Financial institutions are organizations involved in provision of various types of financial services to their customers. The financial institutions are supervised and controlled by government authorities through provision of certain rules and regulations. Examples of financial institutions include banks, building societies, credit unions, insurance companies, stock brokerage firms and asset management firms. In this concept, the main focus is on IMF, World Bank or ADB. The roles of international financial institutions such as World Bank are regulated by international laws, as their services are needed in more than one country. National governments of the countries own such institutions.
Financial institutions also known as Bretton Woods’s institutions have played very important roles in both developed and developing countries. The launch of World Bank and International Monetary Fund (IMF) at Bretton Woods for the last 55 years has had an impact on global economy. Two major financial transformations have taken place since the development of financial institutions. First, a major aspect of the transformation is globalization, which has implication in foreign trade. Second, there has been poor performance of statistics models of development. International financial institutions are involved in conflicting situations due to provisions of international laws. Political and structural concerns of countries make it hard for international financial institutions to deliver their services. Humanitarian laws are considered to be the major stabling block in service provision by international financial institutions.
The World Bank, IMF and ADB are the largest multi-lateral financier and provider of policy advice in various matters of economic development such as ICT. There are other roles played by Bretton Woods and are categorized into attraction of private investment to developing countries, building physical and financial infrastructure that leads to creation of jobs and ensuring that companies meet high social and environmental standards. These roles have an impact in global financing operations and help in management of risks. Financial institutions provide financial aid to developing countries as a means of promoting private investment. During the period of economic down turn, both investors in the private and public sectors were adversely affected.
Intercession of financial institutions especially World Bank helped a number of investors. Based on humanitarian laws, financial institutions finance private investors as a way of creating employment, which is a measure of promoting economic growth (Jones Philip, 1992). Involvement of international financial institutions in provision of services to private sector within countries helps to enforce laws against people accused of committing atrocities. IMF, ADB and World Bank are specialized financial agencies of United Nations that provide monetary support to private sector for investment purposes. Financial aid is used to clear debts, supervise and manage projects, or support development programs in the private sector. This has seen many developing nations reach the status of developed countries through grants and loans.
International financial institutions play a very important role of building physical and financial infrastructure that leads to creation of jobs and enables market growth. IMF, World Bank and ADB are the major financiers in infrastructure. The money granted to countries in form of loans or grants help developing countries to build good roads, ports, airports and railway lines. The economy of any country depends entirely on transportation network. This is because roads, railway lines and airports connect different countries hence making movement of goods from one country to another easy. It does not only support creation of jobs but helps to expand market structure through supply of goods and services. International financial institutions have made it possible for countries without certain commodities to receive them through good transportation network.
Smooth flow of goods is very critical since it helps to meet the demand of many customers all over global markets. In the aspect of job creation, international financial institutions have made it possible for many people to get jobs. The funds used to expand road network attract individuals from different fields of academic achievement to seek employment. For instance, engineers are given the priority to venture in engineering works while the services of accountants and legal officers are needed. Creation of employment has impact in economic development as it helps to expand the economy through payment of tax. Additionally, individuals employed in road sites and other economic departments help to reduce poverty levels.
In most developing countries, the level of poverty is very high owing to lack of employment and financial aid. Full support by international financial institutions therefore provides a mechanism of dealing away with poverty and leads to improvement of living standards. Creation of job market is the major role of international financial institutions that leads to elimination of poverty levels and expansion of market. The international financial institutions can boast of achieving their mission by reaching a number of individuals in developing countries. Reducing the level of poverty leads to improved living standards and this means, they have influenced the lives of many individuals. International financial institutions work in corroboration with other financial institutions and the government to bring change in the economy.
Another major role played by international financial institutions is ensuring that companies meet high environmental and social standards. This is made possible, as clients that are funded by international financial institutions should meet certain provisions. Among the provisions required by IMF, World Bank and ADB are environmental conservation and reduction of corruption among government officials (World Bank, 2005). International financial institutions are regulated by tough financial rules that should be observed by countries being funded. These conditions are very important as they promote economic activities of national importance.
Countries funded by international financial institutions should ensure measures related to environmental conservation are given priority. Protection of the environment is of importance since it is one way of reducing effects resulting from climate change (Wang Yunjong, 2000). Enforcement of such laws before support of government projects and through advisory work are some of the activities that make international financial institutions perform well. Corruption in government offices is one of the major challenges faced by international financial institutions when delivering their services.
However, the institutions require that for a country to benefit from financial aid it should fight corruption completely. This measure helps in ensuring that funds provided by international financial institutions are directed to the right channel. In many developing countries, various projects have failed because of corrupt officers who are driven by selfish motives. Provision of tough laws relating to corruption and other social misconducts helps developing countries to receive maximum support from international financial institutions. This measure helps countries to achieve their millennium development goals. The role of international financial institutions in both developed and developing nations is a measure towards economic development and expansion of foreign trade.
Jones Philip, 1992, World Bank Financing of Education: Lending, Learning, and development, Routledge.
World Bank, 2005, Getting to Know the World Bank: A Guide for Young People, World Bank.
Wang Yunjong, 2000, The Asian Financial Crisis and Its Aftermath: Do We Need a Regional Financial Arrangement? Asean Economic Bulletin, Vol. 17.