Development Banks
Asian Development Bank (ADB)
The Asian Development Bank (ADB) is a regional development organization dedicated to
promoting economic and social development in Asia and the Pacific. Established in 1966,
the ADB is headquartered in Manila, Philippines.
It serves as a multilateral financial institution and comprises 68 member countries, both
from within and outside the Asia-Pacific region.
ADB members
ADB Members and AIIB
ADB Members Prospective Funding Members
Asian Infrastructure Investment Bank (AIIB)
Objectives
Poverty Reduction:
Improve the living standards
Improve the quality of life for people in the region
Sustainable Economic Development
Long-term economic growth without compromising
environmental and social sustainability.
Inclusive Economic Growth
Inclusive economic growth, ensuring that the benefits
of development reach all segments of society,
including vulnerable and marginalized groups.
Objectives
Regional Cooperation and Integration
Initiatives to improve trade
Infrastructure connectivity
Cross-border investments.
Private Sector Development
Initiatives to enhance the business environment
Promote entrepreneurship
Attract private investments to complement public sector
efforts.
Objectives
Infrastructure Development
This focus aims to address critical infrastructure gaps and
stimulate economic growth. Such as transportation, energy,
water supply and sanitation, and information and
communication technology.
Human Development
It emphasizes human development, including investments in
education, healthcare, and social protection.
Environmental Sustainability
It supports projects that incorporate climate change mitigation
and adaptation measures, environmental conservation, and the
adoption of green technologies.
Objectives
Good Governance and Institutional Capacity
Building
Development initiatives can be made more effective by
supporting reforms in public administration, legal
frameworks, and financial management.
Knowledge Sharing and Capacity Development
ADB promotes knowledge sharing and capacity
development by providing technical assistance, and
policy advice, and facilitating the exchange of best
practices among its member countries.
Financing and Operations of ADB
The Asian Development Bank (ADB) finances its operations through a
combination of capital contributions from its member countries, borrowing in
international financial markets, and reflows from its lending activities.
Capital Structure:
• ADB has an authorized capital stock, which represents the total amount of
capital that the bank can use for its operations. In January 2022, the authorized
capital stock was around $165 billion.
• Member countries make capital subscriptions, which are essentially their
financial commitments to the ADB. These subscriptions determine the amount
of capital available to the bank for lending and other activities.
Financing and Operations of ADB
Borrowing in International Markets:
• ADB can raise funds by issuing bonds in global financial
markets to help with its lending activities.
Reflows and Repayments:
• ADB earns income from interest and charges on loans and
investments. Repayments from member countries
contribute to financial sustainability.
Financing and Operations of ADB
Concessional and Non-Concessional Finance:
• ADB provides both concessional and non-concessional
financing to its member countries. Concessional
finance typically involves lower interest rates and
longer repayment periods, making it more suitable for
low-income countries.
• Non-concessional finance is provided to middle-
income and creditworthy low-income countries at
market-based interest rates.
Financing and Operations of ADB
Technical Assistance and Grants
In addition to loans, ADB also provides technical assistance and grants to support capacity building, policy advice, and
project preparation. These funds are often used for activities that may not be financially viable through traditional lending
methods.
Project Implementation
ADB collaborates with member countries to develop and implement successful projects. This includes identifying,
preparing, and supervising projects.
Projects can cover a wide range of sectors, including infrastructure (transportation, energy, water supply), education,
healthcare, and environmental sustainability.
The BRICS Development Bank
or
New Development Bank
The BRICS Development Bank, officially known as the New
Development Bank (NDB), is a multilateral development bank*
established by the BRICS countries – Brazil, Russia, India, China,
and South Africa. The idea for the bank was first proposed during
the fourth BRICS summit in 2012, and it was officially launched
at the sixth BRICS summit in 2014.
Multilateral development bank: Here “multilateral" means they
involve multiple countries as shareholders and contributors.
The BRICS Development Bank
The primary purpose of the BRICS Development Bank
is to provide financial and technical assistance for
infrastructure and sustainable development projects in
the BRICS countries and other emerging economies.
Key features of the BRICS Development Bank include:
Capital Structure: The initial subscribed capital of the
bank is $50 billion, with an authorized capital of $100
billion. Each of the five BRICS members has an equal
share in the bank's capital, and they contribute to the
capital in installments.
The BRICS Development Bank
Governance: The governance structure of the NDB is designed
to ensure equal decision-making among its member countries.
Each member country has an equal say in the decision-making
process, regardless of economic size.
Projects: The NDB finances various projects, including those
related to energy, transportation, water resources, and sustainable
development. It focuses on projects that promote inclusive and
sustainable growth.
The BRICS Development Bank
Cooperation: The NDB collaborates with other
international financial institutions and organizations to
complement existing efforts in global development. It seeks
partnerships with the World Bank and the International
Monetary Fund (IMF).
Sustainability: The NDB places a strong emphasis on
environmentally sustainable and socially inclusive
development. It aims to support projects that adhere to high
environmental and social standards.
European Bank for Reconstruction
and Development (EBRD)
The European Bank for Reconstruction and Development (EBRD) is
a London-based multilateral development bank that was established
in 1991 with the primary aim of promoting economic development
and fostering the transition to market-oriented economies in its
operational regions.
Initially focused on the former Eastern bloc countries, it has
expanded to support the development of more than 30 countries from
Central Europe to Central Asia.
largest sole shareholder being the United States.
EBRD is owned by 71 countries and two European Union
institutions, with Algeria as its latest shareholder since October 2021
European Bank for Reconstruction
and Development (EBRD)
Despite being a public sector shareholder, it invests in
private companies with commercial partners.
Ownership and Governance: The governance structure
includes a Board of Governors, a Board of Directors, and a
President. Each member country has shares and voting
power based on their financial contributions
Financial Instruments: The EBRD provides various
financial instruments, including loans, equity investments,
guarantees, and technical cooperation.
World Bank Group
The World Bank Group, also referred to as the Bank Group
is one of the world’s largest sources of funding and
knowledge for developing countries. Its main focus is on
working with the poorest people and the poorest countries.
The Bank Group is managed by its member countries and
assists member countries only.
The Bank Group works in partnership with a wide range of
actors, including government agencies, civil society
organizations, other aid agencies, and the private sector.
World Bank Group
The Bank Group uses financial resources and
its extensive experience to partner with
developing countries and the main role of
WBG is:
To reduce poverty,
To increase economic growth
To improve the quality of life
World Bank Group
Correction: IDA 1960 and IFC 1956
World Bank Group
World Bank Group
World Bank Group
The IBRD offers assistance to middle-income and poor, but creditworthy, sovereign countries.
The IDA offers loans to the world's poorest countries. These loans come in the form of "credits" and are essentially
interest-free. They offer a 10-year grace period and hold a maturity of 35 years to 40 years.
The IFC works to promote private sector investments by both foreign and local investors.
The MIGA offers insurance against the political risk that an investment in a developing country may bear.
The ICSID facilitates and works toward a settlement in the event of a dispute between a foreign investor and a local
country.
World Bank Group
• To become a member of the Bank, a country must first join the International Monetary Fund
(IMF).
• Membership in IDA, IFC, and MIGA are conditional on membership in IBRD.
• The World Bank is like a cooperative, made up of 189 member countries.
• The size of the World Bank's shareholders depends on the size of a country's economy.
World Bank Group
• The Board of Governors is the highest decision-making body of the World Bank.
• Board of Directors: 25-member board who work on-site at the Bank and conducts the daily
businesses.
• Board of Directors: The five largest shareholders each have an individual member, and the
additional 19 EDs represent the rest of the member states as groups of constituencies.
• The World Bank Group President chairs its meetings and is responsible for the overall
management of the Bank. He is nominated by the largest shareholder i.e. USA.
INDIA: World Bank Group
IBRD borrowers are typically middle-income countries that have some access to private
capital markets.
Some countries eligible for IDA lending because of low per capita incomes are also
eligible for some IBRD borrowing because of their creditworthiness. These countries are
known as “blend” borrowers.
India graduated from IDA lending in 2014. No country graduated from IDA lending since
2014.
INDIA: World Bank Group
INDIA: World Bank Group
IBRD and IDA Cumulative Lending by Country,
Fiscal Years 1945–2010
Amount ($ millions)
Economy IBRD IDA TOTAL %
India 44,371.6 38,720.2 83,091.8 11.15%
Mexico 48,597.8 - 48,597.8 6.52%
China 37,905.2 9,946.7 47,851.9 6.42%
Brazil 47,445.7 47,445.7 6.37%
Indonesia 38,214.4 2,875.3 41,089.7 5.51%
Total 523,632.6 221,190.2 744,822.8
India is the largest IDA borrower at $ 44.26 billion, followed by Bangladesh ($18 billion) and Pakistan ($14
billion). China’s borrowing stands at US$ 10 billion. (2014)
CRITICISM: World Bank Group
Under-representation of Global South
The distribution of voting power remains severely imbalanced in favor of the US, European countries, and Japan. The US, with its
majority in shares, holds an effective veto in decision-making.
Conditional loans and biases
The bank often makes the loan conditional on the implementation of its Structural Adjustment Programme, such as fiscal
consolidation and liberalization.
Undermines democratic ownership
It has also been criticized for the role played by the important shareholders in its decision-making and choice of interventions,
including its support of dictatorships.
CRITICISM: World Bank Group
Neo-liberal policies
The bank, along with IMF pushes for liberalization, privatization, and free market capitalism
irrespective of the country they are helping.
Undermining climate goals
The growth-based approach of the Bank continues to fund a considerable number of fossil fuel
projects and mega-infrastructure projects such as dams. This undermines the global efforts
towards sustainable development and abating climate change.
International Monetary Fund (IMF)
In the 1920s and 1930s, many countries attempted to maintain domestic income in the face of shrinking markets
through competitive devaluation of their currencies and resorting to exchange and trade restrictions.
They soon accepted the need for a globally agreed code of conduct regarding international trade and financial
matters.
In July 1944, 45 countries reached an agreement in Bretton Woods, on the constitution and functions of an
international institution to supervise and promote an open and stable international monetary system.
The IMF existed on December 27, 1945, when 29 countries signed the Articles of Agreement.
International Monetary Fund (IMF)
The IMF’s basic purpose of financing short-term payment imbalances between member
countries under the fixed exchange rate system created after World War II.
Since capital markets were not integrated at that time, these payment imbalances arose
from trade and other current transactions among countries.
The financial mechanism designed to fulfill this purpose is in the General Department of
IMF, specifically the General Resources Account, or GRA.
International Monetary Fund (IMF)
Objectives
The IMF aims to promote stability in exchange rates to The IMF collaborates with other international
facilitate international trade and investment. organizations, such as the World Bank and the World
Trade Organization (WTO), to promote a
The IMF provides financial assistance to member comprehensive approach to global economic issues.
countries facing balance of payments problems, helping
The IMF works to promote the balanced growth of
them overcome short-term economic challenges. international trade by providing a forum for consultation
and collaboration among member countries.
The International Monetary Fund (IMF) provides
The IMF aims to contribute to the development of high
technical assistance and capacity development programs
levels of employment and real income in member
to help member countries enhance their economic
countries.
institutions, policies, and governance.
International Monetary Fund (IMF)
Eligibility for membership
Since 1945, membership has expanded steadily to include nearly all
countries in the world today.
Membership eligibility is based on three basic requirements:
The applicant must be a country
It must be in control of its foreign affairs
It must be willing and able to fulfill the obligations of membership.
International Monetary Fund (IMF)
The following are some key dates in the history of the The IMF officially began its operations on March 1, 1947.
International Monetary Fund (IMF):- In May 1947, France became the first country to receive
The first Board of Governors meeting took place on March funds from the IMF.
8, 1946.
The IMF has 190 member countries (January 2022).
The first Executive Board meeting was held on May 6, 1946.
IMF: Need and issues in BWS
The Bretton Woods fixed exchange rate system came under pressure during the
1960s
World trade was growing exponentially
Gold production was inadequate
Continuing growth in U.S. dollar reserves required a persistent deficit in the
U.S. balance of payments
Which leads us to The Dollar Glut
This is expressed by Robert Triffin also known an Triffin's Dilemma
IMF: Need and issues in BWS
If the United States were to stop running balance of payments deficits, the international
community would lose its largest source of additions to reserves.
This could result in a shortage of liquidity that pulls the world economy into a
contractionary spiral, leading to instability.
If U.S. deficits continued, a steady stream of dollars would continue to fuel world
economic growth.
However, excessive U.S. deficits (dollar glut) would erode confidence in the value of the
U.S. dollar.
Without confidence in the dollar, it would no longer be accepted as the world's reserve
currency. The fixed exchange rate system could break down, leading to instability.
IMF: Need and issues in BWS
Triffin's Solution
“Triffin proposed the creation of new reserve units. These units would not
depend on gold or currencies but would add to the world's total liquidity.
Creating such a new reserve would allow the United States to reduce its
balance of payments deficits, while still allowing for global economic
expansion.”
International Monetary Fund (IMF)
Two major in the financial structure of the IMF between 1965-70:
The creation of special drawing rights (SDRs) in 1969 and the establishment in the IMF of a
separate SDR Department to conduct all operations in SDRs.
The involvement of the IMF in providing financial assistance on concessional terms to the
IMF’s poorest members beginning in late 1970
SDR: Special drawing rights
Special drawing rights (SDRs) were created in 1969 as an international reserve asset to
supplement other reserve assets whose growth was seen as inadequate to finance the expansion
of international trade and finances under the Bretton Woods system in the postwar period and to
support the Bretton Woods fixed exchange rate system.
The SDR is not a currency, nor is it a claim on the IMF, it serves as the unit of account of the
IMF and a number of other international organizations.
The IMF may allocate SDRs unconditionally to members (participants) who may use them to
obtain freely usable currencies to meet a balance of payments need without undertaking
economic policy measures or repayment obligations.
SDR: Special drawing rights
Each member of the IMF is assigned a quota expressed in special drawing rights (SDRs)
The IMF’s unit of account for financial transactions with member countries.
The member’s capital subscription to the IMF is equal to its quota
Members pay up to 25 percent of their quota in the form of reserve assets and the remainder in
their currency.
The total quota or capital subscription of all members is currently SDR 212.8 billion.
SDR: Special drawing rights
The SDR Department was established within the IMF to conduct all SDR transactions.
The IMF Articles of Agreement require that the General Department (Before SDR) and the
SDR Department be kept strictly separate.
A member of the IMF need not be a member of the SDR, although all current IMF
members are also members of the SDR Department.
Participants’ holdings of SDRs are part of their international reserves, together with their
holdings of gold, foreign exchange, and reserve position in the IMF.
SDR: Special drawing rights
When the SDR was redefined as a basket of currencies in 1974, it comprised 16 IMF members.
The 16-currency SDR basket was challenging to manage as a unit of account because it was difficult
and costly to replicate and because it included some currencies that were not widely traded.
To address these shortcomings, in 1981 the valuation of the SDR was simplified: it would be valued
using the same five-currency basket.
The current SDR basket consists of five currencies: the U.S. dollar, euro, Chinese renminbi, Japanese
yen, and pound sterling.
In November 2015, the Executive Board decided to include the Chinese renminbi in the SDR basket,
effective October 1, 2016
SDR basket
When the SDR was redefined as a basket of currencies in 1974, it comprised 16 IMF 1981: basket currencies
members. were: the U.S. dollar,
Japanese yen, Deutsche
The 16-currency SDR basket was challenging to manage as a unit of account because
mark, French franc, and
it was difficult and costly to replicate and because it included some currencies that pound sterling
were not widely traded.
To address these shortcomings, in 1981 the valuation of the SDR was simplified: it
would be valued using the same five-currency basket. With the introduction of
the euro in 1999, the
The current SDR basket consists of five currencies: the U.S. dollar, euro, Chinese Deutsche mark and
renminbi, Japanese yen, and pound sterling. French franc were
replaced in the SDR
In November 2015, the Executive Board decided to include the Chinese renminbi in
basket
the SDR basket, effective October 1, 2016
SDR: Valuation
The IMF’s Executive Board reviews the SDR valuation every 5 years.
Inclusion of currency
Exclusion of currency
relative weights of those currencies.
The Executive Board decides every 5 years the initial weights of the currencies in the basket, but
the weights change over time with exchange rate developments.
Because SDR fixed the quantity of basket currency.
A change in exchange rate leads to a change in weights.
SDR: Valuation
SDR: Valuation
SDR
The SDR is a reserve asset created by the IMF and allocated to participating
members in proportion to their IMF quotas.
A member may use SDRs to obtain foreign exchange reserves from other members and to
make international payments, including to the IMF
The SDR is not a currency, nor is it a liability of the IMF, rather it is primarily a potential claim
on freely usable currencies.
Members are allocated SDRs unconditionally and may use them to obtain freely usable
currencies to meet a balance of payments financing need without undertaking economic
policy measures or repayment obligations
SDR
A member that makes net use of its allocated SDRs pays the SDR interest rate on
the amount used, while a member that acquires SDRs over its allocation receives
the SDR interest rate on its excess holdings.
Suppose, India’s and Bhutan’s quota of SDR is 100 each. (The first question is how to decide this
value, and is equal to the country’s subscription based on the relative strength of the economy in
the world. A country has to keep this value with the IMF).
Now, Bhutan has transferred 25 SDR to India to pay BOP.
SDR
Country SDR with IMF before payment SDR with IMF after payment
India 100 125
Bhutan 100 75
A member that makes net use of its allocated SDRs pays the SDR interest rate on the amount used,
while a member that acquires SDRs over its allocation receives the SDR interest rate on its excess
holdings.
Bhutan will now pay interest on SDR as it has less SDR than the allocated limit with the International
Monetary Fund (IMF). Meanwhile, India will receive interest because it has more SDR than
allocated. To avoid interest payments, Bhutan has to purchase 25 SDR, while India can sell excess
SDR at any point in time to encash them.
SDR: Interest calculation
The interest paid to members on their SDR
holdings and charged on their SDR allocation.
The SDR interest rate is determined weekly and
is based on a weighted average of representative
interest rates on short-term financial debt
instruments in the money markets of the SDR
basket currencies
If the weighted average falls below the floor for
the SDR interest rate of 0.050 percent (5 basis
points).
SDR: Interest calculation
At a Glance: India's Relations with the IMF
• Current IMF membership: 190 countries
• India Joined on December 27, 1945; Article VIII
• Total Quota: SDR 4,158.20 million
• Outstanding loans: None
• India's voting share in IMF is 2.76%, while China's is 6.41%. USA's voting share is
17.45% which is the highest in IMF
