World Bank's Banga slashes red tape, seeks 'better' bank before 'bigger'

World Bank President Ajay Banga is focused on changing the institution he runs. The biggest challenges so far involve reducing red tape, streamlining processes, and getting deals approved more quickly, he said at an event in Washington, D.C. on Monday. “What’s not going well, what is harder is some of the stuff that comes with the model of governance that has evolved from good reason over time but its end consequences are challenging,” he said at the Center for Global Development event. Shareholders rightfully want to be involved in how their taxpayer dollars are spent, but the problem is that leads to an overload of rules and stipulations that create a fragmented system that is difficult to scale, Banga said. He pointed to the more than 1,100 rules that the World Bank’s International Development Association, which provides grants and highly subsidized loans to the world’s lowest-income countries, has to abide by. “We’re all wasting time on this stuff,” he said. “We just need to find a way to thread the needle between the importance of shareholder tax money being used and the unintended consequences on the other end.” Banga is also eager to streamline the time it takes to approve projects and reduce the number of people involved, part of his push to build a “better bank before a bigger bank.” He described a culture where every employee wants to be involved in authorizing a deal and he finds himself wondering, “Why the hell are you involved?” He faced a similar challenge at Mastercard where he streamlined the signoff on decisions. The World Bank takes on average 19 months to approve a project from start to finish, Banga said. By the end of next year, he wants that down to 12 months, though he’s unsure if it's possible. Part of the acceleration plan involves a risk-based framework that allows projects to be evaluated differently based on their exposure. A $2.5 billion hydroelectric project in Ghana, for example, should have more scrutiny than a $3 million school project in Nepal due to its potential financial, environmental, and social risks. The bank is already working to create a system that maintains its standards but also varies assessments by risk, he said. Another way he aims to reduce the timeline is by getting the board to approve tranches of money for specific programs or objectives, rather than approving every individual project, which would free up staff and management time, he said. Banga was clear that he’s not afraid of criticism. He dismissed calls that the bank should take more risk, calling it “one of the bigger jokes I’ve heard in my life,” adding that it can’t do that and keep its AAA credit rating unless it gets more capital. While the bank may not want to take the hit for risky losses on its balance sheet, it can sometimes structure loans or extend them and help countries turn things around, he said. Banga said he doesn’t understand concerns over trade-offs between climate and development at the bank because the “whole issue of intertwined challenges means you don’t have a choice about dealing with them together.” But he has tried to strike a balance when addressing “global south” needs, in part, by calling for half of the bank’s climate finance to go to adaptation, including issues like food security, water access, and biodiversity. There are hurdles to getting the private sector to invest more, and “we cannot wish it in by speaking in government meetings,” he said. What he’s heard from CEOs is they need clear regulatory policy to invest, and the World Bank can better coordinate and help countries put the right policies in place. Banga also wants to boost the bank’s ability to do guarantees and streamline the instruments into one department, look for creative ways to help offset long-term currency risk, and help create more bankable projects, he said. With all these big-picture reforms a work in progress or “all wet paint,” one of Banga’s priorities this year is the IDA replenishment, with the pledging event planned for December. IDA is the “single most important thing in the World Bank” because it is the only source of funding for many countries, said Banga, who previously called for the largest replenishment of all time this year. While he believes there is a fair amount of support, he also wants help in pushing donor governments to make big pledges to IDA this year.