Capital in Multilateral Development Banks. Raising Capital and Enhancing MDBs Capital Structure for the Benefit of Member States

MDBs contribute significantly to the international development agenda. Funding for member countries and regional connectivity projects depends largely on the ability to expand lending capacity of such MDBs. This paper covers the whole ‘MDB family’ of institutions, but highlights regional and sub-regional MDBs because of their specifics of raising shareholders’ capital. The study discusses seven standard and novel options for increasing capital: (1) increasing existing shareholders’ capital; (2) new regional shareholders; (3) new non-regional states; (4) attracting institutional investors; (5) larger MDBs’ participation in a smaller MDB’s capital; (6) rechanneling the SDRs to the MDBs’ capital; (7) issuing perpetual subordinated debt available to the public. Based on case studies, we illustrate different capital enhancement strategies of MDBs that, in addition to raising capital, could lead to positive effects, related to improvement in credit rating, corporate governance, strengthening of financial position,and international status. Additionally we discuss capital optimization, which is complementary to capital expansion.