The Future of Multilateral Development Banks

Multilateral development banks—the World Bank and two dozen regional and sub-regional MDBs—have led the global development agenda for decades, providing financing and knowledge services to support economic growth and improve living standards. In recent years, however, the global economic and political panorama has shifted, putting pressure on MDBs to adapt or lose relevance.

This research project seeks to understand i) what pressures MDBs are facing, ii) how different MDBs are reacting to those pressures and iii) what further reforms are needed to maximize the impact of their operations on development outcomes.

Specific themes addressed within this broad research agenda include:

• The workings of the MDB financial model and the use of innovative financing approaches
• The creation of new MDBs, such as the Asian Infrastructure Investment Bank and BRICS New Development BankThe recent rapid growth of smaller MDBs such as the Development Bank of Latin America and the Trade and Development Bank in eastern Africa
• Reforming MDB operational policies, such as environmental and social safeguards and policy-based lending, to better suit current social, economic and political realities among borrower nations
• The impact of a shifting geopolitical landscape – notably the rise of China and other emerging market nations as well as the retreat from multilateralism by the US under the Trump administration – on the governance and activities of MDBs

The MDB model is uniquely well-suited to help coordinate responses to development challenges, such as rising economic inequality and climate change. But some MDBs have been slow to adapt to new global realities. This project is intended to provide inputs to academic research on development as well as to policy makers seeking to improve the effectiveness of MDBs.

With funding from the Gates Foundation and in collaboration with Dr. Steven Ongena at the University of Zurich Institute for Banking and Finance, we investigate the engagement of MDBs with global capital markets. MDBs raise most of their resources from bond markets – making them, in a sense, the original impact investor – but almost no research has been done to understand how investors view MDBs compared to other bond issuers. Research results may have important implications for how MDBs raise development resources. 

Researchers: Chris Humphrey