Unchanged landscape

More than two years after two Asian multilateral banks were set up for green financing, there's little change in the way such projects are financed

The two new ‘Asian’ multilateral banks — Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) — have a specific focus on sustainability and green finance. Both are headquartered in China, committed to financing sustainable infrastructure projects, and lean in their operations — all things that make them stand apart from the other multilateral institutions. After more than two years in existence, during which they have steadily scaled up their activities, they are yet to alter the financing landscape in any fundamental way. 

Both the banks began operations in early 2016. AIIB rapidly added members, and countries in which it was actively lending. Lebanon is the latest to be approved for membership (in June 2018). There are currently 87 approved members against 57 when the bank was launched — and there are other countries slated to join. AIIB “expects to continue welcoming new members.” 

The NDB — also known as the BRICS Bank — has limited its membership and operations to its five founding members for now: Brazil, Russia, India, China and South Africa. Each member has an equal share in the bank’s capital. When NDB received a credit rating (AA+) last week from Fitch, the rating agency also flagged the concentration risk of operating in five member countries only. NDB President K V Kamath termed the rating as an “exceptional achievement for a multilateral development bank fully owned and led by developing countries,” and indicated that there will be an expansion of the bank’s membership.

Both the banks have built up loan books worth more than $5 billion. 

The last few projects approved by AIIB for funding include a $761 million plan for improving the quality of air in Beijing by replacing coal with natural gas usage in villages on the outskirts of the city. The project, which is also backed by Beijing Gas and Beijing Municipality, will provide gas service connections to almost 217,000 households by 2021. The bank has funded gas power plants (Myanmar, Bangladesh), rooftop solar (Egypt), hydro projects (Tajikistan, Pakistan, Indonesia) and in India, the Bangalore Metro Rail Project and transmission system strengthening in the south of the country.

AIIB has three main priorities: Sustainable infrastructure, cross-country connectivity and private capital mobilisation. Interestingly, all the projects approved by the bank “are in or connected with countries and regions along the Belt and Road Initiative,” AIIB president, Jin Liqun, was quoted as saying last month by Xinhua news agency.

In energy sector financing, AIIB is guided by six principles:

• Promote energy access and security
• Realise energy efficiency potential
• Reduce carbon intensity of energy supply
• Manage pollution
• Catalyse private capital
• Promote regional cooperation and
• connectivity

The bank announced its transition to a new model for project approvals last month, which “places more responsibility for decision-making on management and staff” as part of its attempt to be “a new kind of multilateral development bank with 21st century governance.”

NDB has approved funding for 23 projects. The last set of approvals for loans was in July 2018: $300 million for the Development Bank of South Africa for on-lending to renewable energy projects and another $300 million for the Luoyang Metro project in China. It aims to appraise, negotiate and approve loans in less than six months on average, and will support projects respecting the development priorities and strategies of member countries.

The focus sectors of NDB are clean energy, transport infrastructure, irrigation, water resource management and sanitation, sustainable urban development, economic cooperation and integration among member countries.

The author is editor, Global Policy for Bloomberg NEF. She can be reached at vgombar@bloomberg.net