Multilateral Development Banks (MDBs)

 Multilateral Development Banks (MDBs)

Current Context

The G20 expert group on reforming multilateral development banks (MDB) is slated to hold its first in-person meeting in Washington shortly.

About

·         The group’s mandate includes an evaluation of the scale of funding ramp-up needed for institutions like the World Bank (WB) and the International Monetary Fund (IMF) to be able to finance member countries’ needs, with possible mechanisms to raise more funds from the private sector and co-ordinate more effectively among the different institutions.

Multilateral Development Banks (MDBs)

·         A multilateral development bank (MDB) is a financial institution established under international law to facilitate financing and provide advisory services for developing countries. The owners of multilateral development banks are a national government and other international institutions and organizations.

·         They have the common task of fostering economic and social progress in developing countries by financing projects, supporting investment and generating capital for the benefit of all global citizens.

·         The World Bank, Asian Development Bank and New Development Bank (BRICS bank) are examples of multilateral development banks.

Significance of Multilateral Development Banks

·         It provides long-term loan to member or developing nations for developmental projects which lead to sectoral development and economic growth of the nation.

·         It provides soft loan for socio-economic projects like rural road connectivity project. E.g., Pradhan Mantri Gram Sadak Yojana.

·         It works with client countries at national and sub-national levels to increase available domestic public funds for sustainable development, including raising tax revenues, improving the quality of expenditures, and managing risks.

·         It supports countries at the time of recession or facing economic crisis like during COVID-19.

·         It also provides long-term loan to private companies at market rates which help in development of industry or sector in the country.

·         It supports developing and least developed nations to fight climate change through funding of green projects like renewable power projects.

·         It helps countries to generate, attract, and manage additional flows to support sustainable development, from increased domestic resource mobilization through to private sector activities and investment.

 

 

 

Challenges of Multilateral Development Banks

·         It is highly dominated by developed nations which uses Multilateral Development Banks fund for their vested diplomatic interest. E.g., the World Bank and Asian Development Bank are dominated by the US and Japan.

·         It has weak legal frameworks and implementation capacity which lead to inadequate return on developmental project to the borrowing countries due to corruption and political instability in that country.

·         Some MBDs have poor records of transparency in decision making and governance structure which lead to demand for governance structure reforms by different stakeholders.

·         It has insignificant fund for supporting the developing and underdeveloped countries in time of recession or economic crisis.

Conclusion

·         MDBs have a key role in raising awareness and building capacity, while also providing essential financing on the basis of countries’ development plans, through which aligning with SDGs responds to shared responsibilities, by MDBs, countries of operations and stakeholders involved.

·         MDBs’ potential could be further unleashed if better mobilised around a holistic and longer-term approach, steering their operations towards the goals defined under the 2030 Agenda and the needs identified at country level.