customized plain vanilla or structured notes to meet the demand of sustainable

investors seeking to make positive impact.

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IBRD Financing
IBRD’s market presence and strong financial policies provide a solid foundation for offering
clients a broad menu of financing options at highly competitive market-based terms.

 IBRD Flexible Loans

Borrowers benefit from long maturities (up to 30 years), transparent LIBOR-based

pricing, built-in hedging products to manage financial risks over the life of the loan,
and the ability to customize repayment schedules according to project needs or debt
management requirements.

 Local currency loans

Through options embedded in the IBRD Flexible Loan borrowers have access to local
currency at the time of disbursement or at any time during the life of the loan to
reduce future vulnerabilities to foreign exchange risk.

 Financing for sub nationals

The World Bank Group offers sub nationals two options: IBRD financing with a
sovereign guarantee on the same terms as national governments, or financing
without a sovereign guarantee on commercial terms through the joint IFC-World
Bank Sub national Finance program.

 Contingent financing

Gain flexibility to rapidly fund financing requirements due to an unexpected a

shortfall in resources. The IBRD Deferred Drawdown Option – or DDO – is a
committed line of credit with similar pricing and the same built-in risk management
features and flexibility as the IBRD Flexible Loan.

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IBRD Lending Rates and Loan Charges

 IBRD lending rates include a standard lending spread comprising a contractual

spread of 0.50% and an annual maturity premium. The lending rate also includes a
charge to cover the bank's cost to fund the loans relative to the base lending rate
and a market risk premium (for fixed spreads).  For loans for which the Invitation to
Negotiate was issued prior to July 23, 2009, and which have been approved by the
Executive Directors by November 30, 2009, the lending rate will be 0.20% lower
based on a contractual spread of 0.30%. DDO disbursements are priced at the
prevailing spread over 6-Month LIBOR at the time of drawdown. 

 Lending rates for loans approved after June 30, 2010, including disbursements of
IBRD loans with a Deferred Drawdown Option (DDO) after this date, include an
annual maturity premium of 0.10% for loans with average repayment maturities of
greater than 12 to 15 years, or 0.20% for loans with average repayment maturities of
greater than 15 to 18 years. 

 The variable spread is recalculated every January 1 and July 1. 

The fixed spread is determined at loan signing and remains constant over the life of
the loan.  “Fixed Spread” means the Bank's fixed spread for the initial loan currency
in effect at 12:01 a.m. Washington, D.C. time, one calendar day prior to the date of
the Loan Agreement.

 As measured by average repayment maturity of the loan at commitment (i.e. board

approval). The calculation of the average repayment maturity for DDOs will begin at
loan effectiveness for the determination of the applicable maturity premium.

 All new Euro-denominated loans for which the invitation to negotiate was issued on
or after July 31, 2010 will have Euribor as the base lending rate.

 Development Policy Loans with a Deferred Drawdown Option (DPL DDO) carry a
0.75% front-end fee, plus a 0.50% renewal fee; and Catastrophe Risk or Cat DDOs
carry a 0.50% front-end fee, plus a 0.25% renewal fee.

  Variable Spread  Fixed Spread 

Greater than Greater Greater than Greater than
Average
Up to 12 12  than 15  Up to 12 12  15 
Maturity(years)
to 15 to 18 to 15 to 18
USD LIBOR LIBOR LIBOR LIBOR LIBOR LIBOR
+0.28% +0.38% +0.48% +0.60% +0.85% +1.15%
EUR EURIBOR EURIBOR EURIBOR EURIBOR EURIBOR EURIBOR
+0.28% +0.38% +0.48% +0.60% +0.85% +1.15%
JPY LIBOR LIBOR LIBOR LIBOR LIBOR LIBOR
+0.28% +0.38% +0.48% +0.50% +0.75% +1.05%

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Front-End Fee  0.25%

  Variable Spread  Fixed Spread 

Greater 
Average Greater than 12 
Up to 18 Up to 12 than 15 
Maturity(years) to 15
to 18
USD LIBOR +0.28% LIBOR +0.60% LIBOR +0.75% LIBOR +0.95%
EURIBOR EURIBOR EURIBOR
EUR EURIBOR +0.28%
+0.60% +0.75% +0.95%
JPY LIBOR +0.28% LIBOR +0.50% LIBOR +0.65% LIBOR +0.85%
Front-End Fee  0.25%

Credit Enhancement

Credit enhancement is an important component of IBRD’s financial solutions menu.  The

Bank has a comparative advantage in mitigating political risks, particularly regulatory and
contractual risks. IBRD guarantees, therefore, act as catalytic agents to boost the confidence
of the private sector and stimulate investment in member countries, complementing other
financing and risk management tools offered by the Bank.

A World Bank guarantee is seen as by investors as a stabilizing factor in transactions with

sovereign governments. By covering a government or government entity’s failure to meet
specific contractual obligations to a private or public project, World Bank guarantees have
helped attract direct private sector investment in oil, gas and mining, power, telecom,
transport, and water projects; enhanced private sector participation in privatizations and
public-private partnerships, and helped governments access international capital markets
on more favourable terms.  In addition to the leverage effect, guarantees have also played a
valuable role in easing the entry of emerging economies into international capital markets
by helping them acquire a track record of credible policy performance.

IBRD guarantees are available to all countries eligible for borrowing from IBRD.  In addition,
the World Bank also has guarantee instruments for members of IDA.

Partial Risk Guarantee

Covers debt service defaults on a loan to a private sector project caused by a government's
failure to meet its contractual obligations related to a private project.  Such guarantees
allow public sector projects to reduce political or regulatory risks that can hamper private
investment. 

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Partial Credit and Policy-Based Guarantees

Cover debt service defaults on a specified portion of a loan or a bond, allowing public sector
projects to access financing with extended maturities and lower spreads.

Hedging Products

Hedging products for risk management are available in one of three ways: built into
the IBRD Flexible Loan, on a stand-alone basis to manage risk on the entire portfolio of
World Bank loans, or on a stand-alone basis to manage debt owed to other creditors.

Currency conversions and swaps

Alter the currency terms of a loan obligation if risk management requirements have
changed since the initial choice of loan currency. To access built-in conversion options
simply request the desired type and terms of the conversion. For IBRD loans without
embedded options or debt owed to creditors other than IBRD, access swaps by signing a
Master Derivatives Agreement with IBRD. Availability of currency hedging products
presupposes a sufficiently liquid swap market in the desired currency.

Interest rate conversions and swaps

Transform the interest rate basis of a loan obligation from a fixed to floating rate or vice
versa. To access built-in conversion options simply request the desired type and terms of
the conversion. For IBRD loans without embedded options or debt owed to creditors other
than IBRD, access swaps by signing a Master Derivatives Agreement with IBRD.

Interest rate caps and collars

Limit interest rate variability with a cap or a collar. Caps set an upper limit on the variable
interest rate of the loan. Collars set an upper limit (a cap) and a lower limit (a floor) on the
interest rate of the loan. Both require payment of an up-front premium to purchase the
interest rate protection

Commodity swaps

 
Links IBRD debt service payments to the prices of a particular commodity or commodities in
order to reduce commodity price risk. One set of cash flows is linked to the market price of a
commodity or index. The other is a fixed cash flow or a cash flow based on a variable rate of
interest. In this way, a commodity swap is a hybrid, spanning interest rate swap and

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commodity swap markets. IBRD commodity swaps are individually negotiated transactions
provided on a case-by-case basis.

Target for Intervention of World Bank Group Agencies:

Agency Year Number of Main Activity Target for

Founded Member Categories Intervention
Countries
IBRD: International 1944 184 Loans, Guarantees, Developing countries
Bank equity investments, with average income
for Reconstruction and consultancy and high credibility

Development
IDA: International 1960 164 Loans at heavily Poorest devloping
Development subsidized conditions countries
Association
IFC: International 1956 175 Loans, Equity Entirely Private
Finance Corporation investments, projects
arranging in developing
of loan syndicates, countries
indirect methods of
support

MIGA: Multilateral 1988 163 Stimulates foreign Potential investors in

Investment Guarantee investment in developing countries
Agency devloping countries by
offering guarantees
against political risks
ICSID: International 1966 169 Developing foreign Target investment
Center for Settlement investments in countries for foreign
of Investment Disputes emerging markets by operations
means of legal advice
and settling disputes

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