Lending operations of world bank, Microeconomics

Lending Operations of World Bank:

Resources of the Bank consist of the capital and borrowings. The capital of the bank is contributed by its 184 member-countries. Besides, the Bank raided capital by sale of bonds on the World's capital markets where the Bank is the World's largest non-government borrower in the international market. The Bank leads only to under-developed countries, and even among them it "graduated" its borrowers when per capita income reaches a threshold. The Bank marked or facilitated loans in one or more of the following ways:

• By making or participating in direct loans out of its own funds; or

• Out of funds raided in the market; or

• By guaranteeing the whole or part loans made by private investors through the investment channels.

In recent years, the Bank also moved into "co-financing", with governments and private banks and co-financiers with projects. However, since the mid-1980s when the debt crisis occurred, co-financing has become less popular with commercial banks, but governments have made much use of the Bank's expertise by putting a part of their foreign aid into the projects.

Before granting or guaranteeing a loan the Bank considers the following matters: 

i) The project for which the loan is asked has been carefully examined by a competent committee as regard the merit of the proposals.

ii) The borrower has reasonable prospects for repayment; 

iii) The loan is meant for productive purposes; and

iv) Except in special circumstances, the loan is meant to finance foreign exchange requirement of specific projects or reconstruction and development.

The amount of the loan granted by the Bank should not exceed 100% of its total subscribed capital and surplus. Rate of interest is determined by adding a spread of ‘1/2 of %' over the ‘pool rate' of outstanding borrowing of the Bank. In lending for development projects in developing countries, the Bank estimates a likely rate of return; this must be above a minimum 10 per cent for the project to go forward.

Posted Date: 11/9/2012 6:19:11 AM | Location : United States

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