The World Bank and its loan operation characteristics

Wang Hua published in: Shenzhen Finance, No.3, 1995

As far as its purpose is concerned, the World Bank is the largest policy bank in the world. The purpose of the World Bank has a strong color of development and assistance: to solve the long-term capital needs of member countries for economic recovery and development by organizing and providing long-term credit and investment.

I. background and organization of the world bank

the world bank is actually a world bank group. It includes the International Bank for Constructlon and Development-ment-IBRD, the International Development Association (IDA), the International Finance Corporation (IFC) and other institutions. Usually, the World Bank we refer to mainly refers to the International Bank for Reconstruction and Development. It is an international financial institution established in December 1945 with the International Monetary Fund according to the International Bank for Reconstruction and Development Agreement signed at the Bretton Woods Conference. It officially started business in June 1946, and became a financial business institution of the United Nations and a specialized agency under the United Nations the following year. Its headquarters is located in Washington, USA. It also has offices in Paris, new york, London, Geneva, Tokyo and United Nations Headquarters. In addition, it has representative offices and permanent representatives in many developing countries. The International Bank for Reconstruction and Development and the International Development Association are actually two brands of one institution. The International Development Association was established in September 196, which is the product of long-term struggle in developing countries. The three main institutions of the World Bank play different roles in loan and credit activities.

The highest authority of the World Bank is the Board of Directors, which consists of directors and deputy directors appointed by each member country. The directors and deputy directors are usually senior officials such as finance ministers or central bank governors of member countries. The main functions of the Board of Directors include approving the admission of new members, increasing or decreasing working capital, suspending membership, and deciding on the distribution of bank net income or other major issues. The standing body of the World Bank is the Executive Board, which handles the daily business of the Bank when the Board is not in session.

The World Bank's capital comes from the shares subscribed by member countries. The initial approved capital is 1 billion US dollars, divided into 1, shares, each of which is 1, US dollars. The more shares subscribed, the more voting rights it has. The United States is the country with the largest subscribed share capital and holds the most shares in the World Bank, with 19.58% voting rights. The other four countries with the largest voting rights are Japan, Britain, Germany and France, and China has 3. An executive director can be selected separately, and the World Bank has increased its capital several times since then, and it has also raised funds by issuing bonds and borrowing in the international market, interest income and other income as the source of funds for issuing loans.

Second, loan policy and payment terms:

World Bank loans are long-term loans provided by the World Bank to developing member countries, mainly for government-guaranteed projects, and finance some construction projects with long construction period and low profit rate, which are necessary for the country's economy and development.

The World Bank loans only to its member countries. The member countries participating in the International Bank for Reconstruction and Development must be members of the United Nations and the International Monetary Fund. World Bank loans are mainly divided into "hard loans" and "soft loans". The so-called "hard loan" refers to the interest-bearing loan of the International Bank for Reconstruction and Development. Most of the funds it raises are required to pay interest, so the funds it lends are also charged interest. "Hard loan" is calculated in US dollars. Interest is charged for the part that has been shipped, and the commitment fee of .75% is charged for the part that has not been withdrawn after signing the agreement. The annual interest rate of "hard loans" is about 7%, and it fluctuates every six months with the international capital market interest rate. The change of World Bank loan interest rate lags behind the capital market interest rate, and the change is relatively smooth. The so-called "soft loan" refers to the interest-free credit of the International Development Association. In terms of special drawing rights (SDR), the "soft loan" only charges a handling fee of .5% every year. It is only lent to the governments of poor member States, and the per capita national income is below $41. The per capita national income is 41? Member States between $835 can provide mixed loans, both "hard loans" and "soft loans".

The loan policy of the World Bank is as strict as the loan conditions, and it is formulated according to the International Bank for Reconstruction and Development Agreement, the International Development Association Agreement, the general principles of the International Bank for Reconstruction and Development loan agreement and the General Principles of the International Development Association credit agreement.

Generally speaking, the loan policies and conditions are mainly reflected in the following points:

1. It is limited to member countries with repayment ability and countries with repayment ability without compensation, and the World Bank will not consider lending to them. For non-member countries, the loan target is only the government, and the loan needs to be guaranteed by the governments of member countries and institutions recognized by the central bank or the World Bank to ensure the repayment of principal and interest and other expenses.

2. Loans must be used for specific projects, that is to say, World Bank loans are related to projects, and these projects need to be strictly selected. Borrowing countries need to provide the bank with detailed information related to loan projects, including relevant political, economic and financial conditions. And only when the applicant country or project really cannot obtain loans from other channels on reasonable terms will the World Bank consider its application or provide loan guarantee.

World Bank loans to projects usually only account for about 5% of the project investment, while the other half of the investment needs to be solved by the borrowing country with domestic matching funds (including labor conversion investment). Of the loans provided by the World Bank to engineering construction projects, usually the project unit can only get 4% of the foreign exchange, and the rest is directly paid by the World Bank to the material suppliers and labor contractors in project bidding and procurement.

3. Tight supervision: Although the World Bank loan projects are spread all over many countries and regions in the world, the World Bank's strict supervision of the projects is universally recognized. The World Bank has formed a set of rigorous and scientific project management procedures and the corresponding project cycle. Loans can only be used for approved projects and cannot be used for other purposes. The supervision of the project is detailed to the progress, management and storage of materials, etc. The World Bank regularly sends experts to the project site for supervision. These experts include not only financial experts, but also various engineering and technical experts who are familiar with the project content, listen to the opinions of the project unit, check the implementation of the project, and ask the borrower to provide some relevant actual information. The World Bank has the right to suggest that the project be revised.

4. Convenient withdrawal: World Bank loans are allowed to be withdrawn in any currency, and can be freely purchased in all member countries and the awarding country Switzerland. This is much more free and flexible than using other loans and export credits, and there is also a lot of choice for imported goods to introduce technology. The World Bank uses different loan currencies for contractors and suppliers of engineering projects. Generally, payment is made in the currency of the country, but if the contracted or supplier purchases imported materials, payment is made in the currency of the country where the materials are exported.

5. non-military and non-political; The World Bank will not provide loans for military projects and projects for political purposes.

III. Characteristics of World Bank loans:

World Bank loans have the advantages of long term, low interest rate and convenient withdrawal. However, the procedures are strict and need to be linked with specific projects.

1. Long loan term: The longest hard loan term of the World Bank is 2 years, with an average of 17 years and a grace period of five years. Starting from the sixth year, the principal and interest will be paid every year, while in the first five years, only the interest will be paid, not the principal. The longest term of soft loans is 5 years. The grace period is 1 years. That is, there is no need to repay the principal in the first 1 years, but it will be repaid in two installments every year from the eleventh year. The specific term depends on the per capita GNP of the borrowing country. Due to the long loan period, the borrowing country has great flexibility in capital allocation, and accordingly, the proportion of capital flow can be reduced, which is conducive to improving the value-added ability of funds.

2. Low loan interest rate: The World Bank's loan funds come from the paid-in share capital of member countries, but most of them are medium-and long-term bonds issued in the capital market. Due to the high credit rating of these bonds and the lower financing cost than other banks, the loan interest rate is correspondingly low.

3. The payment method of the loan is unique; The World Bank loan payment method has a complete set of prescribed methods to ensure that the loan will not be misappropriated. Although there are many loan payment methods, they can be generally divided into two types: reimbursement withdrawal application payment and special commitment application payment, and all loan projects need to set up working capital accounts. When the project is approved, the World Bank pays millions of dollars in advance in the working capital account (the World Bank does not require which bank to open this account, but requires the bank where it is located to submit a letter of guarantee to ensure that the World Bank loan will not be used for other purposes and that the payment will be guaranteed according to the customer's instructions). According to the progress of the project, the project implementation unit classifies and summarizes the relevant documents of the project according to the categories determined by the World Bank and the project unit in advance, fills in a payment letter with a specific format, and is signed by the authorized person, and reimburses the World Bank for the money to replenish the working capital account. For the bulk materials and services in the project construction, international or domestic competitive bidding is adopted. Under the principle of economy and efficiency, the World Bank will provide equal opportunities for all qualified bidders in developed and developing countries, so as to achieve full competition between suppliers or contractors and enable borrowers to obtain high-quality goods or projects at lower prices. And can effectively prevent graft in engineering or material procurement. If the supplier of the borrowing country wins the bid, it can give preferential price to encourage the borrowing country to develop its own industry.

4. The loan procedures are strict: the loan is only lent to the governments of member countries or public and private institutions guaranteed by them. It usually takes two years from the application to the withdrawal of funds. During these two years, the preliminary work includes the project planning and selection by member countries, and the submission of all railway projects to the World Bank. After the preliminary approval by the World Bank, the preliminary work can be started. Feasibility study report, technical analysis, economic and financial benefit analysis. One of the scientific aspects of project management by the World Bank is the division of project cycle stages. The World Bank usually divides the project cycle into six stages: appraisal, preparation, evaluation, negotiation and signing, implementation and summary evaluation, and each stage has specific requirements, objectives and working procedures. The World Bank's management of its loans is essentially the management of projects, that is, project management with lenders in engineering, payment, procurement and consultation. Of course, at different stages of the project, the content and focus of management are different. Six stages constitute the whole process of the project, which is usually called the project cycle. Such as domestic project establishment, appraisal, preparation, pre-evaluation, evaluation, negotiation, signing, entry into force, mid-term adjustment, completion, evaluation, repayment and project termination. Although the focus of World Bank management is to analyze the feasibility of the project and supervise the implementation of the project, it is called cycle management because each stage has to participate in management from different angles and is organically related and complementary.

IV. The World Bank and China

China is one of the sponsors of the International Bank for Reconstruction and Development. After the founding of New China, the seat of the World Bank was occupied by the Kuomintang government. In 198, the World Bank Council passed a resolution to restore China's legal seat. In 198? In 1981, the World Bank made a comprehensive survey of China's economy, and wrote a million-word "China: Development of Socialist Economy" survey report. In June 1981, the board of directors of the World Bank approved the first loan project in China-the key university development project. From then on, it began to provide long-term development loans to China. At present, World Bank loans are also an important channel for China to utilize foreign capital. According to the statistics of the Ministry of Finance, by the end of 1994, the World Bank had approved 148 loan projects for China, with a commitment of about US$ 2.3 billion, including interest-bearing loans of more than US$ 12 billion. About 6%% of the total loan; Interest-free loans amounted to more than $8 billion, accounting for about 4% of the total loans. These projects cover almost all provinces and autonomous regions in Chinese mainland except Tibet and Taiwan Province, involving industries and departments such as industry, agriculture, energy, transportation, social development and finance. The loan provided by the World Bank to Chinese mainland focuses on agriculture, which is mainly used for agricultural development, irrigation, soil improvement, sideline production of fruit and forest, animal husbandry and aquatic products, poverty alleviation, etc. It can be said that it is the most widely benefited sector of the project. The loan amount accounts for about 25.6% of the World Bank's total loan commitment to China, followed by transportation projects, accounting for 21.5% of the total, which has greatly promoted the development of railways, highways, ports, especially expressways in China in recent years.

Social development projects cover a wide range of topics, including education and health. Water supply, urban construction housing, etc., accounting for 19.2% of the total.

In addition, China has reached a technical assistance agreement project with the World Bank, a loan-to-intermediate financial institution project, and China has also introduced World Bank funds for industrial and forestry development, which has shown good benefits.

At present, more than 4 World Bank loan projects have been completed in China, and more than 1 projects are being implemented, some of which are nearing completion. The management of the World Bank believes that China is one of the countries that have made the best use of World Bank loans.

At the annual meeting held in Madrid in 1994, the World Bank and the International Monetary Fund announced that they would hold the annual meeting of joint directors in Hong Kong in September 1997. At that time, Hong Kong's sovereignty had just returned to China, and the Hong Kong Special Administrative Region Government had been established less than three months ago. There were hundreds of government officials, international financial tycoons and global media gathered in Hong Kong. This is a test for the new SAR government and a review of Hong Kong's smooth transition.

Author: (Shenzhen Special Economic Zone Branch of the People's Bank of China)