Reforming Multilateral Development Banks

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One of the subjects that Indian Prime Minister Mr Narendra Modi spoke about in his address to the US Congress, is the relevance of multilateral development banks (MDBs) and the need to reform them. Restructuring of MDBs has been receiving quite a bit of attention lately.

After the Second World War came to an end, delegates from 44 different countries met at Bretton Woods to come to an agreement over a series of new rules regarding international cooperation and reconstruction. The result of this conference was the creation of the International Monetary Fund and the World Bank Group. The latter being responsible for providing financial assistance for post-war reconstruction and economic development of less developed countries.

While the World Bank Group is the oldest and largest MDB, over the decades several other MDBs and regional development banks (RDBs) have emerged.

These institutions have retained their relevance as credible organisations to support the development of low and middle income countries. However, some discontent against them has begun to present itself. It is believed by many experts and leaders that these bodies are no longer suitable when it comes to the resources and methods to tackle emerging challenges. Their technical knowledge and experience would be put to better use if they can rediscover their role.

Besides eliminating poverty and bringing about shares prosperity, the new challenge is to broaden the mandate and vision to deal with transboundary issues. The ability of MBDs to finance for larger goals like addressing poverty and inequality without reducing development financing is something that needs to be enhanced. The current system, it appears, is proving inadequate for raising private finance.

While broadening the mandate of MBDs is important, it should not come at the cost of available funding for poverty alleviation. These organisations need to optimise their current balance sheets to create higher leverage from existing funds. Mobilisation of private capital needs immediate attention, as does the overhauling of the operating model of some MDBs.

From the Indian perspective, reforming MDBs would mean further advocating the voice of the Global South. Low income countries will be able to have more of a say in international trade and financing, and it won't be so easy for the Global North to silence them. Making these organisations more suitable for the challenges of the 21st century, and of a post-pandemic would will contribute greatly towards enhancing human welfare.