Rethinking the Financial Design of the World Bank

Since their inception, through 2012, the institutions comprising the World Bank group have been involved in lending nearly a trillion dollars. In this paper, we focus on the IBRD, which is the core of the World Bank. The IBRD has the potential to continue to grow and be an important player in official financial flows, supporting critical long-term development projects with large social returns, in sectors ranging from infrastructure, social sectors, or environment. The paper argues that this is unlikely to occur in the absence of serious changes in the Bank’s financial structure and lending practices. The relative slow pace of loan growth can be tied directly to difficult constraints both in terms of how the IBRD manages its leverage and equity increases – the gearing ratio has stayed materially unchanged, and there have been only four equity raises since the inception of the World Bank - a period which has seen four global recessions. This paper seeks to outline the internal and external constraints to capital and gearing, and examines why such constraints have arisen. Subsequently, the paper examines some options that could overcome these constraints.