The BRICS New Development Bank (NDB) is set to issue its first loans in the second quarter of 2016. The bank, the latest addition to the global development finance landscape, was initiated due to a number of factors in emerging economies. One of the key issues that emerging economies, including the BRICS group, struggle with is the slow pace of reform in existing global financial institutions to better reflect the current political and economic realities (which in some cases deviate significantly from when these organisations were created in the post-Second World War era).
Emerging economies also suffer from serious infrastructure funding deficits, which can be addressed by drawing on the significant domestic savings across developing countries. The NDB was thus born partly as a result of these factors. Since its conception in 2011 the bank has begun taking form, including finalising legal arrangements, assigning different roles and responsibilities among the five founding BRICS members, and setting up an office. Ahead of the extension of its first loans, some details have emerged on the bank’s operations.
This paper tracks the historical development of the NDB, investigates modalities around its operations, and looks towards the likely impact it will have in the development finance milieu.
The NDB has managed to go from being a concept to becoming a reality and extending loans within five years, which is a significant achievement. The set-up of the bank was driven by a number of factors, including the BRICS’s dissatisfaction with the pace of
reforms in existing IFIs and domestic economic factors, such as the need for infrastructure financing combined with the significant domestic savings that could be applied to meet this need.
As the bank is gearing up to extend its first loans in the second quarter of 2016, it has become clear that a number of characteristics will define the bank’s approach. These include a focus on renewable energy infrastructure (at least in the first round of loans); on bringing new and innovative ideas to the fore; on speeding up operations; and on co-operating rather than competing with existing DFIs.
While the NDB’s likely impact on infrastructure financing is difficult to assess at this early stage, it is clear that both challenges and opportunities exist for the bank. For example, while its capitalisation limits its scope, the infrastructure financing deficit is so enormous
that any additional funding would assist in decreasing the gap. And while it is unclear at this point what innovative methods the bank will look to introduce, there is certainly scope to influence other DFIs.