New Development Bank

Make PDF

NDB Vs ADB and NDB Vs AIIB

• The NDB’s emerging business model has three distinctive features. 
• It is symbolically significant that in the day-to-day management and governance of the bank, the five member states have an equal share. 
• No single country has a veto in any form. 
• The Bank is fully controlled by its members who all represent the borrowing countries.

Asian Development Bank:

• The Asian Development Bank (ADB) was visualised in the early 1960s as a financial institution that would be Asian in character and promote economic growth and cooperation in one of the poorest regions in the world. 
• It has been chiefly concerned with herculean efforts to eradicate extreme poverty since its inception. 
• It assists its members and partners by various instrumentalities like providing loans, technical assistance, grants, and equity investments to promote social and economic development.
• During the 1960s, ADB focused much of its assistance on food production and rural development.
• During the 1970s the key thrust area was energy.
• During the 1980s, the ADB brought out further innovation in its approach towards meeting the contextual and differential developmental requirements of the region. 
• As of 31 December 2020, ADB’s shareholders consist of 49 developing and developed members within Asia and the Pacific region, and 19 members from outside the region. 
• Japan and the United States America are the largest shareholders with 15.6% stake each.

 Asian Infrastructure Investment Bank (AIIB):

• The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank with headquarters in Beijing, China.
• Its mission is to improve the economic and social outcomes in Asia.
• Starting with 57 founding members, the bank now has 103 approved members.
• It focuses on investment in sustainable infrastructure and developmental projects.
• Membership to the bank is open to all members of the Asian Development Bank or the World Bank. 
• AIIB membership is divided into regional and non-regional members, where regional members are those located within the areas classified as Asia and Oceania by the United Nations.
• The bank also allows non-sovereign entities to apply for membership provided their home countries are members.
• Although some analysts hypothesise that the Asian Infrastructure Investment Bank (AIIB) and the NDB would compete with one another, currently there is no evidence of competition among these institutions.
• Talking about the relations with AIIB, officials from the NDB’s member states point out the difference in the member states of the NDB and AIIB as well as a potential to complement in working together to meet development and infrastructural needs.
• According to a representative of the Bank’s management, the NDB and AIIB are sister institutions in many respects. 
• These two banks have complementary mandates and different geographic focuses, with the NDB being more focused on BRICS countries. 
• At the same time, there is a certain overlap between mandates of the NDB and the AIIB, as both of them are aimed at developing infrastructure and pay special attention to sustainable development. 

NDB’s importance for third world countries 

The formation of New Development Bank (NDB) by the BRICS nation is because of the two main reasons. 

Bridging the Funding Gap:

• Third world countries need billions of dollars for development of social and economic infrastructure and any new source of funding is always welcome. 
• As per the estimates of World Bank, a $1 trillion infrastructure investment “gap” exists in developing countries.
• In 2013, a Mckinsey Global Institute report found that “globally, $57 trillion in new infrastructure investment would be required in the period up to 2030, simply to keep up with projected GDP growth. This estimate suggests a requirement of $3.2 trillion investment a year.” 
• When assessed against current infrastructure spend by all the multilateral development banks combined, this leaves a huge financing gap. 
• The NDB and other new institutions such as the AIIB are contributing to closing this funding gap. 
• As opposed to being competitors or rivals, the World Bank and others are viewed as partners in development.

Avoiding Foreign Exchange Risks

• 27% of the NDB’s project approvals are denominated in the local currencies of the respective borrowing members instead of the US Dollar.
• The NDB is committed to develop and deepen local capital markets in its member states by providing loans denominated in local currency in addition to US dollar loans. 
• This will assist borrowing countries and clients to manage and avoid the foreign exchange risks inherent in MDB loans.
• This reflects the Bank’s desire to address currency volatility risk and its detrimental impact on the creditworthiness of project cash flows.

Alternative for Loans Rejected by IMF/WB:

• The developing countries have relatively lesser role in the decision making in the major global financial institutions which are the International Monetary Fund (IMF) and World Bank (WB). 
• These institutions are dominated by the west in general and the United States in particular where developing countries have been demanding more democratization of the IMF and WB since long.  
• The word ‘new’ in the New Development Bank is the testimony of the fact that BRICS nations want an alternative to the world financial order established by WB and IMF.  

Make PDF