A Multilateral Development Bank (MDB) is an international financial institution formed by multiple countries driven to spur economic development in financially struggling nations. MDBs encompass member nations from both developed and developing countries. These banks finance initiatives promoting social and economic growth, from constructing vital infrastructure to ensuring communities have access to clean water.
Key Insights
- Historical Origins: MDBs emerged post-World War II, primarily aimed at rebuilding war-affected nations and solidifying global financial systems.
- Modern Focus: MDBs prioritize funding projects in infrastructure, energy, education, and environmental sustainability in developing regions.
- Development Over Profit: Unlike commercial institutions, MDBs seek to improve economic conditions in impoverished areas through grants and low-interest loans instead of pursuing profit.
- Global Presence: MDBs operate globally, holding assets totaling trillions of dollars, symbolizing their massive influence on the international stage.
How Multilateral Development Banks Function
MDBs operate under international laws, setting themselves apart from other financial bodies, such as the International Monetary Fund (IMF). Following WWII, the Bretton Woods institutions—including the semi-officially U.S.-dominated World Bank—were established to restore nations and stabilize the post-war financial landscape.
Rather than seeking profit maximization, MDBs focus on developmental goals like eradicating extreme poverty and diminishing economic inequality. They extend low or interest-free loans and provide grants to support projects in diverse domains, including infrastructure and environmental preservation.
During the global financial crisis, MDBs were crucial, distributing $222 billion for global stabilization. Besides financial aid, MDBs offer expert advisory, auditing, and project monitoring services to member states for successful project implementation.
Varieties of Multilateral Development Banks
Traditional Lenders and Granters
These institutions offer loans and grants, delineating between lower-income borrowing members and wealthier non-borrowing members. Familiar names include the World Bank (established in 1945) and the Inter-American Development Bank (IDB) (established in 1959).
Borrower Collectives
Low-income nations form these banks to collectively borrow at favorable rates, with the Caribbean Development Bank (CDB), founded in 1969, being a prominent example.
According to the World Bank’s 2019 Annual Report, $49.4 billion was disbursed in grants and low-cost loans to member countries that year.
Notable Considerations and Challenges
The U.S.’s significant sway over entities like the World Bank and regional MDBs—such as the Asian Development Bank (ADB)—has met resistance. China’s introduction of the Asian Infrastructure Investment Bank (AIIB) in 2016 as an alternative marked a notable shift. Despite initial U.S. pushback, including pressure on South Korea and Australia (who eventually joined), the AIIB grew notably, boasting 70 members and 23 prospective members by 2019.
Top Multilateral Development Banks
Here are key MDBs listed by total assets as of Dec. 31, 2018, with the World Bank Group reflecting Dec. 31, 2019 figures (exchange rates as of April 15, 2020):
- European Investment Bank: €555.8 billion ($606.5 billion)
- International Bank for Reconstruction and Development, World Bank Group: $283 billion
- Asian Development Bank: $191.9 billion
- International Development Association, World Bank Group: $188.5 billion
- Inter-American Development Bank: $129.5 billion
- European Bank for Reconstruction and Development: €61.9 billion ($67.7 billion)
- African Development Bank: 33.8 billion UA
- Asian Infrastructure Investment Bank: $19.6 billion
- Islamic Development Bank: 22 billion Islamic dinars ($18.5 billion)
- Central American Bank for Economic Integration: $10.9 billion
- New Development Bank: $10.4 billion
Related Terms: World Bank, IMF, Infrastructure Investment.
