Unlocking the potential of MDBs

For the better part of a decade, the G20 has called on multilateral development banks (MDBs) and their shareholders to consider opportunities for MDB balance sheet optimization (BSO) in a push to convert development financing “billions into trillions”. This agenda seeks to greatly expand the total amount of development financing that MDBs can provide to borrowing countries by making internal modifications related to resource and risk management. The objective is ambitious: significantly increase the amount of development finance available to meet the 21st century’s global development challenges, without requiring a commensurate increase in financial contributions from shareholder countries.

In response to the G20’s launch of the BSO initiative in 2015, several MDBs have begun experimenting with technical reforms, including: leveraging traditional concessional finance facilities such as IDA and IFAD and consolidating the Asian Development Bank’s concessional funding arm; freeing up lending capacity by creating portfolio risk transfer guarantee agreements, exposure exchanges, and risk sharing mechanisms for private sector investments and revising net income contributions during the most recent IDA19 and IDA20 rounds to optimize impact in the poorest countries.

Despite initial success in these areas, the efforts have also faced criticism for being too modest in their scope; by focusing on achieving moderate increases in development finance via technical fixes, rather than undertaking the political heavy lifting required to unlock much higher increases by reaching consensus on the holy grail of BSO options: Capital Adequacy Framework reform.

This paper provides an overview of the key levers for change and suggests options for policy reform that could help unleash an additional $500 billion to trillion dollars in development finance.

Download the report

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