The World Bank business

Doug Henwood dhenwood at
Mon Mar 20 05:51:33 PST 2000

Michael Pollak wrote:

>It's that last sentence that struck me. The FT doesn't seem to mean it as
>a metaphor. They seem to be saying that the World Bank gets something
>analogous to profit from providing loans; that it would take a hit if it
>didn't get it; and that it is as naturally fond of its "biggest and best"
>customers as any profit making firm.
>So my naive questions are:
>(1) what is this thing that is analogous to profit? I thought the
>soft-loan window was concessional. Naively, I thought that meant it was
>subsidized, that it was at below market rates. Can it be that the World
>Bank makes a profit on soft loans?

Years ago, I did a "review" in LBO - like a book review - of a World Bank annual report. That year's issue made a bit of a big deal over the "surplus" problem - just what to do with the WB's $1b+ annual profit. The solution was to give a bit of it to the IDA (the soft loan window) and put the rest on the balance sheet as retained earnings. I haven't looked at their balance sheet in a while, but as I recall, retained earnings were around $13b then.

Since the interest rate on IDA loans is greater than zero, and since the IDA is capitalized by the Bank's profits and grants from member governments, you could say they make a profit on soft loans, but you do have to account for the opportunity cost involved in that they're not putting that money to work, as they hilariously say on Wall Street, in higher-earning assets.


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