Multilateral Development Bank | Economipedia

A multilateral development bank is a banking entity aimed at promoting financing projects in territories with economic difficulties or in the development phase.

In other words, in the field of banking, a multilateral development bank is the one in charge of undertaking financing projects in environments of social risk or situation of economic necessity.

Following this line, these banks are responsible for implementing management and financing actions that manage to alleviate a situation of poverty or lack of development.

Mission of a multilateral development bank

The main objective of this type of bank is to collaborate in the creation of greater social and economic well-being in places that require an institutional and financial boost.

These types of banking or financial entities have an international character, and are also colloquially known by their acronym in English, MDB.

Its financing work in projects of various kinds, although always with solidarity or cooperative nuances, is managed hand in hand with public authorities. This is especially the case in countries known as emerging or developing.

Importance of a multilateral development bank

The solidarity motivation of these institutions supposes the creation and management of important economic and social development projects in specific geographical locations.

In these parts of the world, private initiative is not capable of launching certain aid actions. This, due to a difficult economic situation or the low level of national investments.

For this reason, the work of each multilateral development bank translates into the improvement of living conditions. The undertaking of new projects supposes the creation of employment and the improvement of infrastructures simultaneously.

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Characteristic features of a multilateral development bank

The nuance of solidarity of these institutions distinguishes them from other existing banking modalities, and we can distinguish other features:

  • Plurinational nature: These entities are founded by structures of more than one nationality. Therefore, they are included within international law and international banking and financial regulations.
  • Low level of risk: Solidarity in their actions leads them to undertake economic projects away from risk. That way, positive aid results are more likely.
  • They provide access to financing: These banks offer credit solutions to members of society with few economic possibilities or at risk of social exclusion.
  • Government collaboration. It is common for these banks to require help from the governments of the countries in which they operate or from central banks. These are often actions in third countries and with bureaucratic obstacles.
  • Syndicated shares. These organizations propose syndicated loan procedures to develop their goals, achieving joint strategies with other entities.

Examples of multilateral development bank

Its greatest exponent is the World Bank, whose international work also houses the cooperation of multinational entities such as:

Although each entity operates independently, the development aid banks carry out their work under a common cohesive map.

In other words, the World Bank itself coordinates joint actions according to the needs of the moment. Thus, it takes into account natural disasters, energy or raw material poverty, infectious diseases, etc.

Similarly, another means of aid undertaken by this type of institution is collaboration in economic recovery plans for financial crises that have hit society.

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