Page 267 - DMGT401Business Environment

Business Environment

Notes 5. To conduct its operations with due regard to the effect of international investment on
business conditions in the territories of members and, in the immediate post-war years, to
assist in bringing about a smooth transition from a wartime to a peacetime economy.

12.2.2 Activities of IBRD

The World Bank's two closely affiliated entities-the International Bank for Reconstruction and
Development (IBRD) and The International Development Association (IDA) - provide low or no
interest loans and grants to countries that have unfavourable or no access to international credit
markets.

Fund Generation

IBRD finance is lending by selling AAA-rated bonds in the world's financial markets. While
IBRD earns a small margin on this lending, the greater proportion of its income comes from
lending out its own capital. This capital consists of reserves built up over the years and money
paid in from the bank's 184 member country shareholders. IBRD's income also pays for World
Bank operating expenses and has contributed to IDA and debt relief.

IDA, the world's largest source of interest-free loans and grant assistance to the poorest countries,
is replenished every three years by 40 donor countries. Additional funds are regenerated through
repayments of loan principal on 35-to-40-year, no-interest loans, which are then available for re-
lending. IDA accounts for nearly 40% of our lending.

Loans

IBRD offers two basic types of loans and credits.
Investment loans are made to countries for goods, works and services in support of economic
and social development projects in a broad range of economic and social sectors.
Development policy loans (formerly known as adjustment loans) provide quick-disbursing
financing to support countries' policy and institutional reforms.
The Bank may guarantee, participate in, or make loans to any member or any political sub-
division thereof and any business, industrial, and agricultural enterprise in the territories of a
member.
Each borrower's project proposal is assessed to ensure that the project is economically, financially,
socially and environmentally sound. During loan negotiations, the bank and borrower agree on
the development objectives, outputs, performance indicators and implementation plan, as well
as a loan disbursement schedule. The Bank ensures that the proceeds of any loan are used only
for the purposes for which the loan was granted, with due attention to considerations of economy
and efficiency and without regard to political or other non-economic influences or considerations.

Grants
Grants are given for development projects by encouraging innovation, co-operation between
organizations and local stakeholders' participation in projects. In recent years, grants have been
used for numerous purposes. Some of them are:
1. Relieve the debt burden of heavily indebted poor countries
2. Improve sanitation and water supplies

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