IBRD raises most of its funds on the world's financial markets. It has become one of the most established borrowers since issuing its first bond in 1947 to finance the reconstruction of Europe after World War II. Investors see IBRD bonds as a safe and profitable place to put their money and their cash finances projects in middle-income countries.
IBRD became a major player on the international capital markets by developing modern debt products, opening new markets for debt issuance, and by building up a broad investor base around the world of pension funds, insurance companies, central banks, and individuals.
The World Bank's borrowing requirements are primarily determined by its lending activities for development projects. As World Bank lending has changed over time, so has its annual borrowing program. In 1998 for example, IBRD borrowing reached $28 billion with the Asian financial crisis, then declined and increased again in 2008 when demand for IBRD loans rose following the global financial crisis. It is now projected to borrow between $40 to 45 billion a year.
IBRD borrows at attractive rates on the capital markets thanks to its triple-A status that it has had with credit rating agencies since 1959. This has enabled it to borrow in U.S. dollars, for example, at an overall funding cost that comes close to that of the U.S. Treasury. IBRD enjoys its high credit rating because of the support of its 188 shareholder governments. It is also the result of IBRD's strong capital and reserves on its balance sheet, prudent financial policies, and its expected treatment as a preferred creditor when a country has difficulty in repaying its loans.
IBRD has to its credit a string of firsts in its borrowing program. These include the first currency swap in international markets in 1981, through to the introduction of the first global bond in 1989, to the first fully integrated electronic bond offering via the Internet in 2000. In 2003, the World Bank executed the first fully electronic swap auction. Innovations by IBRD have also supported its goal of promoting sustainable development in its borrowing member countries. In 2005, IBRD began customizing borrowing products to respond to increased investor interest in sustainable investment products. In 2008, responding to demand from Scandinavian pension funds, IBRD launched the first green bond product together with SEB. Although much of its borrowing is in U.S. dollars, IBRD has over the years offered bonds in more than 50 different currencies. Its issues in nascent capital markets have often been a catalyst for improving market infrastructure and efficiency.
IBRD earns an income every year from the return on its equity and from the small margin it makes on lending. This pays for IBRD's operating expenses, goes into reserves to strengthen the balance sheet, and also provides an annual transfer to the International Development Association (IDA). IBRD has raised the bulk of the money loaned by the World Bank to alleviate poverty around the world. This has been done at a relatively low cost to taxpayers, with governments paying in almost $14 billion in capital since 1946 to generate more than $500 billion in loans.