Let us make an in-depth study of the international bank for reconstruction and development:- 1. Introduction to I.B.R.D 2. When I.B.R.D. was Set Up?  3. Capital Structure:  4. Principal Purposes or Objectives of the Bank 5. Principal Activities Performed to Achieve these Purposes 6. Characteristics of Bank Loan 7. Subsidiaries of the World Bank 8. Industrial Finance Corporation (IFC) 9. Other Helps Extends By I.B.R.D. and Other Details.

Introduction to I.B.R.D:

The International Bank for Reconstitution and Development (popularly known as World Bank) was set up as a result of the decision taken in Bretton Woods Conference New Hampshire.

The conference was held in July 1944 and attended by 44 nations.

There it was decided to set up two organisations i.e., (a) the I.M.F. and (b) the I.B.R.D., to solve the monetary and financial problems of the less developed countries likely to be faced in Post-World War II period.

When I.B.R.D. was Set Up?


The I.B.R.D. or World Bank was set up on December 27, 1945. When its Articles of Agreement was signed by 29 members Government in Washington. On 30th June, 1996, 185 countries were its members. If a country resigns its membership, it is required to pay back all loans with interest on due dates. If the Bank incurs a financial loss in the year in which a member resigns, it is required to pay its share of the loss on demand.

Capital Structure:

The I.B.R.D. was started with an authorised capital of $ 10 billion divided into 1,00,000 shares of $ 1,00,000 of this $ 9,400 million was actually subscribed. On 30th June 1988 the authorised Capital Stock of the I.B.R.D. Comprised 7,16,500 authorised Shares of the par value of S.D.R. (Special Drawing Rights) 1,00,000 each. In July 1994 the total authorised bank capital was $ 185 billion with a capital increase of $ 9.3 billion.

Principal Purposes or Objectives of the Bank:

The principal purposes as set forth in its Articles of Agreement (or charter) are as follows:

1. To assist in the reconstruction and development of its member countries by facilitating the investment of capital for productive purposes, thereby promoting long range growth of international trade and improvements in standard of living.


2. To promote private foreign investment by guarantees of and participation in loans and other investments made by private investors.

3. When private capital is not available or reasonable terms to make loans for productive purposes out of its own resources or the funds borrowed by it.

4. To arrange the loans made or guaranteed by it in relation to international loans through other channels so that more useful and urgent small and large projects are dealt with first.

Principal Activities Performed to Achieve these Purposes:

In order to achieve these purposes, the charter authorizes the World Bank to engage in the following financing activities:


(i) It may lend funds directly, either from its capital funds or from the funds it borrowed in private investment markets.

(ii) It may guarantee loans advanced by other or it may participate in such loans.

(iii) Loans may be advanced to member countries directly or any of their political sub-divisions or to private business or agricultural enterprises in the territories of members.

(iv) It has provided loans to the developing countries for development projects and programmes because credit rating of many developing countries is poor—hence they feel difficulties in raising funds in international capital markets.

(v) The World Bank is a vital source to the developing countries, when the member Government in whose territory the project is located, is not the borrower, the World Bank asks the member Government for a guarantee.

Characteristics of Bank Loan:

Some basic provisions of Bank Loan may be mentioned as such:

1. They are meant for high priority productive purposes mainly to develop the infrastruc­ture for the development such as:

(a) Electric supply,

(b) Power,


(c) Rail,

(d) Roads,

(e) Ports and inland waterways airlines and airports etc.

2. They must be used to meet only the foreign exchange components of the projects.


3. The interest rate of the bank is somewhat lower in relation to market rate.

4. From July 1, 1982-Bank adopted a policy of resulting its lending rates half-yearly.

Subsidiaries of the World Bank:

There are two subsidiaries of the World Bank. They are:

1. International Development Association (I.D.A.), and


2. International Finance Corporation (I.F.C.)

1. International Development Association (IDA):

This association was set up in 1960. It is an aiding centre for those developing countries who look up to it for financial assistance. It is an association of donor countries who have come under the “Aegis” (protection of) of the World Bank. It offers credit to the eligible developing countries on extremely favourable terms.

The main criteria for the allocation of I.D.A. (International Development Association) credit are the per capita income of the recipient country. Countries which have an annual per capita Gross National Product (G.N.P.) of less than $ 681 (in 1989) dollars are eligible for I.D.A. credits. Other parameters taken into consideration are Country’s credit Worthiness, its accessibility to commercial borrowing its, economic performance, the density of its population and the existence of viable projects in the borrowing nations.

I.D.A. interests free credit are available to Governments only and may be obtained on payment of nominal service charges at 0.75% per annum. The period of repayment of loan is 40 years. The purposes for which the I.D.A. has advanced the credits are agriculture, rural development education, energy, industrial development and finance, population and nutrition, transportation and tourism, telecommunication etc.

India has been the largest beneficiary from I.D.A. Since its inception India’s share is 40% of I.D.A. Funds. India has not been able to utilise this aid fully, both because of infrastructural difficulties at home and the adverse conditions imposed by donor countries governing such aid.

Industrial Finance Corporation (IFC):


This corporation was set up in 1956. It extends credits to private business enterprises. It provides equity and loan capital for private enterprises in association with private investors and management, encourages the development of local capital market and stimulates the international form of private capital.

It supports joint ventures which provide opportunities to combine domestic knowledge of market and other conditions with the technical and managerial experience available in the industrial nations. The corporation has about 200 members. Its paid up capital is about 544 million dollar and its retained earing were 205 million dollars.

The project, for which the corporation advances assistance, must satisfy the following conditions:

(i) It should have the prospects of earning profits,

(ii) It should boost the economy of the best country,

(iii) Local investors should be able to participate in the project in the beginning of the project or later,


(iv) The required funds for the project are not available from private investors at reasonable terms,

(v) The management should be capable and experienced,

(vi) The sponsor of the project has a substantial holding in the enterprise.

India is the topmost borrower of I.D.A. Loans. The prospects of getting larger funds from the World Bank seem to be bleak because of constraints on resources. The situation is not much better as regards I.D.A. Loans because of the failure of the U.S.A. to provide funds for its replenishment.

Other Helps Extends By I.B.R.D.:

Various other helps have been provided by the World Bank and they are as follows:

1. The I.B.R.D. helps in providing training, technical assistance, inter-organisational co-operation, research and studies and in the settlement of investment disputes of its members.


2. The Bank has established a Staff College, known as the Economic Development Institute (E.D.I.) for training senior officials of the member developing countries. It helps to improve the management of their economies and to increase the efficiency of their investment programmes.

3. It provides technical assistance to the needy country under two categories: (a) engineering related such as engineering design and construction supervision, and (b) Institu­tion related such as diagnostic policy and institutional studies, management support and training.

4. The bank also extends inter-organisational Co-operational. Co-operation between the I.B.R.D. and other international organisation like the F.A.O.; the W.H.O.; the G.A.T.T.; the United Nations Environment Programme (U.N.E.P), the U.N.D.P., the United Nations Industrial Development Organisation (U.N.I.D.O.) the Industrial Fund for Agricultural Development (I.F.A.D.) etc.

5. Centre for Settlement of Investment Disputes: The bank has established the International Centre of Settlement of Investment Disputes (I.C.S.I.D.) between States and Nationals of other states. All members of the Bank have signed over the paper. The Bank in this has successfully mediated in solving many international investment disputes such as the River Water Dispute between India and Pakistan and of the Suez Canal between Egypt and the U.K.

In the end we can say that the Bank’s overall performance must be judged not on its lending but on its success in providing advice and technical assistance. The Bank is laying greater emphasis on developing human resources health and nutrition and on environment.

Economists View over the Working of the I.B.R.D.:

Economists are of this view that the Bank has been quite successful in achieving the principal objective of reconstruction and developing. No doubt it has helped in the reconstitution of Europe after the destruction in the Second World War. But some economists are not lacking in saying that its lending policies are not proper and satisfactory.


Further they have written that:

1. The Bank charges a very high rate of interest on loans as also an annual commitment charge on undistributed balance.

2. Further they have said that it has failed to meet the financial needs of the developing countries fully. Its loan has just touches the fringes of the total capital requirements for their economic and social uplift.

3. The lending procedure of the bank is faulty because it lays emphasis on the repaying capacity of the borrowing country before granting any loan. Such a condition is not proper rather it is harsh and discriminatory for developing countries which are mostly poor and need financial help on a large scale.

4. The Bank has also been criticised for being discriminatory in its purpose-wise and region-wise assistance to its members.

India and the World Bank:

As we are aware that India is one of the founder members of the Bank and has occupied a permanent seat on its Board of Executive Directors for a number of years.

Therefore, India is very much attached and is in link with the bank and has received many benefits which are as follows:

1. The Bank has extended assistance to India in its planned economic development by granting loans, conducting field surveys, rendering expert advice and training Indian personnel at the E.D.I. (Economic Development Institute).

2. The Bank has established a Chief of Mission of the Bank at New Delhi, who monitors the aided projects in India.

3. It is said that India has been the largest receiver of the World Bank assistance.

4. The Bank also helped India to solve amicably its river water dispute with Pakistan.

In the end it can be said that India has gained much for being the member of the World Bank for the development of agriculture, industry, energy and transport. In future India, will have to borrow more from the Bank.