Who Controls Multilateral Development Finance?

The 21^st century has seen a surge in interest in development banking, characterized by waves of capital increases in existing banks and the creation of two new regional development banks (RDBs): the Asian Infrastructure Investment Bank (AIIB) and New Development Bank (NDB). Scholars have noted these banks’ creation was motivated in part by a perceived lack of voice by their core members (and particularly China) as borrowers at existing multilateral development banks (MDBs). While significant attention has been paid to the lack of emerging market and developing country voice and representation on individual MDB boards, no similar analysis exists to date regarding country voice and representation across the entire MDB regime globally.

A new journal article by Rebecca Ray approaches the question by using recognized power indices to examine borrower representation and the equality (or inequality) of member vote distribution on MDB boards. As corollaries, her work inquires as to differences among global MDBs, RDBs and sub-regional development banks (SRDBs), and the differences made by the creation of the AIIB and NDB.

Main findings:

• RDBs and SRDBs have much greater borrower representation than global MDBs. They also share governance more equally among members, as measured through Gini coefficients of member votes on the boards of directors that make lending decisions. This finding holds not only when “borrower” is defined in de jure terms, based on members’ borrowing privileges, but also in de facto terms, based on a correlation between voting power and lending portfolio share.
• The AIIB and NDB have not dramatically altered the global landscape of MDB governance overall, but have made a significant difference in the amount of development finance under the control of smaller BRICS countries (and particularly South Africa).
• No MDBs in this study were found to have low borrower representation and also low inequality among members.
• While global MDBs are consistently creditor-led, RDBs and SRDBs are distributed among all three categories according to the purpose behind their creation.

Ray then uses the results of those calculations to create a typology of MDBs, including “creditor-led” banks (with low borrower representation and high inequality among members), “core borrower-led” banks (with high borrower representation but also high inequality among members) and “mutual aid-oriented” MDBs (with high borrower representation and low inequality).