AN ALTERNATIVE MODEL OF DEVELOPMENT FINANCE

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BRICS INSIGHT

AN ALTERNATIVE MODEL OF DEVELOPMENT FINANCE

In a written interview with Beijing Review reporter Yu Shujun， K.V. Kamath， President of the BRICS New Development Bank， discusses the bank’s uniqueness and purpose， its focus and methods， and the need for such multilateral development banks to innovate to meet investment needs.

Beijing Review: The BRICS bank was officially named the New Development Bank（NDB）. What is new about the multilateral development bank？ What are the major differences between the bank and another newly-launched institution， the Asian Infrastructure Investment Bank （AIIB）？

K.V. Kamath: The New Development Bank was established by BRICS nations as an institution for the new century. This is what the five founding members of the NDB wanted to stress. It is the first time that developing countries have come together to set up a financial institution of global scope with initial subscribed capital equally distributed among its founding members.

We at the NDB have a mindset different from the traditional donor-recipient mentality. Our bank， as an institution， will listen to partners and work with them in areas of their interest.

The NDB will operate at speed， as the members of the bank do not want to wait years for development. There is a huge appetite for growth and they want development to happen faster. Without compromising quality， the bank will try to meet the needs of its members in less time.

Within just one year of starting our work， we have put in place all major operational policies of the bank and approved the first set of projects， which are broadly in the area of renewable and green energy. The bank was rated AAA by two leading ratings agencies in China. Through our successful initial issuance of green bonds in the Chinese onshore market， the NDB began establishing its credentials as an institution that supports green and sustainable infrastructure. Moreover， we have established several partnerships with key national and global institutions for providing the best possible products and services to our member countries.

We have even more tasks and plans for the future. Over recent years， the size of development challenges has increased dramatically，and there is huge unmet demand for infrastructure in developing and emerging economies. To meet infrastructure needs in developing countries， the annual funding requirement frequently mentioned is $1 trillion. Currently，multilateral development banks （MDBs） cater to about 10-15 percent of this demand. Our bank was created to help bridge a part of this gap，and in doing so， we will collaborate and cooperate with other institutions， including the AIIB. We believe that there is enough space for all members of the MDB family， and we can certainly do things together. Therefore， we see significant potential for cooperation between our institutions， including joint investment in projects in our members.

Having been open more than one year， the NDB approved in April its first batch of loans for renewable projects， and issued in July its first bonds—green bonds denominated in renminbi. How will the bank facilitate the implementation of those projects？ Since the projects the NDB is financing are all labeled as green， how will it ensure they adhere to the best environmental practices？

This year， the board of the bank approved the first set of projects with a total commitment of $911 million. Let me briefly explain them.

The NDB will provide a loan of $300 million to BNDES， Brazil’s national bank for economic and social development. This assistance will be used to support renewable sub-projects in solar，wind， hydropower and other sources with an additional capacity of 600 megawatts that will be financed by BNDES.

A project in Russia involves a loan of $100 million for the construction of two small hydroelectric power plants in Karelia with a combined total capacity of 50 megawatts. The financing will be provided through multilateral development banks—the Eurasian Development Bank and the International Investment Bank.

As for India， the NDB will provide a sovereign-guaranteed financing facility of $250 million to Canara Bank for onward lending to renewable energy projects in solar and wind energy， hydropower and other sources with a total capacity of 500 megawatts of clean energy.

In China， the bank will provide the local currency equivalent of $81 million to Shanghai Lingang Hongbo New Energy Development Co. for a distributed solar power project in Lingang Industrial Area. In this flagship development zone， rooftop solar power installations will have a total capacity of 100 megawatts.

In South Africa， the bank will provide a loan of $180 million to Eskom Holdings for financing grid connection infrastructure for renewableenergy projects. This company will build facilities to evacuate 670 megawatts of power generation.

In the preparation and implementation of projects， the NDB will mainly rely on country systems for the management of environmental risks and impacts. At the same time， we will promote the development of these systems and assist in strengthening them. In this respect， the NDB will seek to play a proactive role by ensuring stricter compliance with applicable national standards， working with our clients to strengthen country systems and facilitating knowledge sharing.

“We at the NDB have a mindset different from the traditional donor-recipient mentality. Our bank，as an institution， will listen to partners and work with them in areas of their interest.”

What are the criteria when choosing potential projects？

All five projects approved by the NDB earlier this year are in line with our focus on green energy and sustainable infrastructure. According to estimates， these projects will result in a reduction of greenhouse gas emissions of nearly 4 million tons per year. At the same time， they all are aimed at augmenting the supplies of renewable energy in our member countries and contributing to the transition towards a green economy.

In general， the NDB is interested in projects in the areas of sustainable infrastructure and development， including projects in the field of transportation.

The NDB has a defined set of prudential criteria for assessing all potential projects， with particular emphasis on economic viability as well as environmental and social friendliness.

A meeting of the New Development Bank’s Board of Governors in Washington， D.C.， on April 14

The bank’s founding member states face economic growth challenges at different levels. Will this affect the bank’s development plan？ How can the bank help these countries resume growth momentum？

Our founding members are home to 42 percent of the world’s population and do face challenges as they move up the development curve. Although BRICS countries are at different stages of development， and some of them are facing economic slowdown， there is huge potential for economic growth and win-win cooperation.

Here， it is also important to note that all members of the bank strongly support our institution， and we have a long-term relationship with all of our five shareholders. The NDB looks forward to responding in a fast and flexible manner to their aspirations and interests to foster inclusive growth and development by providing financing for infrastructure and sustainable development projects in all our members. These projects， we believe， will help to address the infrastructure gaps and sustainable development needs of our member countries and contribute to their economic growth.

Will the bank expand and include more member states in the future in order to become a global lender？

Our Articles of Agreement specify that all members of the United Nations could become members of the bank. The founders of the bank envisaged increasing membership to expand our scope of activities and to provide additional capital to the NDB. So， we will look to expand membership in due course， as outlined by our board.

We at the NDB aim at not only best practice in development assistance， but next practice，complementing the efforts of other multilateral development banks. At the same time， we recognize the importance of building on the existing framework and acknowledge the work done by existing institutions.

What kind of challenges， both short- and long-term， do you think the nascent NDB is facing？

We believe that the NDB will operate in a very different world from that in which most other major multilateral financial institutions were set up and operated. Conventional infrastructure is changing， as it is becoming “green” at an exponential rate， and “green” energy is increasingly economically viable in many countries.

To meet new requirements， the NDB will need to come up with new financial instruments， including local currency financing and lending， and form new collaborations with public and private sectors， local and global institutions， banks， and other actors. The bank will also need a new mindset of partnership with our members. We will operate with an emphasis on speed of project preparation and delivery， without compromising quality of course. We also require people who are not afraid to innovate and an appropriate organizational structure that ensures that the entire institution works as one.

We anticipate that in the coming years the demand for financing from multilaterals—including the NDB—will increase. To meet this demand in our members， the bank should be able to leverage itself to raise the financing. Currently， we are engaging with global ratings agencies with the aim of receiving international ratings that will allow the NDB to mobilize resources from global capital markets.

To sum up， we look forward to further building on the foundation created during the first year of our work. The NDB will seek the continued support of our members and respond in a fast and flexible manner to their aspirations and interests in order to foster inclusive growth and development. ■

Copyedited by Chris Surtees

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