What are multilateral development banks, and can they provide sufficient funding for development and climate action to meet the needs?
Multilateral development banks, or MDBs, play a central role in financing international development and climate action. Created and owned by several states, they provide loans, grants, guarantees and technical assistance to low- and middle-income countries, as well as to certain private-sector actors.
Their role has become even more strategic as financing needs increase sharply, major donor countries drastically reduce their official development assistance, and many low-income countries face unsustainable debt costs, reduced fiscal space and growing exposure to climate shocks.
Thanks to the capital provided by their shareholder states and their ability to borrow on financial markets on favourable terms, MDBs can finance investments that private markets are reluctant to support or would finance only at excessive cost: infrastructure, energy transition, climate adaptation, healthcare, education, agriculture, social protection and resilience to crises.
In response to the financing gap for the Sustainable Development Goals (SDGs), MDB reform is now one of the main avenues for mobilising additional resources for development and climate action. This includes increasing their lending capacity, optimising their balance sheets, using hybrid capital, expanding guarantees, strengthening coordination between institutions, better aligning their investments with the SDGs and mobilising more private capital.
The progress of these reforms cannot be assessed solely on the basis of the amounts of newly mobilised funding. It must demonstrate that additional financing is genuinely accessible to vulnerable countries, remains concessional when necessary, supports national development priorities and delivers measurable results for populations.
What are MDBs?
MDBs are international financial institutions created by agreement between several states and owned by their member countries. The number of MDBs depends on the criteria used. The 2026 report by the Eurasian Development Bank identifies 37 MDBs worldwide, including global, regional and sub-regional institutions. This estimate is not a universally accepted figure: some institutions may be classified differently depending on their mandate, capital structure or ability to borrow on financial markets. Notable examples include the World Bank, the African Development Bank, the Asian Development Bank and the Inter-American Development Bank.
They differ from national public development banks (or public development and cooperation agencies), such as the French Development Agency (AFD), Germany’s KfW or Japan’s JICA, which fall under the authority of a national government. While a national public bank primarily implements the development policy of its shareholder country, an MDB acts on behalf of a group of member countries, with its governance, capital and strategic priorities negotiated among its shareholders.
Their mandate is to support the economic, social and environmental development of low- and middle-income countries. They can intervene in several ways: lending to governments, financing the private sector, providing grants through concessional windows, offering guarantees against certain risks, providing technical assistance, supporting public-sector reforms, preparing projects and mobilising private investors.
Their model is based on leverage: shareholder states provide capital, and MDBs then multiply these funds on financial markets on favourable terms, before reallocating them to countries or projects that would often otherwise have access only to more expensive financing. It is this ability to transform public capital into large-scale, long-term financing that explains their central role in the international financial architecture.
The main MDBs
MDBs do not form a homogeneous bloc: they differ in their mandates, geographical scope, instruments and beneficiaries. Some have a global reach, such as the World Bank Group; others play a major regional role in Africa, Asia, Europe or Latin America. The overview below presents the main institutions, their recent financial volumes and their role in financing development and climate action.
The world’s leading MDB. It finances governments, supports the private sector and provides guarantees.
A central actor in financing development across the Asia-Pacific region.
The leading development institution for Latin America and the Caribbean.
An institution focused on the private sector, economic transition and resilience.
A regional African bank active in energy, infrastructure and climate finance.
The European Union’s bank, active in climate action, infrastructure and innovation.
An institution focused on sustainable infrastructure in Asia and beyond.
An institution active in infrastructure, healthcare, agriculture and Islamic finance.
The three largest institutions—the European Investment Bank, the International Bank for Reconstruction and Development and the Asian Development Bank—account for approximately 62% of the system’s assets. Overall, MDB assets reached approximately $2 trillion in 2024.
The World Bank Group illustrates the growing importance of MDBs. In 2025, its own financing reached $118.5 billion, broadly stable compared with the $117.5 billion committed in 2024. IDA, its concessional window for low-income countries, nevertheless saw its commitments increase from $31.2 billion to $39.9 billion, representing a 27.8% increase in one year.
Why have they become indispensable?
Financing needs are immense. The annual financing gap for the SDGs is estimated at $4.3 trillion. At the same time, 3.4 billion people live in countries that devote more resources to debt servicing than to healthcare or education, while 61 countries spend more than 10% of their public revenues on debt-interest payments.
These needs are increasing even as traditional financing channels are shrinking. In 2025, official development assistance from OECD Development Assistance Committee countries fell by 23.1%, following an initial 6% decline in 2024. Multilateral ODA fell by 12.6%, while aid to least developed countries declined by 25.8%. Global ODA therefore returned to its 2015 level—the year the Sustainable Development Goals were adopted.
In this context, MDBs are among the few actors able to combine financial scale, long-term lending, sectoral expertise, support for public policies and the mobilisation of private capital. Their value lies particularly in their leverage effect. Public contributions from their member states strengthen their capital base, enable them to borrow on favourable terms and allow them to lend more than they could with their budgetary resources alone. They can also use concessional resources—low-interest loans, grants or guarantees—to reduce perceived investment risks and encourage private investment.
Assets of the main multilateral development banks in 2024
Reported assets, in billions of US dollars; comparable data for the 35 institutions identified in the 2026 EDB report.
This leverage effect operates at several levels: public capital supports MDB borrowing; concessional resources make projects possible that are too risky or insufficiently profitable for markets; and guarantees and risk-sharing mechanisms can facilitate the mobilisation of private capital. However, this is not an automatic multiplier: its scale depends on the instrument used, the project and the risk context. It must therefore be assessed in light of the genuine additionality of the financing, its cost for beneficiary countries and its development impacts.
MDBs therefore play a decisive role in sectors that markets insufficiently finance: climate adaptation, basic infrastructure, healthcare, education, social protection, agriculture, water and resilience to shocks. They cannot replace ODA, particularly grants, but they can help use public resources more strategically and multiply their impact.
What do MDBs finance?
Behind the acronyms and financial volumes, MDBs finance highly concrete projects. They can support a country in rehabilitating an electricity grid, building or modernising roads, financing hospitals, strengthening social protection systems, improving access to drinking water, helping farmers cope with droughts or encouraging private investment in renewable energy. Their role is particularly important when private markets consider certain countries or projects too risky, or when governments cannot borrow on sustainable terms.
The effects can be significant. IDA, the World Bank’s concessional window for low-income countries, reports, for example, that it enabled 1.36 billion people to receive essential health services between 2012 and 2025, 131.7 million people to gain access to improved water services and 155.9 million people to benefit from new or improved access to electricity.
These examples show that MDBs are not merely financing institutions: they directly influence countries’ ability to invest in public services, infrastructure and resilience. But they also highlight the importance of measuring results: financing should not merely be approved; it must be disbursed, used effectively and produce measurable impacts for populations.
Why has MDB reform become a priority?
In response to the global financing gap for development and climate action, reforming multilateral development banks has become one of the main areas of work in reforming the international financial architecture. It addresses a dual requirement: increasing the volume of financing available to developing countries while improving the quality, speed, accessibility and impact of that financing. In a context of debt crises, rising capital costs and accelerating climate-related needs, MDBs are expected to play a greater role, while also demonstrating that their financing better meets the needs of vulnerable countries.
Reforming the international financial architecture: where do we stand?
Focus 2030 independently tracks the commitments made at the Summit for a New Global Financing Pact in 2023. Updated on an ongoing basis, this tracker documents progress towards reforming the international architecture for development and climate finance.
Since 2021–2022, the G20 has shaped a large part of the reform agenda for multilateral development banks, seeking to transform them into “better, bigger and more effective” MDBs, in line with the roadmap adopted by the G20 in 2024.
The Center for Global Development’s MDB Reform Tracker identifies six dimensions: making more effective use of existing capital, introducing new forms of capital, adapting mandates and increasing shareholder contributions, measuring impact, transforming relationships with countries and mobilising private finance. These six dimensions are complemented by cross-cutting issues relating to coordination, governance, representation and diversity.
- Making more effective use of existing capital
The first lever is to make more effective use of the capital already held by MDBs. According to the EDB report, the 37 MDBs studied hold approximately $1.48 trillion in subscribed capital, including $1.28 trillion in callable capital and $175 billion in paid-in capital. Their equity amounts to approximately $445 billion.
Callable capital refers to the commitment made by shareholder states to provide support if necessary. It strengthens investor confidence and enables MDBs to borrow more on financial markets without each loan relying directly on a new budgetary contribution.
The reforms primarily focus on optimising capital-adequacy frameworks. The objective is to increase MDBs’ lending and grant-making capacity without undermining their financial soundness, preferred-creditor status or credit ratings. This requires, in particular, better recognition of the value of callable capital, the historical quality of MDB portfolios, risk concentration and the specific features of their operating model by credit-rating agencies.
MDBs are also being encouraged to improve the transparency and comparability of their capital indicators, as well as to publish more data on defaults and recovery rates. Data from the Global Emerging Markets Risk Database (GEMs) could help credit-rating agencies and private investors better assess the risks associated with development finance.
In practical terms, the reforms focus on optimising MDB balance sheets. The objective is to use existing capital more efficiently in order to increase their lending and grant-making capacity without undermining their financial soundness or high credit ratings. This involves optimising capital-adequacy frameworks, using hybrid capital, transferring risks and deploying other instruments to create additional financing capacity. According to estimates, the largest MDBs could increase their lending capacity by $600–800 billion while maintaining their AAA ratings, provided that the reforms are effectively implemented and supported by shareholders.
- Introducing new forms of capital
Improving the use of existing capital will not, however, be sufficient to meet the scale of financing needs related to the Sustainable Development Goals and climate action. MDBs must therefore also diversify their sources of capital.
Hybrid capital is an important instrument. It makes it possible to increase available resources without necessarily changing shareholders’ voting rights and can be used to support several times its initial amount in additional lending. Other instruments can also be mobilised, including portfolio guarantees, credit insurance, risk transfers, synthetic securitisation and reinsurance mechanisms.
The G20 also encourages countries that are able to do so to explore channelling the reallocation of their Special Drawing Rights towards MDBs, while preserving their status as reserve assets and the liquidity of SDR-denominated claims.
- Adapting mandates and increasing shareholder resources
Reform is not limited to balance sheets and financial instruments. MDBs are also being called upon to adapt their vision and mandates in order to better respond to global challenges, including climate change, biodiversity loss, pandemics, food crises and situations of fragility.
This evolution of mandates must be accompanied by regular assessments of whether MDB strategies, resources and financial capacities remain adequate. Shareholders must determine, in particular, whether concessional resources, paid-in capital, callable capital and available guarantees are sufficient to meet these new ambitions. In some cases, larger capital increases or replenishments of concessional funds may be necessary.
Taking vulnerability into account is another important element of this reform. A country’s access to concessional finance is still largely determined by its per-capita income, which does not always reflect its exposure to climate, economic, health or geographical shocks. The Multidimensional Vulnerability Index, recognised by the United Nations, could help provide a more accurate assessment of countries’ actual needs, provided that it is effectively incorporated into MDB eligibility and allocation frameworks. This is particularly important for small island states, fragile countries and middle-income countries that are highly exposed to climate-related disasters.
- Transforming relationships with countries and strengthening coordination
The coordination of MDBs with one another is a fourth area of reform. Since the Marrakech Declaration of October 2023, followed by the announcements made at COP28, their leaders have reaffirmed their determination to operate increasingly as an integrated system. The objective is to simplify co-financing, harmonise certain procedures, strengthen coordination at the level of beneficiary countries, share more data and mobilise the private sector more effectively. This development is important: for partner countries, the fragmentation of financing windows, procedures and access criteria can be as significant an obstacle as the lack of resources.
This evolution must involve country-led development platforms, better coordination of national strategies, a clearer division of labour between institutions and the simplification of co-financing arrangements. MDBs must also strengthen project preparation, particularly at the design stage, in order to build sufficiently robust and bankable project portfolios.
The G20 roadmap also aims to make procedures faster, more predictable and more risk-based. This involves bringing environmental and social standards, integrity procedures and procurement policies closer together, while maintaining the highest standards. Sharing diagnostics, data and monitoring tools should also reduce the administrative burden placed on beneficiary countries.
Finally, coordination must also concern the financial products themselves. MDBs are encouraged to develop more local-currency financing, foreign-exchange risk-hedging mechanisms, debt suspension clauses in the event of disasters and concessional financing better adapted to countries’ needs. They must also work with national and subnational development banks, as well as climate and environmental funds.
| Finance in Common: coordinating public development banks |
| Finance in Common (FiCS) is an initiative launched in 2020 at the initiative of France and the French Development Agency, which hosts its permanent secretariat. Finance in Common brings together more than 530 national, subnational, regional and multilateral public development banks. MDBs are part of this network alongside national institutions such as AFD, Germany’s KfW and Japan’s JICA. The objective of FiCS is to strengthen dialogue and cooperation between these institutions and better align their financing with the Sustainable Development Goals, the Paris Agreement and the priorities defined by countries. This coordination should enable MDBs and national institutions to combine their respective strengths: international financing capacity and guarantees for the former; local knowledge, project preparation and local implementation for the latter. The stakes are high: MDBs cannot meet the scale of needs on their own. They must work with national development banks, governments, donors, multilateral funds and private-sector actors. FiCS therefore presents itself as an exchange and coordination platform designed to accelerate the implementation of climate finance and the 2030 Agenda. At the 2025 FiCS Summit, participants notably emphasised the role of national and subnational public banks in country platforms—coordination frameworks designed to align international financing with national priorities. The final communiqué also refers to the work of FiCS coalitions, financial innovation, their contribution to FfD4 and the potential role of public development banks in implementing the new collective quantified goal on climate finance. |
- Mobilising more private capital
The fifth lever is the mobilisation of private capital. MDBs are increasingly expected to act as intermediaries between limited public resources and the massive financing needs of development and climate action. MDBs mobilised $87.9 billion in private capital in 2023 in low- and middle-income countries; the latest joint data indicate that this figure reached $108.7 billion in 2024.
However, this mobilisation must be assessed carefully: it can only be considered successful if the financing is genuinely additional, directed towards development priorities and accessible to countries and sectors usually underserved by markets, such as climate adaptation, social services and fragile contexts.
MDBs must therefore set ambitious and comparable mobilisation targets for each dollar committed. They must also create favourable conditions for private investment by working on regulatory frameworks, project preparation, local capital markets and political or commercial risks.
This lever also concerns guarantees. By covering certain political, commercial or sovereign risks using their capital, MDBs can help attract private investors to countries or sectors perceived as risky. The World Bank Group’s reform illustrates this development, with the creation of a guarantee platform hosted by MIGA, designed to make these instruments clearer and easier to mobilise. In 2025, MIGA issued $12.3 billion in guarantees, expected to mobilise $9.8 billion in private capital. It also appears necessary to develop portfolio-based approaches, including “originate-to-distribute” models, securitisation and risk transfers, in order to move beyond mobilisation limited to isolated transactions.
- Measuring development impact and effectiveness
Increasing financing volumes is not, however, a sufficient objective. MDBs must also demonstrate that their financing produces real results in terms of poverty reduction, job creation, climate adaptation, energy transition, biodiversity and gender equality.
This requires strengthening impact-measurement systems at three levels: projects, countries and institutions. MDBs are encouraged to publish more information on expected results before an intervention and on the results actually achieved after implementation. Independent evaluations, disaggregated data and common indicators should make it possible to compare performance while respecting each institution’s specific mandate.
Impact measurement must also guide financing decisions. Concessional resources and new capital instruments should be directed towards operations capable of producing the greatest development impacts, particularly in poor, vulnerable or fragile countries.
- Strengthening governance, representation and accountability
Finally, MDB reform raises the question of governance. Major strategic decisions and financing operations are approved by their boards of directors, where the influence of states generally depends on their shareholding. The main shareholders therefore have significant influence over decisions that affect all member countries.
MDB reform therefore also raises a question of representation for developing countries: should beneficiary countries, particularly least developed countries, have less influence than donor countries in institutions that determine their access to finance?
Low-income countries collectively hold 1.92% of voting rights at the IBRD, 4.32% at IDA, 7.24% at the African Development Bank, 0.32% at the Asian Development Bank and no voting rights at the EBRD.
Who holds voting power in multilateral development banks?
Share of major shareholders, other members and least developed countries (LDCs) in five multilateral development banks, latest available data, in %.
Improving the representation of developing countries is therefore an issue of legitimacy and effectiveness. Beneficiary countries, particularly least developed countries, must be able to participate more fully in the decisions that determine their access to finance. This reform also concerns geographical diversity and the representation of women on boards of directors, within senior management and across MDB staff.
Since 2023, MDB reform has also been promoted through other international frameworks. The Summit for a New Global Financing Pact helped keep the issue at the centre of the political agenda. The Fourth International Conference on Financing for Development, held in Seville in 2025, confirmed this priority by calling on MDBs to increase and optimise their annual lending capacity while preserving their financial soundness. The Pact for Prosperity, People and the Planet (4P), the COPs and Finance in Common also contribute to maintaining this momentum, particularly on mobilising private capital, aligning finance with climate objectives, taking vulnerability into account and improving coordination between public development banks.
Reforming the international financial architecture: where do we stand?
Focus 2030 independently tracks the commitments made at the Summit for a New Global Financing Pact in 2023. Updated on an ongoing basis, this tracker documents progress, stagnation and setbacks in the reform of international development and climate finance.
MDB reform is therefore not solely about increasing their financial capacity. It aims to make them stronger, more ambitious, better coordinated, more accessible to partner countries and more accountable for the results they achieve. The challenge is to build a system capable of mobilising more resources while improving their allocation, impact and legitimacy.
This is why MDB reform should not be assessed solely on the basis of the volume of financing. The key question is whether additional resources are genuinely accessible, approved and disbursed within a reasonable timeframe; whether they are concessional when a country’s situation requires it; whether they support national development priorities; and whether they strengthen countries’ capacity to invest without increasing their financial vulnerability. For countries already facing debt distress, additional non-concessional lending may increase risks rather than reduce them.
Ultimately, MDB reform is not simply about making these institutions “bigger”. It must also make them better adapted to contemporary realities, more accessible, better coordinated and more accountable.
Conclusion
MDBs are therefore central actors in financing development and climate action. They support the implementation of national public policies and private-sector projects. Their added value lies in their ability to leverage public capital and transform it into long-term financing, reduce certain risks, support complex projects and mobilise other financial actors.
For vulnerable countries, their reform will only be useful if it results in financing that is more accessible, more concessional, faster and better coordinated. The objective is therefore not simply to make MDBs financially more powerful institutions, but to make them more effective, transparent and accountable to the countries and populations they are intended to serve.
A successful reform must therefore answer a simple question: do MDBs genuinely enable vulnerable countries to invest more in healthcare, education, climate adaptation, essential infrastructure and resilience without worsening their debt? It is against this criterion, rather than solely against the amounts announced, that their transformation should be assessed.
Further resources
Reforming the international financial architecture: where do we stand?
Focus 2030 independently tracks the commitments made at the Summit for a New Global Financing Pact in 2023 and documents progress, stagnation and setbacks in the reform of international development and climate finance.
Roadmap towards Better, Bigger and More Effective Multilateral Development Banks
G20 roadmap on reforming multilateral development banks.
Access →The global network of public development banks
Overview of the Finance in Common network and cooperation between public development banks.
Access →21st replenishment of the International Development Association
Analysis of the issues surrounding the replenishment of the World Bank’s concessional financing arm.
Read the analysis →MDBs want to cooperate more closely : what progress have they made?
Podcast episode on progress in cooperation between multilateral development banks.
Listen →MDB Reform Accelerator
Tracker monitoring reforms undertaken by multilateral development banks.
Access →Roadmap towards Better, Bigger and More Effective MDBs
Version of the G20 roadmap made available by the Council of Europe Development Bank.
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