What Is a Multilateral Development Bank (MDB)?

A multilateral development bank (MDB) is an international financial institution chartered by two or more countries for the purpose of encouraging economic development in poorer nations.

How a Multilateral Development Bank (MDB) Works

Unlike commercial banks, MDBs do not seek to maximize profits for their shareholders. Instead, they prioritize development goals, such as ending extreme poverty and reducing economic inequality. They often lend at low or no interest or provide grants to fund projects in infrastructure, energy, education, environmental sustainability, and other areas that promote development.

Multilateral development banks work to promote economic growth in developing countries.

"At a time when few institutions were lending during the global financial crisis, the MDBs provided $222 billion in financing, which was critical to global stabilization efforts," the U.S. Treasury notes.

There are two main forms of multilateral development banks. The first, which includes the largest and best-known institutions, makes loans and grants; these banks often distinguish between poorer, borrowing members and wealthier, non-borrowing members. Examples include the World Bank, founded in 1945, and the Inter-American Development Bank (IDB), founded in 1959.

The second type of multilateral development bank is formed by governments of low-income countries that can then borrow collectively via the MDB in order to secure more favorable rates. The Caribbean Development Bank (CDB), founded in 1969, is an example of this type.

Key Takeaways

  • Multilateral development banks (MDBs) originated in the aftermath of World War II to rebuild war-ravaged nations and stabilize the global financial system.
  • Today, MDBs fund infrastructure, energy, education, and environmental sustainability in developing countries.
  • MDBs now operate throughout the world and control trillions of dollars in assets.

Multilateral development banks are subject to international law. They and other international financial institutions, such as the International Monetary Fund (IMF), originated in the waning days of World War II when the United States and its allies established the Bretton Woods institutions to rebuild war-ravaged nations and stabilize the post-war international financial system. The World Bank, which has been semi-officially dominated by the U.S. since its founding, is one of these institutions.

Many countries have chafed at the U.S.'s influence over the World Bank and regional MDBs, such as the Asian Development Bank, founded in 1966 and based in the Philippines. In October 2013 Chinese President Xi Jinping proposed the Asian Infrastructure Investment Bank (AIIB) as an alternative to these American-dominated institutions. The AAIB began operations in 2016, with headquarters in Beijing. The U.S. reportedly attempted to discourage allies from signing on to the project, putting pressure on South Korea and Australia in particular. Both ended up joining, along with 58 other members and 22 prospective members. As of 2019, the AIIB has grown to 70 members and 23 prospective members.

Major Multilateral Development Banks

The following is a list of major multilateral development banks, ranked by total assets as of Dec. 31, 2017, except for the World Bank Group, which reflects Dec. 31, 2018 assets (exchange rates are as of March 15, 2019):

  • European Investment Bank: €549.5 billion ($621.9 billion)
  • International Bank for Reconstruction and Development, World Bank Group: $413.3 billion
  • International Development Association, World Bank Group: $201.6 billion
  • Asian Development Bank: $182.4 billion
  • Inter-American Development Bank: $126.2 billion
  • European Bank for Reconstruction and Development: €56.2 billion ($66.6 billion)
  • African Development Bank: 32.6 billion UA ($45.3 billion)
  • Islamic Development Bank: 19.7 billion Islamic dinars ($27.4 billion)
  • Asian Infrastructure Investment Bank: $19.0 billion
  • New Development Bank: $10.2 billion
  • Central American Bank for Economic Integration: $9.7 billion