Ajay Banga

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0:33After World War II, the World Bank was set up to help with the reconstruction of Europe. Currently, the World Bank focuses on rehabilitating countries in the Global South. A man from the Global South, Ajay Banga, is now the head of the World Bank. I had a chance to sit down with him recently to talk about how the World Bank is operating today and how it differs from his previous job, CEO of MasterCard. So for those people that might be unfamiliar with the World Bank, what exactly is the World Bank? The World Bank, David, has five units in it. The first unit that was created was the International Bank of Reconstruction and Development, IBRD.

1:11And that was what was created during the Bretton Woods Conference that we spoke of. This was after World War II. That's correct. It was set up largely, I thought, to help... To reconstruct Europe and Japan. Reconstruct Europe, right. And so there was a big debate on the topic of should development be added to the name or not, because it was reconstruction that was the primary focus. And eventually the founding folks who sat around there came to the conclusion that there would be a mission for this that went beyond the reconstruction. As it turned out, that is what happened. The next part of the bank that got created was Ida, the International Development Association.

1:44That caters to the poorest countries in the world, 78 of them currently. But in history, you know, South Korea was a recipient of Ida. China was a recipient of IDA. India, yes, so you know, Turkey. These are countries that have now prospered and grown. But both IBRD and IDA constitute what people call the World Bank. Then came IFC, which was the arm created to work with the private sector and to help catalyze private investment. Along came NIGA, which is the insurance guarantee agency, which provides political risk insurance and other such insurances for people like us in our old lives investing in countries.

2:22And then the fifth part of it is called ICSID. There are plenty of acronyms in the bank, by the way. There's a vice president of acronyms hiding somewhere in the bank. But the ICSID basically is a settlement of investment disputes. So, again, in our old lives, if you had a dispute with a sovereign, that's where you would come to for arbitration and settlement. Those are the five units put together. We do about$120 billion of lending in a year across the five. IDA provides grants. One third of what it gives is pure grants to the poorest countries. The others are all concessional or priced loans.

2:58All right. So the World Bank created after World War II now has many different missions. You say you lend out about$120 billion a year. Give or take, yeah. And it's headquartered in Washington, D.C. And it has a very unusual governance structure. I don't know who set that up, but what is the... Who came up with that idea? Rube Goldberg or somebody? How does that work? If you were countries contributing capital and money, in the case of IBRD and IFC, capital comes once in a while. The bank earns money on the loans it gives to countries who borrow. And the repayment of those loans more than covers the administrative expenses of the bank.

3:36So it's actually not reliant on taxpayer funding for administrative expenses. It is reliant on taxpayer funding for IDA because the poorest countries, because they give away money to them every, you know, third every year, that needs money. The way, therefore, taxpayers are involved in this whole thing, and I think governments basically said that if they're going to be putting money into this, we'd like to have some insight into it. That created this structure where there are 25 executive directors full-time who sit here in Washington, D.C. with some staff. each of them represents either one country or a group of countries, depending on how much capital is coming from them.

4:12Now, the tradition, as I understand it, is there were two organizations set up after World War II. One is the IMF, the International Monetary Fund, and one is the World Bank. And there's an unspoken, I guess, rule or tradition that the IMF head is picked more or less by Europe, and the head of the World Bank is more or less picked by the President of the United States, and then ultimately approved by the board. But the World Bank and the IMF, you have nothing to do with each other or you kind of work with each other or there's completely different purposes? I mean, the purposes are different, but when you put them together on the ground, if you don't work well together, you're not being very helpful to your client country.

4:52So I believe very deeply that we must be great partners in the ground. I mean, the challenges in the world system, David, are too big for people to create silos and try and solve them by themselves. So 2 plus 2 is equal to 5 in this case. So what the IMF focuses on is macro and obviously foreign exchange and the flow of funds and financing and markets and credit default swaps of countries and things that we understand. What we try and do is actually develop and we're truly a bank. So we give longer term money. Our loans are anywhere from 20 to 50 years in length. 50-year loans, that's a long loan.

5:27So the IBRD, after I came, I got our board to approve 50-year loans. Can I get one of those 50-year loans? I'd like to get one of those. Absolutely, although you'll have to be around to enjoy it. The 50-year loan was designed to cater to things that you, you know, if you think about a country trying to invest in its health care or in its education and skilling systems to create the right kind of people for the future of the jobs they're going to create, it's very difficult to think of that as a payback in 10 and 20 years. So many of your predecessors have said that the bureaucracy in the World Bank is unbelievable.

6:03And as a result, they often reorganize the World Bank, and every new president of the World Bank reorganizes. Are you reorganizing, or do you just accept what it is and just dealing with other things? I mean, my view is very simple. The institution grew in a certain way with these five different pieces that creates its own silos, and that's fine. I don't believe in driving a car by looking in the rear view mirror. I'm focused on the front. To me, in the front, if you're going to create jobs with those three pillars I spoke of, you have to work together. You have to have one country plan, which is co-synchronous.

6:39You have to have one direction, which is I'm going to do these jobs. You have to have one ability to work on the ground with your client. If you're going to get the client, we talk about public-private partnerships. If the client needs a public-private partnership and needs to come to three parts of the bank to get their loan and go through three project management systems and three due diligence systems and three environmental and safety scare guys, they will go crazy. If they had so many people to deal with us, they wouldn't be in the condition they're in. And so we have to turn from, you can call it bureaucracy, you can call it processes and systems built by years of experience.

7:13That's yesterday. I'm just focused on tomorrow. Now, historically, or at least in the last couple of years, the World Bank has been focused a bit on climate change. Today, the zeitgeist in Washington is not as favorable for that phrase, perhaps. So how has the World Bank adapted to that change? Good question. So what I've done over the last few months, not just now from the election but earlier, is to go to people in the Hill and now people in the administration and tell them what's inside that climate change. I understand the words can be not what you want, But let's talk about what's inside it first.

7:48Fact. We said we would try and get to about 45 % of our financing every year, going to what qualifies in the world as climate financing. When I joined, by the way, my successor had done a terrific job and already got it past 30, which was the commitment he had made. But he was past 30. So I kind of said, I think we can get to this 45, but what's inside it? Half of it is designed to go for what you would call resiliency or adaptation, which is heat-resistant varieties of seeds, drip irrigation, a school roof painted white, not left red tin, so it's eight degrees cooler inside, a road that doesn't wash away in a monsoon, and a school that's hurricane-resistant.

8:28That's actually what our clients want because they're dealing with this. They want to invest in education, but they don't want the school to get washed away. They want to invest in roads, but they don't want the road to get washed away in the rain. They want to invest in agriculture, but obviously they don't have the same amount of water to use. So this is all, frankly, we should have this in large parts of the developer world too. That's one part of it. The other half, which we're trying to do, is what you would call mitigation. 5 % of that 22.5 % of that half is what goes to energy. Every spring and October meeting, I get demonstrations outside the bank with my portrait on an oil barrel calling me the fossil fuel guy, which is interesting because of that 5%, 1 % goes to natural gas and financing for it, 4 % goes to renewables.

9:17But the other 17.5 % is to do what? Build a rail corridor in Africa called Lobito. So instead of transporting goods by truck, you're doing it by rail, which is ecologically more friendly. When you go on the Amtrak here, you hear them telling you how much you saved versus the flight you could have taken. Same idea. So once you explain this to folks, you get a very different understanding of what we're actually trying to do with climate. And even in energy, we're financing all of the above, if you know what I mean. The one thing we don't do is coal financing, which we stopped years before I joined.

9:51But I have raised the topic with the board last year in August or something about re-getting into nuclear. Because to me, small nuclear reactors could be transformative and safe and a great way to get to renewable energy for data centers and AI. Well, the World Bank traditionally was not in favor of financing nuclear, and you're now changing that. Actually, the World Bank had a specific policy of not financing. It's a board policy that got passed. I raised it. I didn't kind of make too much progress in the first meeting because people went off into their camps. But the good news is the board has come together and said we're willing to discuss.

10:25They told me then, come back by June next year with a thoughtful policy that lays out everything from gas to nuclear to geothermal to hydro to solar and wind and help us understand the context of energy in the context of the country. The idea, David, is affordable, accessible energy. Just like I said that poverty is a state of mind, not just an ionized state of being, electricity is a human right. We just need to understand that. There's 600 million people in Africa with no electricity. 600 million. Not brownouts and blackouts, no electricity. I have said we will reach 300 million of them in partnership with the African Development Bank by 2030 with affordable, accessible electricity.

11:08enough for them to not just get two lanterns from a solar cell, but to actually get what you call tier three electricity, which is productive. How can you free your team from time-consuming office tasks? Amazon Business empowers leaders to not only streamline purchasing, but better support their teams. Smart business buying tools enable buyers to find and purchase items fast so they can focus on strategy and growth. It's time to free up your teams and focus on your future. Learn more about the technology, insights, and support available at amazonbusiness.com. Let's talk about how you get to be the head of the World Bank.

11:45Presidents of the United States more or less recommend to the Board of Governors, I guess it is, of the World Bank. You are appointed by a President of the United States, or recommended. The board approved you. But what were you doing before? I mean, how do you get qualified to be the head of the World Bank? My background, as you know, well, we've known each other some years, is that I'm a private sector guy. I grew up in India and joined Nestle, worked there for a few years, ended up at Pepsi for a couple of years, joined Citibank. I worked there for 14 years and ended up running all of Asia during the financial crisis.

12:16And then quit and became the CEO of MasterCard for the next 12 to 13 years. So you're minding your own business. You're running MasterCard. It's doing pretty well. And all of a sudden, somebody says, how would you like to be the president of the World Bank? And you said? No, it actually didn't work that way. MasterCard, since I was there those 12 years, As you and I have discussed this, I'm very lucky. I had a great run. I joined a year after the IPO, and the firm was about$20 billion in valuation. I left at$360. It's now at about$500 plus. So the company is doing well. It's in a great spot and well run and scaled over the years.

12:50I had told my board that I would give them 10 years. I joined at$50. And at$60, I wanted to think of something else to do in my life. We had a great succession process. I stepped away, became executive chair, and then stepped down altogether. and joined General Atlantic as vice chair, and became the chair of the Fiat family's holding company, Exor, and joined the board of Tomasik. And I had this portfolio approach to my life until I got cold in February of 2023, and then a few days later they announced that I was the candidate. So now you're the head of the World Bank, and the approval process is the president recommends you, and then the board of governors has approved you.

13:27Yes, so essentially there were 90 days between the recommendation and the election, And I spent that period traveling and visiting almost 93 country leaders and CSOs and companies. And then they had to get together and vote. I got all the votes other than an abstention from Russia at that time. So in the long history of the World Bank, you're the only person who's been the president who came from a developing country. Is that right? Yeah, probably true. I haven't thought of it that way, but that's probably true. Okay. I'm just going back in names, yeah. When you're running MasterCard, you're probably dealing with CEOs in developed markets.

14:01Now you're dealing with people in not less developed markets, right? And was that a big culture shock? No, no. So that's a great question. So even in MasterCard, remember, my business was growing in all kinds of locations. You end up going to developing and developed countries. That's kind of where the future and the current are. The difference is what you go in with as a perspective and whom you meet and the circumstances you're dealing with. I've been there almost two years. I've made 50 odd trips overseas. I would say I make a fair number of trips, David, to the big shareholders in the developed world because making sure that you're aligned with them is important.

14:37The developed world has had a great deal of political change in the last seven or eight months. And so my biggest shareholders, the governments have changed over. Making sure that you can help to understand what they are looking for and you answer what they think you could be doing is kind of important in this job. They're dealing with very different challenges, But at the end of the day, at the end of the day, what I'm trying to do is to get the institution to focus in the developing countries on young people and their future. What is the problem with young people and their futures that you're trying to address?

15:101.2 billion young people in the emerging markets are coming through the pipe in terms of a demographic bulge. And they will be ready for a job in their age profile in the coming 12 to 15 years. Most people think of this over the history of development. When you get this kind of a demographic bulge, they call it a demographic dividend. And that is true if these people get clean air, clean water, education, health care when they're growing up, skilling. And once they're grown, they should get a chance to get a job, either at a small firm or a big firm or an entrepreneur or something. Because if that doesn't happen, these young people now are without hope and without optimism and without earnings.

15:52If our business is to eliminate poverty, you cannot eliminate poverty just by building a school or a bridge or an airport. That's important. They're inputs. The output of eliminating poverty, the single best way to do it is earnings, jobs. You know, a friend of mine once told me that poverty is both a state of mind and a state of being. And a job eliminates both those aspects, gives you dignity and gives you earning. And I'm just very convinced. I'm just very convinced that this young population can be the driver of growth for all our Western companies and our children and our grandchildren if we get them productive employment with the dignity that that brings.

16:37The gap between the developed market, youth, and the undeveloped market, now called maybe the global south by some, is getting bigger, not smaller. and they also don't have access to internet as much as maybe people in the developed markets do. So how are you trying to bridge this gap? Great question. So, I mean, look, you know, opportunities are not everywhere, but talent is. The problem is the past has been that you kind of move. That's why talent moves, to find its opportunity. What we're trying to do here is to change that equation a little bit. What we've looked at in the theory of creating jobs in a country or development is there are three things that need to happen.

17:13The first one is you need to have the enabling infrastructure. whether it's bridges, roads, airports, schools, healthcare, electricity, digital connections, that thing. Then you need to have the right regulatory policies. Land, labor, bankruptcy law, anti-corruption, some concept of what electricity will cost and get paid, that you will get paid back, laws in the system, the right kind of governance. That's the second pillar. The third pillar is to allow the private sector, which basically creates jobs. Government doesn't create jobs. Government is the enabler of the private sector to do so. Right from small businesses and small farmers all the way to companies that we are active with.

17:50You've got to get those three pillars in place. That's what I'm working on. IBRD and Ida are my two public sector arms that work on that infrastructure part. We have what's called the Knowledge Bank, which to me is even more important than the Money Bank. How do you compare the satisfaction you're getting out of doing this compared to MasterCard or General Atlantic or Pepsi? Is this more satisfying? You know, there's a time in life for everything. When I look back from where I am today, even though it's hard work and it's different from what I thought, I am so privileged to have this opportunity.

18:25I want to be able to look my grandchildren in the eye and say, I tried. You have any grandchildren yet? Three. Three, okay. And they're not interested in the World Bank that much? They're interested in the World Bank because I'm there. They're not interested in the World Bank per se. Okay. That, by the way, is one of the interesting issues. I believe that I want to start a program, which I'm in the middle of designing, is to get people from the donor countries, young people like our children and grandchildren, who are going through the time between an undergrad and a postgrad, and give them a chance to come work with us for a couple of years in a country where we are doing real work.

18:57Let them get exposure to what the bank really is. Let them see what life in a Zimbabwe or a Congo or a Vietnam and the kind of work we're doing there. And let them come back with a better appreciation of why the World Bank is important for them. At the World Bank today, as you go forward, How would you measure your success? What is your standard? I want to be called the ultimate plumber. I fix the plumbing of the World Bank. Because you can keep building a new house on top of plumbing that's not working. And as we all know in our respective homes, that's a recipe for disaster. If you fix it the right way, beautiful houses get built and stay a long time.

19:32And I think the bank is at a juncture when fixing the plumbing is really important. Whether it is the speed, whether it is the partnership with other multilateral banks, because together one plus one is equal to three. Whether it is the partnership with the private sector, which I'm cultivating very carefully, I just believe there isn't enough money in the MDB and government worlds to do it. You need the private sector to be a part of that solution. Whether it is this pivot to jobs and what it can do for cutting down illegal migration and building opportunities. All that, nothing is possible without fixing the plumbing.

20:07Transparency is my friend. I won't get it all right. I will screw things up, but you should evaluate me by how I fix things when I get to know, rather than just a point of time. Jobs is what I want to be seen as the transition of the bank for. I want to move this bank from working on input to working on the output of jobs, because that's the ultimate way to put a nail in the coffin of poverty. So if you go to a cocktail party and somebody says, well, what do you do? You say, I'm the president of the World Bank. What's the immediate reaction? Mostly they say, oh, wow. And then I say, don't say, oh, wow, do you know what I do?

20:44They say, not really. And then you kind of explain what the bank does and these five things. I mean, you have to have a business card, says President of World Bank, or they know who you are. You don't need a business card. Actually, I do. Would you like one? You have a business card? Yeah, sure. Wow, okay. Wow, okay, President of World Bank. Great. It's a great business card. So if somebody says, what has the World Bank accomplished, what would that best example be? If you go back over the last five or ten years, it would be very simple things. 100 million people connected to Alex City. You know, more than 300 to 400 million people with access to improved health care.

21:17That kind of thing. Where I'm going now is I've made a few specific commitments. 300 million people in Africa connected to Alex City by 2030. I think it changes how Africa works. 1.5 billion people connected to better primary health care by 2030. That is to fight off what I believe are the diseases of prosperity, you know, heart attacks, diabetes, blood pressure, things that are creeping up in these countries and which cannot be solved without distributed rural health centers with nurses and medical diagnostic readers and so on. That's the second big thing we're focused on. And the third thing I'm focused on is getting 80 million women in the emerging markets access to equity to open businesses by 2030.

22:02equity, not debt. And those three things are just examples. We've got others in the pipe to do with this. $9 billion to be focused on smallholder farmers, because I believe that if you don't make smallholder farmers an interesting job for young people, they will all go to the cities, and a lot of them will end up in urban poverty. To keep them in that farm and earning well, we need to create the right conducive environment, cooperatives that help them. We can access markets, fertilizers, seeds, better technology. That kind of work is what we're trying to do. Abraham Lincoln famously said, God must love poor people because he made so many of them.

22:40But you don't think it's inevitable there have to be so many poor people in the world, right? I think it's very challenging to change this and bend the arc. But what are you here for if you're not going to try? So the main message you want to convey to people about the World Bank is that it's in good shape, you're on top of it and that it's going to get better and the world will be happy for the World Bank doing what it's doing. Is that right? The main message I want to communicate is that there's a lot of good people trying to fix this place to make it even more relevant in that jobs approach.

23:11We have to get there. We're not there. We're a work in progress, but I feel very proud of what we're trying to do. And it's a real privilege, David. It's a real privilege. thanks for listening to hear more of my interviews you can subscribe and download my podcast on Spotify Apple or wherever you listen