World Bank Program To Receive $34 Billion To Help Poor Countries
February 23, 2005


The World Bank's International Development Association (IDA), which provides financial help to poor countries will gain around $34 billion over the next three years, up from $23 billion over the past three years, under an agreement reached by donor nations, the Associated Press reports.

The money will go to low-interest loans and grants to 81 impoverished countries, such as India, Bangladesh and Uganda. Geoff Lamb, a World Bank Vice President and chairman of negotiations for IDA's funding, says around $18 billion will come from the United States and other donor nations. The remaining $16 billion will come from loan repayments and transfers from World Bank net income. "We are very, very pleased with this outcome," Lamb said. "We think this is a big win for the poorest countries." The $34 billion will finance the IDA program from July 1 through June 30, 2008.

The United States -- a major supporter of providing aid in the form of grants, which don't have to be repaid -- believes progress is being made. "The fact that 47 countries -- out of 62 eligible -- will receive grants is both heartening and distressing," US Treasury Secretary John Snow said. "It is heartening because these countries will stop digging and start crawling out of the hole of unsustainable debt that has constrained economic growth and poverty reduction for far too long. And it is distressing because so many countries are currently at risk of debt distress and highly vulnerable to economic shocks.”

Treasury officials noted that under the IDA financing plan, Afghanistan and Rwanda, for instance, will receive 100 percent of their IDA aid in the form of grants. Under the existing program, Afghanistan receives 36 percent of its IDA aid in grants and Rwanda gets around 37 percent from grants.

The Washington Post adds that the agreement envisions that about 30 percent of the aid will be in the form of grants, up from 19 percent.

The New York Times reports that it was the biggest increase for the development fund in two decades, and the agreement brought an end to feuding over how the money should be spent. The 28 countries agreed to give grants to the poorest nations and loans to those that could repay them, while using better yardsticks to measure development. James D. Wolfensohn, the president of the World Bank, welcomed the increase for the aid program, which he called ''the lifeline for many of the world's poorest people.''

In the last pledging session three years ago, there was serious disagreement over a proposal by the United States to give half of the assistance in grants rather than loans. Europe strongly opposed the idea, saying the repayment of the low-interest loans was a critical source of funds for future aid. The United States also proposed ways to better measure whether aid to specific countries succeeded in improving education, health and other areas. Those new benchmarks were adopted on Tuesday. The donors decided that grants would be given only to the very poorest nations, and that loans would go to those nations that could eventually repay them.

Developing benchmarks to measure the effectiveness of aid was a victory for the Bush administration. Paul H. O'Neill, the former Treasury Secretary, first pushed for more rigorous performance standards in 2001. He complained that the World Bank had ''spent an awful large amount of money in the name of development without a great degree of success.''

The increased financing was a particular goal of the European countries that say they fear the world's wealthiest nations are falling behind in their promises to meet the United Nations' goals on reducing poverty. The largest increases in pledges were made by European nations: France, Britain, Spain and the Nordic countries.

Reuters also reports that the Bush administration wants Congress to approve $950 million a year over three years for IDA. That would represent a 12 percent increase over the previous US commitment to the fund.

The United States said the agreement commits the World Bank to greater openness and effectiveness. The Bush administration believes bank commitments to make details of assessments of poorer countries public and to report more extensively on progress by countries receiving assistance from the fund will result in a more effective use of resources.

Lamb said "Whatever its faults and shortcoming, there is a perception that IDA is the leading instrument that we've got that works and has implementation capacity. There was a consensus that people wanted to see a strong IDA at the center of the aid system.”

The Irish Examiner, Agence France Presse and the St. Paul Pioneer Press also report on the IDA


Agency Gives World's Poorest People Loans, Insurance

The poorest people in Africa and Asia are to be given access to home loans and insurance by the Aga Khan Development Network to help drag them out of poverty and rebuild their lives after a disaster such as the devastating tsunami, Reuters reports.

The scheme would go beyond the small loans, known as microcredit and often as little as $50, given to farmers and entrepreneurs to set them up in business. The Aga Khan Development Network said Tuesday at a UN press conference it aimed to expand its work to products including health insurance, education and small housing loans, savings accounts, and small businesses loans to the poorest people.

"Microcredit has helped millions of poor people in developing countries but they remain at the mercy of a death or serious injury of a family member, the loss of a crop or livestock or a natural disaster such as the recent tsunami," said Prince Karim, the present Aga Khan, sponsor of the plan and hereditary imam of the Shia Ismaili Muslims. "The assets of borrowers, accumulated through great effort over many years, can be destroyed overnight. Families are then forced to make the same difficult climb out of poverty a second or even third time. The poor need access to just about every product and service that people and businesses need in the developed world.”

The Financial Times reports that the creation of an agency aimed at expanding microfinance services in some of the world's poorest communities by the Aga Khan development network was supported by the World Bank and donor governments.

The Aga Khan agency for microfinance will bring together the network's existing microfinance activities, now operating in 10 countries, and develop products relating to micro-insurance. James Wolfensohn, the World Bank president, said microfinance had "a demonstrated, powerful impact in improving the livelihood of the poor, and a crucial role in reducing poverty.” Microcredit was reaching some 80 million people around the world and indirectly benefiting up to 500 million people in their families and communities. The target should be to reach all the world's 3 billion poor people with financial services tailored to their needs, Wolfensohn said.

The Aga Khan microfinance agency, focused on central and south Asia, Egypt, Syria and parts of Africa, is a small lender - the development network made 25,000 micro loans last year totaling $35 million. But the agency has attracted World Bank and other interest with its plan to develop microfinance products, and the integration of microfinance into the network's broader development program. For instance, the agency will extend current programs that lend to small businesses seeking to benefit from the economic stimulus to their neighborhoods following the restoration of cultural assets under the network's aegis.

Voice of America further reports that Wolfensohn, says the Aga Khan is taking the concept of small loans, or micro-credits, to another level. He says once poor people start making some money, they need more financial products, such as insurance. They want savings for their children's education. But, Wolfensohn notes, these products are not easy to obtain. "In most parts of sub-Saharan Africa, the average per capita expenditure per year on health is $5. So we are not talking about the sort of expenditure that you have in Switzerland or in the United States. But, for poor people, even to have protection to $50 or $100 makes a difference. And, so we are seeking to develop these products so that poor people can have the advantage of the same range of financial products that rich people have. And, frankly, poor people need it much more."

Agence France Presse reports that critics have charged that microcredits reach only a fraction of the world's poorest and fail to address the root causes of poverty, while some bankers have doubted its commercial viability. But backers say it offers an opportunity for the poor who want to help themselves. A World Bank study has indicated that successful microcredit programs for women in Bangladesh could help them to develop a business from a $100 loan, double family income and climb out of poverty in five years.

Wolfensohn cautioned that microcredit programs needed to be well managed. Some governments also had been unnecessarily reticent about adapting their legal framework to allow microcredit agencies to function, he added.