World Bank
What is World Bank?
The World Bank is an international institution that lends to developing countries for long-term projects and reforms intended to reduce poverty.
Two arms do most of the lending. The IBRD lends to middle-income and creditworthy lower-income governments at rates close to what the Bank itself pays to borrow, funded by selling bonds on world capital markets against the guarantee of member countries. IDA serves the poorest countries with credits carrying very low or zero interest, long maturities and a grace period, plus outright grants, funded mainly by donor contributions. The wider World Bank Group also contains the IFC, which invests in private firms, and MIGA, which insures investors against political risk. Money is tied to specific projects or policy programs and released against progress, which is the practical difference from the IMF's crisis lending.
World Bank: a worked example
Two governments want to electrify rural districts. A middle-income country with a decent credit rating borrows from the IBRD at a rate a little above what the Bank pays on its own bonds, cheaper than it could raise alone but still a commercial-style loan repaid over decades. A very poor country with no market access goes to IDA instead and receives a credit at close to zero interest, repayable over a long horizon after a grace period, or part of it as a grant. Same institution, same purpose, two windows sorted by how poor and how creditworthy the borrower is.
The mistake students make with world bank
Students often describe the World Bank as an aid agency handing out free money. Most of what it provides is credit that has to be repaid, and IBRD borrowers pay something close to market rates. The other slip is putting the World Bank in charge of currency crises and bailouts. Those are IMF business; the World Bank is looking ten or twenty years out at roads, power, schools and health systems.
World Bank questions
What does the World Bank actually do?
The World Bank finances long-term development, lending for infrastructure, health, education, agriculture and policy reform in developing countries. It also supplies research, data and technical advice that shape how those projects are designed. Funding comes from bonds sold on capital markets and from contributions by richer member governments.
What is the difference between IBRD and IDA?
IBRD lends at near-market terms to middle-income and creditworthy poorer countries, while IDA offers grants and near-interest-free credits to the poorest ones. IBRD raises money by issuing bonds backed by member guarantees; IDA depends mostly on periodic donor replenishments. A country can qualify for both while it is in between.
Is the World Bank the same as the IMF?
No, the World Bank funds long-run development and the IMF handles short-run balance of payments crises. The Bank pays for projects and reform programs that take years to bear fruit, while the Fund lends to stabilize a currency or a budget under stress. They were created at the same Bretton Woods conference and are headquartered in the same city, which is why they get confused.
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Common comparisons
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