Ongoing Work Streams
Financial Capacity of Multilateral development BankS
Multilateral development banks - the World Bank, the major regional MDBs and a dozen or so MDBs owned by countries of the global South - are key to bringing the Sustainable Development Goals (SDGs) into reality. MDBs design best-practice projects, crowd in other investors, transfer knowledge and establish standards on quality and development impact.
The MDB financial model is extremely powerful way to leverage private resources for public policy goals. For example, with only US$20 billion in capital from shareholder countries from 1944 to 2020, the World Bank's main lending window has supplied about $750 billion in development financing (and counting), almost all of it coming from private investors buying World Bank bonds.
Deciding how much an MDB can safely lend is not obvious, since MDBs are very different from commercial banks and are not subject to regulatory oversight. Credit rating agencies have become the de facto regulators of MDBs, but their methodologies do not appear to adequately recognize MDB financial strength, which leads MDBs to be overly conservative in their lending to preserve their bond ratings. Promoting uniform, evidence-based standards on MDB financial capacity was the central question addressed by the G20’s Independent Review of Multilateral Development Banks Capital Adequacy Frameworks, which I helped create and of which I was a member.
To support implementation of a key recommendation of the G20 report, I’m currently working with the South African government as an external expert on their MDB reform agenda in their G20 presidency in 2025, and last year I did similar work with the Brazilian G20 presidency. My particular focus is on tracking progress in different CAF reforms and consider ways to make further progress going forward.
I led another CAF-linked project investigating MDB callable capital in collaboration with Chris McHugh, Eamonn White and Bianca Getzel. The project is supported by the MDB Challenge Fund (with resources from the Rockefeller Foundation, Bill and Melinda Gates Foundation and Open Society Foundation) and channeled through the ODI Global think tank. Our final report was presented at a public event at the sidelines of the World Bank/IMF Spring Meetings in April 2024. See here for more project information. Socialization of project findings and engaging with stakeholders on policy reforms continues.
With the support of the Bill and Melinda Gates Foundation and ODI Global, I initiated a research project between Dr. Steven Ongena and Thea Kolasa of the University of Zurich Department of Banking and Finance and myself at ETH Center for Development and Cooperation on the access of MDBs to bond markets. Working paper versions of the research can be found here and here.
Earlier research in this area includes two articles (from 2015 and 2018) for the G24 on the methodologies used by credit rating agencies to evaluate MDBs, as well as an academic article on the same topic; six proposals to strengthen MDB financial capacity; how MDBs could expand financing in response to the Covid-19 crisis; and the potential to include new shareholders to strengthen MDB capital base, a co-authored article with G20 panel colleagues on the CAF report recommendations and a second on MDB callable capital, among other work.
Key themes in this work stream include:
MDB capital adequacy
Relationship to credit rating agency methodologies
Preferred creditor status
Callable capital
Portfolio concentration risk
Options to build MDB equity, including:
New shareholders
Net income policy
Subordinated debt instruments (hybrid capital)
Leveraging concessional window equity
Options to bring in external resources, including:
Co-financing arrangements
Loan syndication
Guarantee instruments
Options to reduce MDB portfolio risk, including:
Securitization of MDB loan portfolios
Credit portfolio insurance
Portfolio guarantees
non-traditional development financiers
The panorama for development finance is undergoing a tectonic shift. The post-World War II era dominated by the Bretton Woods institutions and a handful of G7 countries is eroding, and new dynamics and relationships are being constructed before our eyes. The days when emerging and developing countries (EMDCs) simply accepted the development prescriptions handed down from Washington are long gone.
New institutions are rising to the fore in this fast-evolving international development finance ecosystem. Two new MDBs were created in 2016, the Asian Infrastructure Investment Bank (AIIB) and New Development Bank (NDB). Other MDBs - some of which have existed for decades - are growing rapidly, including Andean Development Corporation (CAF), Central American Bank for Economic Integration (CABEI), Trade and Development Bank (TDB), West African Development Bank (BOAD) and the Black Sea Trade and Development Bank (BSTDB).
With the support of a grant from the Rockefeller Foundation, I am leading a research project at ETH Center for Development and Cooperation to examine the obstacles facing and development potential of a set of Southern-led MDBs. The first paper from the project was published in early 2023, providing an overview of Southern-led MDBs and highlighting the recent experiences of CAF, TDB and BSTDB. In early 2025 I released two more papers, one on how Southern-led MDBs are facing sovereign debt challenges in Africa and a second on innovations in climate finance by Southern-led MDBs.
I’ve written a number of papers on China’s role in the multilateral system, including one with Yunnan Chen of ODI on China’s multilateral strategy; one reviewing the first years of operation of the AIIB and NDB for the G24; and an earlier piece on prospects for AIIB and NDB at the time of their creation.
What do the rise of these MDBs mean for international development finance? Key issues include:
Development impact and knowledge value-added
Accessing funding via capital markets and official financing sources
Project quality standards and environmental/social safeguards
Competition with traditional DFIs
Geopolitical strategy
Infrastructure for Development
The international development agenda has in recent years increasingly focused on ramping up investment in basic infrastructure in emerging and developing countries (EMDCs). Estimates of infrastructure needs vary, but most coincide on a gap of at least $1 trillion per year to 2030 between the current investment rhythm and the level needed to keep pace with economic growth, generate opportunities for a fast-growing global population and shift our planet onto a sustainable path.
In the face of constrained EMDC public sector budgets and limited risk appetite from private investors, how will this gap be filled? Unquestionably, development finance - and in particular multilateral development banks - will need to play a leading role, as has been recognized by the G20, OECD, United Nations and other leading international fora in recent years. MDBs are the only actors able to act at the financial and geographic scale necessary, and at the same time keeping economic, social and environmental sustainability concerns at the forefront. To do so, MDBs need to shift their operational model from direct investors to catalysts: MDB financing must be used judiciously to crowd in much greater levels of public and private investments.
This requires substantial changes in MDB policy and operational culture, including in the following areas:
Supporting the shift of EMDC infrastructure to become an asset class for institutional investors.
Directly finance EMDC projects with high potential public goods provision that cannot obtain private financing.
Ramp up support for project preparation, a key bottleneck currently.
Streamline bureaucratic requirements that limit demand for MDB infrastructure support, while not lowering quality standards.
The international community also should look to non-traditional development financiers as partners in this effort. That includes growing and new MDBs such as the Andean Development Corporation, the Asian Infrastructure Investment Bank and New Development Bank, as well as national development banks and export agencies from middle-income countries like China, Brazil, Korea, India and elsewhere.
Written work in this workstream includes articles written as part of a series of studies for the G24 and Global Green Growth Institute on MDBs and national development banks in infrastructure provision and an evaluation of how MDBs can scale up infrastructure financing for ODI.