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Development banks as growth engines

Development banks are the unsung architects of global progress, institutions created to pave the road from poverty to prosperity with bricks of capital and mortar of expertise.

Take the World Bank, for instance, born in 1944 as the International Bank for Reconstruction and Development (IBRD). It was the brainchild of a world recovering from war, conceived alongside its sibling, the International Monetary Fund (IMF), at the historic Bretton Woods Conference.

Picture this: two global institutions, like twins on the same Washington, D.C., street but with distinct missions—one focused on building bridges (literally and metaphorically) and the other on ensuring the financial currents flow smoothly.

The World Bank tackled long-term development, financing everything from power grids in Africa to schools in Asia, while the IMF kept an eagle eye on macroeconomic stability and balanceof-payments crises. 

But here's the twist: their leadership structure is like a geopolitical handshake frozen in time. By unwritten convention, the World Bank's president is always an American—today, that's Ajay Banga—while the IMF is helmed by a European, often a French national.

A notable exception is Kristalina Georgieva, a Bulgarian economist who now leads the IMF, though her appointment still underscores the transatlantic partnership that dominated global finance in the mid-20th century.

It's a quiet reminder of the postwar deal struck between the U.S. and Europe when the West shaped the financial architecture of a shattered world.

Together, they reflect the duality of global governance—one offering loans to build highways and the other enforcing guardrails to keep economies on track. They might share the same zip code, but their mandates remind us that development and stability are two sides of the same coin.

Islamic Development Bank

While the World Bank and IMF dominate the conversation on global development finance, other institutions like the Islamic Development Bank (IsDB) bring unique frameworks to the table.

Headquartered in Jeddah, Saudi Arabia, the IsDB operates under the auspices of the Organization of Islamic Cooperation (OIC), reflecting the financial and moral principles of Islamic law (Shariah).

Interestingly, the IsDB owes its origins to an effort led by the first Prime Minister of Malaysia, Tunku Abdul Rahman, and his entourage, whose vision for economic solidarity among Muslimmajority nations gave birth to this pioneering institution in 1973.  The

IsDB functions as a multilateral development bank, financing projects that foster social and economic progress across its member states—primarily in Asia, Africa, and the Middle East. Its lending requirements are distinct, adhering strictly to Shariah principles.

This means funding is structured through profit-sharing, leasing, or equity participation rather than conventional interest-based loans, ensuring compliance with Islamic finance doctrines.

Furthermore, projects must align with developmental priorities, such as eradicating poverty, improving education, or building infrastructure, while also respecting the socio-cultural values of its member nations. 

The IsDB is more than just a financial institution; it represents a collective ethos of cooperation among OIC nations, striving to bridge the development gap while preserving cultural and religious identity.

It underscores a broader truth in global development finance: while institutions like the World Bank operate on universal frameworks, organizations like the IsDB show the importance of tailoring financial models to the unique needs and values of specific communities.

Asian Development Bank

The Asian Development Bank (ADB), headquartered in Manila, Philippines, is a cornerstone of development finance in the Asia-Pacific region.

Established in 1966, the ADB was born out of a collective vision by regional leaders and international partners to foster economic growth, reduce poverty, and promote cooperation among developing Asian nations.

Its establishment was championed by Japan and supported by the United Nations Economic Commission for Asia and the Far East (ECAFE), making it a regional counterpart to global institutions like the World Bank. 

The ADB functions as a multilateral development bank, providing loans, grants, technical assistance, and equity investments to its member countries.

Its primary aim is to support projects that drive economic development, build infrastructure, promote social inclusion, and address pressing challenges like climate change and energy security.

Notably, the ADB has been a critical partner in financing regional connectivity projects, such as highways, ports, and power grids, which are crucial for fostering trade and integration across Asia. 

Its lending requirements combine financial rigor with developmental priorities. Borrowers must demonstrate that their projects are economically viable, environmentally sustainable, and socially inclusive.

Unlike the Islamic Development Bank, the ADB operates on conventional financial principles, offering loans at concessional or market-based interest rates, depending on the income level of the borrowing country.

It also prioritises good governance, ensuring that funded projects align with transparency, anti-corruption measures, and effective implementation strategies. 

With its roots in Asia's postwar aspirations for self-sustained growth and its continuing role in addressing modern challenges like urbanization and green energy, the ADB exemplifies how regional development banks can tailor global financial models to the unique needs of their member countries.

New Development Bank

The New Development Bank (NDB), headquartered in Shanghai, China, represents a bold attempt by the BRICS nations (Brazil, Russia, India, China, and South Africa) to create an alternative to traditional Western-dominated financial institutions like the World Bank and IMF.
 

Established in 2014, the NDB aims to mobilize resources for infrastructure and sustainable development projects in emerging economies, reflecting the rising influence and collective ambitions of the BRICS bloc. 

However, the NDB has not been without its criticisms. Its annual loan disbursements, while growing, are modest compared to the World Bank.

In recent years, the NDB has approved loans amounting to roughly $2-3 billion annually—a fraction of the $30-35 billion the World Bank disburses in the same period. Critics argue that the NDB's scale and operational reach fall short of its ambitions, limiting its impact on the global development stage.

Additionally, its governance structure, while intended to ensure equality among BRICS members, has led to slower decision-making and bureaucratic inefficiencies. 

On the lending front, the NDB promotes itself as more flexible than the World Bank, with less stringent requirements for project approval.

While the World Bank imposes detailed safeguards and social impact assessments, the NDB is seen as more pragmatic, focusing on the economic and financial viability of projects with fewer conditionalities.

This approach, however, has sparked concerns about the potential neglect of environmental and social standards, raising questions about long-term sustainability. 

Despite these challenges, the NDB symbolizes a shift in the global financial architecture, offering developing countries an alternative source of funding and signaling the growing clout of emerging markets.

Its success, however, hinges on its ability to scale up operations, streamline governance, and balance efficiency with accountability in its lending practices.

Putting it together 

In the final analysis, credit—derived from the Latin word *credo*, meaning "I believe"—is the very foundation upon which modern economies rest.

It is trust, pure and simple, that transforms the promise of repayment into the fuel for commerce and growth. Unlike Shylock in *The Merchant of Venice*, whose rigid insistence on a "pound of flesh" symbolizes an era of transactional exchanges, modern global trade thrives on a more abstract yet profound concept: belief.

This belief—that loans will be repaid, contracts honored, and risks managed—is the backbone of what George Soros famously called the "alchemy of finance." 

Financing is the lifeblood of global trade, enabling goods to flow across borders and economies to expand beyond their immediate means.

Letters of credit, bonds, and syndicated loans are not merely instruments of commerce; they are manifestations of collective trust in a system designed to bridge gaps in time, distance, and resources. Without this trust, the intricate dance of supply chains, investments, and international trade would grind to a halt. 

Thus, credit doesn't just make the world go round; it embodies humanity's collective faith in the future. It turns promises into possibilities, transforming the intangible into the tangible—a container ship crossing an ocean, a factory buzzing with life, or a new venture springing into existence.

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Economist Samirul Ariff Othman is an adjunct lecturer at Universiti Teknologi Petronas, international relations analyst and a senior consultant with Global Asia Consulting. He has a background as a senior researcher at the Malaysian Institute of Economic Research.

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