IBRD FUNDING

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 Two. 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. 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 peaked at $28 billion with the Asian financial crisis. It is now projected to borrow between $10 to 15 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 it is backed by the capital commitments of its 186 shareholder governments. It is also the result of IBRD's strong balance sheet, prudent financial policies, and its expected treatment as a preferred creditor when a country has difficulty in repaying its loans. IBRD has also profited from anticipating shifts in investor preferences and investing in the risk management and systems to take advantage of those trends. 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 development. Although much of its borrowing is in U.S. dollars, IBRD has over the years offered bonds in more than 40 different currencies. Its issues in nascent capital markets have often been a catalyst for improving market infrastructure and efficiency. IBRD's 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 $11 billion in capital since 1946 to generate more than $400 billion in loans. Although members contribute capital to the IBRD, the Bank acquires funds primarily by borrowing on international capital markets by issuing bonds. The Bank raised $29 billion USD worth of capital in 2011 from bonds issued in 26 different currencies. The IBRD has enjoyed a triple-A credit rating since 1959, which allows it to borrow capital at favorable rates. It offers benchmark and global benchmark bonds, bonds denominated in non-hard currencies, structured notes with custom-tailored yields and currencies, discount notes in U.S. dollars and Euro dollars. In 2011, the IBRD sought an additional $86 billion USD (of which $5.1 billion would be paid-in capital) as part of a general capital increase to increase its lending capacity to middle-income countries. The IBRD expressed in February 2012 its intent to sell kangaroo bonds (bonds denominated in Australian dollars issued by external firms) with maturities lasting until 2017 and 2022. FUNDING ACTIVITIES IBRDs lending and investment activities, as well as general operations, are funded by equity and proceeds from debt issuance. Equity: IBRDs equity is primarily comprised of paid-in capital and retained earnings. Borrowings: IBRD issues securities to institutional and retail investors around the world, both through global offerings and by way of bond issues designed to meet the needs of specific markets or types of investors. These funds are then used for lending to member countries. Equity IBRDs equity base plays a critical role in securing its financial objectives. It enables IBRD to absorb risk through the use of its own resources and thereby protects shareholders from a possible call on callable capital. IBRDs capital adequacy is judged on the basis of its ability to absorb potential risks and support normal loan growth. In FY 2011, in order to enhance IBRDs lending capacity following its response to the global economic crisis, the Board of Governors approved resolutions increasing IBRDs authorized capital. Specifically, a General Capital Increase (GCI), a Selective Capital Increase (SCI), and additional shares to be held for new members. Under the terms of the resolutions, subscribed capital is expected to increase by $86.2 billion, of which $5.1 billion will be paid-in over a five year period.

The $86.2 billion expected capital increase comprises the following: 1. A general capital increase of $58.4 billion, of which $3.5 billion will be paid-in $698 million has been received as of June 30, 2012. 2. A selective capital increase of $27.8 billion, of which $1.6 billion will be paid-in $219 million has been received as of June 30, 2012. The above capital increases, including additional shares to be held for new members, increased IBRDs authorized capital to $278.4 billion. Total capital subscriptions received and paid-in as of June 30, 2012 relating to these increases were $15,278 million and $917 million, respectively. On March 26, 2012, the Board of Governors approved an amendment to IBRDs Articles to change the basic votes of each member. Voting power for each member will now be determined as follows: one vote for each share held in IBRD plus their share of basic votes. Basic votes are calculated as the equal distribution of 5.55% of the aggregate sum of the voting power of all members. This amendment was part of the reforms to enhance the voice and participation of developing countries and countries in transition in IBRD. This amendment, as well as the SCI, will result in a shift of the voting power to DTCs to 47.19%, an increase of 4.59% since FY 2008. The amendment became effective on June 27, 2012. As part of these reforms, 16 members are entitled to subscribe to additional shares. These members have until December 27, 2012 to subscribe to the additional shares. Subscribed Capital At June 30, 2012, the authorized capital of IBRD was $278,377 million, of which $205,394 million had been subscribed. Of the subscribed capital, $12,418 million had been paid-in with the remaining $192,976 million as the uncalled portion of subscriptions. Subscribed Capital In millions of U.S. dollars Originally paid in national currencies Of which: Converted to U.S. dollars Remaining in national currencies Total Originally paid in U.S dollars Total paid-in capital Uncalled portion of subscriptions Total subscribed capital FY 2012 $ 3,357 7,819 11,176 1,242 12,418 192,976 $205,394 FY 2011 $ 2,551 7,997 10,548 1,172 11,720 182,012 $193,732

The terms of payment of IBRDs capital and the restrictions on its use that are derived from the Articles and from resolutions of IBRDs Board of Governors are as follows:

Paid-in Capital All of the $1,242 million of IBRDs capital which was originally paid in gold or U.S. dollars may be freely used by IBRD in its operations. Of the $3,357 million of IBRDs capital, which was originally paid in national currency and subsequently converted into U.S. dollars or U.S. dollar denominated notes, $3,139 million was converted into cash and is freely available for use in IBRDs operations, and $218 million was converted to U.S. denominated notes, which will become freely available upon encashment. The remainder of IBRDs paid in capital, $7,819 million, is in the national currencies of the subscribing members. Except for amounts used to fund administrative expenses and national currency expenses, paid in capital in national currency is subject to maintenance of value obligations. If the national currency is used to fund national currency lending, investments or swapped into another currency for investment or lending purposes, the maintenance of value obligation is deferred until such time as the national currency no longer funds these activities. At June 30, 2012, $1,496 million had been used to fund national currency administrative expenses and $6,086 million was being used in IBRDs lending and investment operations, including $42 million under the local currency loan facility agreement with IFC. The remaining $237 million is subject to restriction and therefore, not available for lending or investment operations. Under the current Board of Governors resolutions relating to the General and Selective Capital Increases, each subscription to shares is conditioned upon the free and immediate use of national currency paid-in capital. IBRD will accomplish this by converting members' paid-in capital in national currencies into U.S. dollars. By subscribing to shares, members will provide their irrevocable consent for the free and immediate use of their national currencies. Uncalled portion of subscriptions As of June 30, 2012, total uncalled portion of subscriptions was $192,976 million. Of this amount, $164,315 million may be called only when required to meet obligations of IBRD for funds borrowed or on loans guaranteed by it. This amount is thus not available for use by IBRD in making loans. Payment on any such call may be made, at the option of the particular member, either in gold, in U.S. dollars or in the currency required to discharge the obligations of IBRD for which the call is made. The remaining uncalled portion of subscriptions of $28,661 million is to be called only when required to meet obligations for funds borrowed or on loans guaranteed by it, pursuant to resolutions of Board of Governors (though such conditions are not required by the Articles). Of this amount, 10% would be payable in gold or U.S. dollars and 90% in the national currencies of the subscribing members. While these resolutions are not legally binding on future Boards of Governors, they do record an understanding among members that this amount will not be called for use by IBRD in its lending activities or for administrative purposes.

No call has ever been made on IBRDs capital. Any calls on capital are required to be uniform, but the obligations of the members of IBRD to make payment on such calls are independent of each other. If the amount received on a call is insufficient to meet the obligations of IBRD for which the call is made, IBRD has the right and is bound to make further calls until the amounts received are sufficient to meet such obligations. However, no member may be required on any such call or calls to pay more than the unpaid balance of its capital subscription. At June 30, 2012, $116,249 million (60%) of the uncalled capital was callable from the member countries that are also members of the Development Assistance Committee (DAC) of the Organization for Economic Cooperation and Development (OECD). Capital Subscriptions of DAC Members of OECD Countries June 30, 2012 In millions of U.S. dollars Member Country Total Capital Uncalled Portion Subscription of Subscription United States 33,921 31,805 Japan 19,958 18,736 Germany 9,946 9,331 France 8,890 8,339 United Kingdom 8,890 8,320 Canada 6,359 5,966 Italy 5,404 5,069 Netherlands 4,283 4,018 Belgium 3,496 3,281 Spain 3,809 3,576 Switzerland 3,453 3,241 Australia 3,168 2,973 Denmark 2,147 2,018 Republic of Korea 1,908 1,793 Sweden 1,806 1,696 Austria 1,423 1,337 Norway 1,377 1,294 Finland 1,105 1,038 New Zealand 873 821 Portugal 659 620 Ireland 636 599 Greece 203 189 Luxembourg 199 189 Total $123,913 $116,249 The United States is IBRDs largest shareholder. Under the Bretton Woods Agreements Act and other U.S. legislation, the Secretary of the U.S. Treasury is

permitted to pay up to $7,663 million of the uncalled portion of the subscription of the United States, if it were called by IBRD, without any requirement of further congressional action. The balance of the uncalled portion of the U.S. subscription, $24,142 million, has been authorized by the U.S. Congress but not appropriated. Further action by the U.S. Congress would be required to enable the Secretary of the Treasury to pay any portion of this balance. The General Counsel of the U.S. Treasury has rendered an opinion that the entire uncalled portion of the U.S. subscription is an obligation backed by the full faith and credit of the United States, notwithstanding that congressional appropriations have not been obtained with respect to certain portions of the subscription. Borrowings Funding IBRD raises funds by offering its securities to institutional and retail investors around the world. Under its Articles, as applied, IBRD may borrow only with the approval of the member in whose markets the funds are raised and the member in whose currency the borrowing is denominated, and only if each such member agrees that the proceeds may be exchanged for the currency of any other member without restriction. IBRD issues short-term debt (debt issued with a maturity of one year or less), and medium- and long-term debt (debt issued with a maturity of more than one year). The average maturity to first call date of the medium- and long term debt issued during FY 2012 was approximately 4 years. In FY 2012, IBRD raised debt in 23 different currencies. Short-term borrowings IBRDs short-term borrowings consist primarily of discount notes issued in U.S. dollars Discount notes: As of June 30, 2012, discount notes totaled $4,908 million, a decrease of $4,706 million from June 30, 2011; this decrease was primarily due to the higher amount of issuance of medium- and long-term borrowings. The average daily balance for the year was $9,814 million, with average maturities of less than one year. Securities lent or sold under repurchase agreements: These are secured predominantly by high quality securities collateral, including government issued debt. As of June 30, 2012, IBRD did not have any securities that where lent or sold under repurchase agreements. Other short-term borrowings: These instruments consist of borrowings with maturities of one year or less. As of June 30, 2012, these borrowings totaled $1,601 million, an increase of $1,032 million over June 30, 2011. The average and year-end balances have increased over FY 2011 mainly due to changes in investor demand and opportunities in newly developing currency markets.

Medium- and Long-term borrowings In FY 2012, medium- and long-term debt raised directly in the capital markets by IBRD amounted to $38,406 million compared to $28,790 million in FY 2011. This increase reflects Managements decision to bolster IBRDs liquidity levels. Funding Operations Indicators FY 2012 Medium- and long-term funding raised (USD million) Average maturity a (years) Number of transactions $38,406 3.85 289 FY 2011 $28,790 3.87 329

Funding raised in any given year is used for IBRDs general operations, including loan disbursements, replacement of maturing debt and prefunding for future lending activities. IBRD determines its funding requirements based on a three year rolling horizon and funds approximately one-third of the projected amount in the current fiscal year. IBRD strategically repurchases or calls its debt to reduce the cost of borrowings, reduce exposure to re-funding needs in a particular year, or to meet other operational or strategic needs. During FY 2012, IBRD repurchased or called $7,394 million of its outstanding borrowings (FY 2011: $6,644 million) for a realized gain of $67 million (FY 2011: $34 million). Use of Derivatives Generally, new medium- and long-term funding is initially swapped into variablerate U.S. dollars, with conversion to other currencies being carried out subsequently, in accordance with loan funding requirements. In addition, IBRD uses derivatives to manage the re pricing risks between loans and borrowings. After considering the effects of these derivatives, virtually the entire loan and borrowing portfolios are carried at variable interest rates. The weighted average cost of IBRDs borrowing portfolio, excluding the effects of derivatives, was 2.98% and 3.44% as of June 30, 2012 and June 30, 2011, respectively. After the effect of borrowing related derivatives, the weighted average cost of the borrowing portfolio was 0.66% and 0.63% as of June 30, 2012, and June 30, 2011, respectively. A more detailed analysis of borrowings outstanding is provided in the Notes to Financial StatementsNote EBorrowings. Derivatives are also used for asset/liability management purposes to match the pool of liabilities as closely as possible to the interest rate and currency characteristics of liquid assets and loans. IBRD does not enter into derivatives for speculative purposes. A more detailed analysis of derivatives used by IBRD is provided in the Notes to Financial Statements- Note F-Derivative Instruments.