Who really benefits from the World Bank's new lending model?

As the World Bank’s management pushes through reforms that it claims will make the organization leaner and more efficient, they are also moving toward a new financial and risk model that will allow the bank to lend about 70 to 80 percent more to borrowing countries each year — without seeking more capital from donor countries. The change will immediately benefit countries like Brazil, China and India, each of which will be able to borrow up to $2.5 billion more annually, Bertrand Badre, the bank’s chief financial officer, recently told reporters. As the World Bank’s new financial model hopes to increase financial firepower in order to meet forecasted demand, Badre explained that changing the risk model will enable the Washington, D.C.-based institution to raise lending to $26-28 billion each year, up from the current level of $15 billion provided by the International Bank for Reconstruction and Development, the bank’s fund for middle-income countries. The IBRD will thus become more critical to the bank’s relevance as a global lender at a time when countries like India graduate to middle-income status, but still need to borrow money. In an effort to make the balance sheet more efficient, Badre said the World Bank will appoint a “chief risk officer” to assess how much capital is needed for each of the projects. The IBRD may also look for room to lend from the balance sheets of other of the bank’s institutions and try to “mobilize” private resources on top of its own loans. Most significantly for borrowing countries, the institution is planning to increase the interest rates on some loans for its largest borrowers. Those new rates are being negotiated and would go into effect on July 1, according to Badre. Criticism While the strategy recognizes the political “difficulty” of asking donor countries for more money, it also seems a little unfair, said Scott Morris, senior fellow at the Center for Global Development and a former official in the U.S. Treasury Department. “As a political matter it doesn’t make sense to ask for pain from your borrowers, while asking for nothing equivalent from your non-borrowers,” he told Devex. Morris also sees the plan to increase lending without a capital increase as a mistake: While the individual ideas to increase lending were good, he said, a strategy that doesn’t include fundraising is likely to make the bank “unmoored” from its shareholders. With a capital increase for IBRD off the table, and the decreasing importance of International Development Association, the bank’s fund for the poorest countries, the influence that shareholders have over the bank will slowly wane, he argues in a recent paper. “If you so quickly write off what would be the future of fundraising for the bank on the capital side, if you are the United States or other large, particularly non-borrowing countries, you’re really going to be losing out in your ability to set the bank's agenda going forward,” Morris noted. Read more development aid news online, and subscribe to The Development Newswire to receive top international development headlines from the world’s leading donors, news sources and opinion leaders — emailed to you FREE every business day.