Multilateral Development Bank (MDB) – Definition

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Multilateral Development Bank Definition

A multilateral development bank (MDB) refers to an international financial institution, chartered by at least two nations, in order to promote economic development and growth in poorer or less-developed countries.

Important takeaways:

  • Multilateral development banks came into existence after World War II for revamping war-struck countries, and promoting economic stability.
  • MDBs offer funds for improving energy, education, infrastructure, etc. in developing nations.
  • MDBs operate internationally and holds assets of trillions of dollars.

A Little More on What is a Multilateral Development Bank

Rather than operating for maximizing shareholders’ wealth, multilateral development bank emphasize on developing a nation and solving critical issues such as poverty, unemployment, economic inequality, etc. These banks offer grants and loans to nations with minimal or no interest rates, which they can use in developing infrastructure, promoting education, making environment sustainable, and a lot more.

Multilateral development banks operate for boosting economic growth in developing nations. During the financial crisis when a few financial institutions were issuing grants and funds, multilateral development banks offered $222 billion so as to help the economy in getting stabilized.

Multilateral development banks are of two types:

  • The first type, comprising the most reputed and biggest financial institutions, offers grants and loans to the poorer nations. It has a set criterion of considering borrowing countries as poorer nations, and non-borrowing countries as wealthier ones. For example: the World Bank (1945) and the Inter-American Development Bank (1959).
  • The second form of multilateral development bank consists of governments of poor nations who can make an accumulated borrowing through MDB. This enables them to borrow money at lower rates of interest. For example: the Caribbean Development Bank (1969).

Multilateral development banks are governed by international laws. MDBs teamed up with other financial institutions like the International Monetary Fund, for redeveloping the nations affected by World War II, and bringing stability in the financial system globally. For achieving this objective, the U.S. and other countries formed the Bretton Woods institutions. The World Bank, semi-officially regulated by the United States, is known as one of the Bretton Woods institutions.

There are a few nations who don’t admire the idea of the United States having control over the regional MDBs and the World Bank. As a sheer replacement for the American-controlled institutions, the Chinese President brought Asian Infrastructure Investment Bank (AIIB) in Oct, 2013. AIIB, headquartered in Beijing, started operating in the year 2016. Though the U.S. prevented its allies such as Australia and South Korea from signing the agreement, both the countries signed it followed by other 58 nations and 22 prospective member countries. In 2019, AIIB has a total member count of 70 along with 23 prospective members.

Major Multilateral Development Banks

Here is the list of top-notch multilateral development banks with the total assets they maintained as of Dec. 31, 2017. However, the World Bank Group is an exception that shows its assets as on Dec. 31, 2018.

  • European Investment Bank with an asset size of $621.9 billion
  • International Bank for Reconstruction and Development, World Bank Group with assets worth $413.3 billion
  • International Development Association, World Bank Group with $201.6 billion
  • Asian Development Bank with $182.4 billion
  • Inter-American Development Bank with $126.2 billion
  • European Bank for Reconstruction and Development with total assets of $66.6 billion
  • African Development Bank with $45.3 billion
  • Islamic Development Bank with $27.4 billion assets
  • Asian Infrastructure Investment Bank with $19.0 billion
  • New Development Bank having total assets of $10.2 billion
  • Central American Bank for Economic Integration having assets of $9.7 billion

References for “Multilateral Development Bank – MDB

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