Finance

Functions of International Bank for Reconstruction and Development (IBRD)

International Bank for Reconstruction and Development. Also known as World Bank, the IBRD is an offshoot of the BrettonWoods Conference of 1944. Its main function is provision for long-term capital assistance to its member-countries for their reconstruction and development.

Functions of International Bank for Reconstruction and Development

The main functions of the Bank are:

1. To assist in reconstruction and development of the territories of its member-governments by facilitating investment of capital for productive purpose;

2. To promote foreign private investment by guarantees of or through participation in loans and other investments of capital for productive purposes;

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

4. To promote the long-range growth of international trade and maintenance of equilibrium in the balance of payments of members by encouraging international investment for the development of the productive resource of members.

The Bank may make loans directly to member-countries or it may guarantee loans granted to member countries. The Bank normally makes loans ‘for productive purposes like agriculture and rural development, power, industry, transport, etc. The total amount of the loan granted by the Bank should not exceed 100% of its total subscribed capital and surplus. The interest rate charged by the bank is the estimated cost to the Bank of borrowing money for a comparable term in the market and is uniform without distinction being made among borrowers. In addition to interest, a commission of 1% for the purpose of creating a special reserve against loss and 1/2% for administration expenses are charged.

Resources and Organisation of IBRD

Resources of the Bank consist of its capital and borrowings. The capital of the bank is contributed by its 16-0 member countries. India is the sixth largest contributor. Besides, the bank borrows in the international markets. The management of the bank is on the same lines as that of the IMF.

Evaluation. Besides lending activities the Bank renders a variety of technical assistance involving full-scale economic survey of the development potential of member countries or advice on particular projects. Most of its ‘endings have gone to developing countries, India being the single largest borrower. But. it is pointed out that difficulties are faced by developing countries in obtaining finance from it.

The Bank’s policy of requiring guarantee from the Government or the central bank of the country for loans granted to private enterprises has also been hindering large-scale assistance to private enterprises. The interest rate charged is said to be high in comparison with the returns from the projects for which the loans are made. However, it cannot be denied that the Bank has been rendering a useful service specially for the economic development of developing countries.

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