Role of World Bank in International Financial Market

By | May 12, 2017

The World Bank Group consists of naturally the World Bank itself and the International Development Association (IDA), the International Finance Corporation and the Multinational Investment Guarantee Agency. Besides the World Bank Group, these are also multinational regional development banks for Latin America, Africa, and Asia. Though these are technically different from World Bank, their functioning is similar to that of the World Bank.

It generally makes medium term and long term loans for infrastructure projects. Lately, it has started lending to countries having Balance of Payments (BOP) problems, if they are willing to adopt growth-oriented economic policies. It requires government guarantee for making these loans. For these activities, it raises funds through subscriptions from member countries and by issuing bonds, which are generally meant for a private subscription. The World Bank operates on a very conservative 1:1 debt equity ratio and such commands an excellent credit rating on the World’s Capital Markets where the bulk of its resources are raised.

The standard rate of interest charged by the world Bank is half percent over its own borrowing cost. The effective rate is revised every six months. The World Bank lends in a basket of currencies representing its borrowings in the international capital markets. The projects financed by the World Bank require the borrower to call for worldwide tenders.