Multilateral Development Banks: How They Work and Where They Are Headed
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Report
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Summary
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Figure 1. Years of MDB Establishment
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Figure 2. Waves of MDB formation
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Figure 3. Geography of MDB Operations
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This report is the first comprehensive ‘encyclopedia’ of the multilateral development bank system – from global to subregional institutions. The study systematizes a vast array of data on 37 MDBs and demonstrates the resources available to this system, how its role in the global economy is evolving, and what mechanisms could increase the volume of financing.
The report formulates nine criteria for classifying organizations as MDBs. The authors show that the key characteristics of MDBs include intergovernmental status, financing of development projects, the long-term nature of operations, the use of market-based borrowing, a lack of focus on profit maximization, and government oversight.
The authors identify four waves in the development of the MDB system. The first wave, from 1944 to 1966, was associated with the creation of the foundational ‘legacy’ institutions. The second wave, from 1967 to 1977, was a period of active formation of subregional banks: by 1977, approximately 60% of the MDBs in existence today had been established. The third wave, from 1981 to 1999, was driven by the transition of post-socialist economies to a market-based model. The current, fourth wave, which began in 2005, reflects the growing economic role and institutional influence of developing countries.
According to EDB estimates, the total assets of the MDB system reached $2.0 trillion in 2024. Over the past 25 years, the total assets of multilateral development banks have roughly tripled. At the same time, their growth rate is showing signs of slowing down. The relative role of MDBs in the global economy is declining. Over the 25-year period, the ratio of MDB assets to global GDP fell from 2.0% to 1.8%.
The report devotes special attention to the geography of the MDB system. Today, 25 of the 37 MDB headquarters are located in developing economies. This reflects the growing role of countries in the Global South and their desire to establish their own long-term financing institutions.
The report proposes a new geographical classification of MDBs. In the report, banks are grouped as subregional, regional, interregional, and global. This classification highlights differences in the scale of assets, shareholders, mandates, and operating models. Most MDBs are subregional. Such banks are generally more closely aligned with national and local development objectives.
The term ‘Non-Investment Triad’ is introduced here for the first time. It refers to three areas of MDB activity beyond direct financing: technical assistance, analytics and research, and training programs.
The concluding section of the report presents the authors’ perspective on key directions for the development of the MDB system over the next 10 years:
- the emergence of three to four new MDBs with a focus on developing countries;
- accelerated growth in the volume of non-sovereign financing;
- diversification of the sectoral structure of MDB financing;
- diversification of MDB investment instruments;
- the growing importance of the ‘non-investment triad’;
- developing new mechanisms for raising capital in addition to traditional ones;
- the creation of new targeted capital funds;
- expanding the participation of private capital in MDB investment activities;
- expanding financing in national currencies.
Figure 1. Four waves in the formation of MDBs
