BRICS NDB looks set to emerge as an alternative to established Western financial institutions

By Safiul Azam, ACMA*

On 21st July this year the group of world’s top emerging economies launched its New Development Bank (NDB). The bank backed by Brazil, Russia, India, China and South Africa (BRICS)  looks set to emerge as an alternative to the World Bank and the International Monetary Fund, although the group says it is not a rival.  The bank is set up to foster greater financial and development cooperation among the five members along with other economies.

The opening program of the BRICS NDB was held in China’s financial capital on July 21, 2015. Chinese finance Minister Lou Jiwei, Shanghai Mayor Yang Xiong and the bank’s President K.V Kamath (Formal Non-Executive Chairman and Managing Director of ICICI Bank, India’s largest private bank) attended the opening ceremony.

BRICS bank is the USD 100 billion bank floated by BRICS nations where the biggest contributor is the world’s second largest economy China, which also led the establishment of another new international bank, the Beijing-based Asian Infrastructure Development Bank. The bank has huge prospects because BRICS countries comprise more than 42.6 percent of the world’s population, cover more than one third (1/3rd) of the world’s land area over three continents, and account for more than one fifth (1/5th) of global GDP. Unlike the World Bank, it formulated by votes based on capital share and each participant country will be assigned one vote, and none of the countries will have veto power.

The purpose of the Bank shall be to mobilize resources for infrastructure and sustainable development projects in BRICS and other emerging market economies and developing countries to complement the existing efforts of multilateral and regional financial institutions for global growth and development. (Article -2, Agreement of the New Development Bank)

Article –C of Agreement of the New Development Bank clear the following function of this emerging bank.

To fulfill its purpose, the Bank is authorized to exercise the following functions:

(i) to utilize resources at its disposal to support infrastructure and sustainable development projects, public or private, in the BRICS and other emerging market economies and developing countries, through the provision of loans, guarantees, equity participation and other financial instruments;

(ii) to cooperate as the Bank may deem appropriate, within its mandate, with international organizations, as well as national entities whether public or private, in particular with international financial institutions and national development banks;

(iii) to provide technical assistance for the preparation and implementation of infrastructure and sustainable development projects to be supported by the Bank;

(iv) to support infrastructure and sustainable development projects involving more than one country;

(v) to establish, or be entrusted with the administration, of Special Funds which are designed to serve its purpose.

Many scholars said, The NDB BRICS Bank was conceived as a counterbalance to US-led financial institutions like the World Bank and IMF by providing funding for infrastructure and development projects in BRICS countries. Each nation will have an equal say in the bank’s management, regardless of GDP size, according its officials.

The World Bank and IMF sequentially provide their positive concern and welcome to the new development bank. World Bank President Jim Yong Kim stated “We would like to congratulate Mr K V Kamath, President of the New Development Bank, and the founding members — Brazil, Russia, India, China, and South Africa — on this important occasion”. He also said “We are committed to working closely with the New Development Bank and other multilateral institutions, offering to share our knowledge and to co-finance infrastructure projects. These types of partnerships will be essential to reach our common goals to end extreme poverty by 2030, boost shared prosperity, and to reduce inequalities”.

The objective of the bank is not making competition with existing player rather it work simultaneously with existing. The NDB President said “Our objective is not to challenge the existing system as it is but to improve and complement the system in our own way”. Mr. Lou, Chinese finance Minister said “The NDB will supplement the existing international financial system in a healthy way and explore innovations in governance models.

The development bank bear very important and crucial role for the development and improvement of global economy. Economist and scholar provide their expert opinion about the new bank. The opinion includes some positive statement compiling the importance and rationality of the new player whereas some of them provide corrective statement. Bala Ramasamy, professor of economics at the China Europe International Business School in Shanghai said “Obviously, the new institutions are going to break the monopoly of the World Bank. Now, there will be more options for borrowers, who will look for the best terms among different institutions,”

Some analysts say that the new banks are relatively small compared to the World Bank, and challenging it at a serious level will be difficult. The NDB may not be able to compete with the World Bank in terms of low interest rates because of its higher cost of borrowings.

The first president of NDB said “Our objective is not to challenge the existing system as it is but to improve and complement the system in our own way”. Zhu Xian, vice president of NDB stated that “Some parts we learn from the World Bank, some parts we try to do things differently”. “We will complement with each other with the World Bank and other international development banks. But in some projects, there will be competition.”

We are highly expecting that NDB will work solely or jointly with others development authorities and institution like World Bank, IMF, Asian development Bank (ADB), Islamic Development Bank (IDB) etc. It should work for the development of the BRICKS economy simultaneously other developing and emerging economy and it facilitate the borrower for choosing alternative rather only staying with World bank and IMF dominated by USA. We expect NDB will also oversee the proper environment impact and try to reduce the negative environment impact of projects, safeguard environment and will have provisions protecting human rights. I would like to conclude the writing with the statement of Mr. Lou “The bank will provide new driving force to accelerate the global economic recovery by supporting infrastructure projects and expanding global demand”.

*Safiul Azam,ACMA is Senior Editorial Consultant – NsNews Wire, an associate member of ICMAB, President and Chief Rayman – The World Raymen, Vice President – CMA BD Tiger Toastmaster, Fellow of Bangladesh – China Media Consortium and involve in private service.