Welcome to zero I am Akshatrati this week the mysterious Beauty of development packs. It has been a wild couple of months in the world of development finance. Since January. One by one we've seen countries pull back from their aid commitments. The US, the UK, the Netherlands, France. The list keeps growing. This comes just a few months after Rich countries agreed to ramp up climate spending at COP twenty nine. The headline target was three hundred billion dollars a year by twenty thirty five, tripling the previous commitment of one hundred billion dollars, which is supposed to be reached by twenty twenty. Now these new commitments are in serious doubt. What isn't under question is the need for that money. Developing countries still require trillion of dollars a year to transition to clean energy and build climate resilient infrastructure. So where will the money come from? That's the question we'll explore in this episode of Moving Money. We are welcoming back avinash Parsod, special advisor on Climate risks to the President of the Inter American Development Bank and former economic advisor to Barbados Prime Minister Mia Mottley. Last week we explored how to reshape the global financial order for the climate era. Today we'll explore the role of multilateral development banks, or MDBs. The World Bank is the best known MDB, but there are many others. Collectively, they funnel hundreds of billions of dollars a year to poorer countries around the world, much of which goes to climate projects. Our conversation was recorded at Coptery nine in Baku, but remains as relevant as it was then, perhaps even more so as President Trump doubles down on US isolationism. We sat down to talk about how MDBs can be used to move move more money to developing countries, what they can do better, and who will fill the gap if the US WU draws from these MDBs. Avinash is a special advisor to an MDB. That makes him, unsurprisingly a supporter of their work, but he's not just an MDB insider. He's come to that role after a long career as a banker on Wall Street in New York and in the City of London. He's also been an advisor on economic issues to a developing country government, so his insights come from seeing all sides of the financial system. As you'll hear in our conversation, he's come to the view that MDBs play a crucial role in the global financial system, and one that becomes more important in the volatile times ahead. Hi Avinash, welcome back for another episode of Moving Money.

Welcome to zero I am Akshatrati this week the mysterious Beauty of development packs. It has been a wild couple of months in the world of development finance. Since January. One by one we've seen countries pull back from their aid commitments. The US, the UK, the Netherlands, France. The list keeps growing. This comes just a few months after Rich countries agreed to ramp up climate spending at COP twenty nine. The headline target was three hundred billion dollars a year by twenty thirty five, tripling the previous commitment of one hundred billion dollars, which is supposed to be reached by twenty twenty. Now these new commitments are in serious doubt. What isn't under question is the need for that money. Developing countries still require trillion of dollars a year to transition to clean energy and build climate resilient infrastructure. So where will the money come from? That's the question we'll explore in this episode of Moving Money. We are welcoming back avinash Parsod, special advisor on Climate risks to the President of the Inter American Development Bank and former economic advisor to Barbados Prime Minister Mia Mottley. Last week we explored how to reshape the global financial order for the climate era. Today we'll explore the role of multilateral development banks, or MDBs. The World Bank is the best known MDB, but there are many others. Collectively, they funnel hundreds of billions of dollars a year to poorer countries around the world, much of which goes to climate projects. Our conversation was recorded at Coptery nine in Baku, but remains as relevant as it was then, perhaps even more so as President Trump doubles down on US isolationism. We sat down to talk about how MDBs can be used to move move more money to developing countries, what they can do better, and who will fill the gap if the US WU draws from these MDBs. Avinash is a special advisor to an MDB. That makes him, unsurprisingly a supporter of their work, but he's not just an MDB insider. He's come to that role after a long career as a banker on Wall Street in New York and in the City of London. He's also been an advisor on economic issues to a developing country government, so his insights come from seeing all sides of the financial system. As you'll hear in our conversation, he's come to the view that MDBs play a crucial role in the global financial system, and one that becomes more important in the volatile times ahead. Hi Avinash, welcome back for another episode of Moving Money.

Thank you.

Thank you.

Today we're going to talk about multilateral development banks, things like Worldbank, which most people think have an idea of, but also so many other development banks, one that you work for, Inter American Development Bank, Asian Development Bank, African Development Bank. The fact that they have development in them makes them seem like good banks. What are MDBs?

Today we're going to talk about multilateral development banks, things like Worldbank, which most people think have an idea of, but also so many other development banks, one that you work for, Inter American Development Bank, Asian Development Bank, African Development Bank. The fact that they have development in them makes them seem like good banks. What are MDBs?

You know? Actually, when I think we first spoke, I was part of the Bridgetown Initiative, one of the architects of that for international financial reform, and in doing that work, I realized that the multilateral development banks have a very critical role to play, which is why I joined one. Now I think it's actually, and excuse the potential perversity, but actually a thing of beauty that the center of the global financial system are a handful of Triple A rated institutions, which are development banks, which means they're not for profit.

You know? Actually, when I think we first spoke, I was part of the Bridgetown Initiative, one of the architects of that for international financial reform, and in doing that work, I realized that the multilateral development banks have a very critical role to play, which is why I joined one. Now I think it's actually, and excuse the potential perversity, but actually a thing of beauty that the center of the global financial system are a handful of Triple A rated institutions, which are development banks, which means they're not for profit.

And rating just gives them this credit rating which allows them to go to private investors, and they will invest in this thing because they are guaranteed a return.

And rating just gives them this credit rating which allows them to go to private investors, and they will invest in this thing because they are guaranteed a return.

Did you say, just gives them? It's such a powerful thing. So what a development bank can do, and this is very different from say a climate fund or development fund. You put a dollar into a development fund, you get a dollar out. You put a dollar of capital into a multilateral develoment bank and you can get eight dollars out. Now how does that happen? So capital, what is capital? Capital is loss absorbing. So I go into the marketplace. The British governments give me a pound of capital. I go into the marketplace. I say to the marketplace, I've got a pound of capital. I can lose this pound. I don't need to pay it back to anybody. I can lose this pound, and as a result, can I borrow money from you. So it's like my first loss. I've got the ability to do first loss. And therefore the market says, oh, I don't mind lending you seven or eight pounds knowing that, but if you run into trouble, the first pound to suffer is not my pound, it's the British government's pound.

Did you say, just gives them? It's such a powerful thing. So what a development bank can do, and this is very different from say a climate fund or development fund. You put a dollar into a development fund, you get a dollar out. You put a dollar of capital into a multilateral develoment bank and you can get eight dollars out. Now how does that happen? So capital, what is capital? Capital is loss absorbing. So I go into the marketplace. The British governments give me a pound of capital. I go into the marketplace. I say to the marketplace, I've got a pound of capital. I can lose this pound. I don't need to pay it back to anybody. I can lose this pound, and as a result, can I borrow money from you. So it's like my first loss. I've got the ability to do first loss. And therefore the market says, oh, I don't mind lending you seven or eight pounds knowing that, but if you run into trouble, the first pound to suffer is not my pound, it's the British government's pound.

The capital.

The capital.

So when we go to the marketplace, with a pound of capital, I could therefore borrow seven pounds. That seven pounds is comfortable because it knows if there's a loss, their money isn't touched until the first pound is gone.

So when we go to the marketplace, with a pound of capital, I could therefore borrow seven pounds. That seven pounds is comfortable because it knows if there's a loss, their money isn't touched until the first pound is gone.

So how big is the MDB system when it comes to a total amount of lending relative to say, private lending?

So how big is the MDB system when it comes to a total amount of lending relative to say, private lending?

Tiny?

Tiny?

So I think I began by saying that it's beautiful that they the middle of the system is not for profit triple A development banks. The ugly bit is they're really really tiny, and we need to make them much bigger, at least three times bigger. And at the moment development banks are lending in the order of around two hundred billion dollars a year. We need them to be lending three times that amount, with a big chunk on climate, maybe half on climate. So they need to be lending six hundred billion dollars a year and three hundred billion perhaps on climate. And private lending is in the trillions of dollars. I'm assuming tens of trillions of dollars on an annual basis, So private lending is around one hundred trillion dollars. Yes, But the point is that we have a very financialized system with lots of assets and debt far in excess of the national income. Those assets and debts are recycled and shuffled around and lent and bought. The development banks therefore, as a proportion of that do a fairly modest amount.

So I think I began by saying that it's beautiful that they the middle of the system is not for profit triple A development banks. The ugly bit is they're really really tiny, and we need to make them much bigger, at least three times bigger. And at the moment development banks are lending in the order of around two hundred billion dollars a year. We need them to be lending three times that amount, with a big chunk on climate, maybe half on climate. So they need to be lending six hundred billion dollars a year and three hundred billion perhaps on climate. And private lending is in the trillions of dollars. I'm assuming tens of trillions of dollars on an annual basis, So private lending is around one hundred trillion dollars. Yes, But the point is that we have a very financialized system with lots of assets and debt far in excess of the national income. Those assets and debts are recycled and shuffled around and lent and bought. The development banks therefore, as a proportion of that do a fairly modest amount.

But what are development banks? How do they exactly work? What is the structure of a development bank? That makes them a thing of beauty?

But what are development banks? How do they exactly work? What is the structure of a development bank? That makes them a thing of beauty?

What makes me a thing of beauty is that you can put some money into a develoment bank and much more money can come out. Their main job is to give you a loan. Because they are not for profit institution, they try to give you a cheap loan and they try to make it as long term as possible. They're not trying to maximize the profitability.

What makes me a thing of beauty is that you can put some money into a develoment bank and much more money can come out. Their main job is to give you a loan. Because they are not for profit institution, they try to give you a cheap loan and they try to make it as long term as possible. They're not trying to maximize the profitability.

Of this loan.

Of this loan.

Now, what makes them not for profit is that they're shareholders. Are governments who again are not looking to make money from their investment.

Now, what makes them not for profit is that they're shareholders. Are governments who again are not looking to make money from their investment.

And these are rich governments mostly right, it's America, it's Britain, it's the G seven countries. They have about half of the shareholding and most development banks when we looked at their numbers.

And these are rich governments mostly right, it's America, it's Britain, it's the G seven countries. They have about half of the shareholding and most development banks when we looked at their numbers.

Actually that you said half, I mean half is not most. Half is actually quite small. So One of the interesting things about the development banks is it is the one of the broadest ownership structures, so the third biggest shareholder in many of the development banks, as China, India has a bigger shareholding in the World Bank than a G seven Italy then in had a future seven countries Italy and Canada, so it's actually fairly broad. But they were set up by the rich.

Actually that you said half, I mean half is not most. Half is actually quite small. So One of the interesting things about the development banks is it is the one of the broadest ownership structures, so the third biggest shareholder in many of the development banks, as China, India has a bigger shareholding in the World Bank than a G seven Italy then in had a future seven countries Italy and Canada, so it's actually fairly broad. But they were set up by the rich.

Countries, right and to me, when we think about development banks in that context, one way to think about it is these are mostly colonial powers that were forced to eventually give up their colonies and realize that if they wanted to remain in a world that remains peaceful, they need to ensure these colonies that they extracted so much value from do develop on their own. That will require them to have some capital, and we better create a system that allows some development money to go to these places. And you can control that a little bit so that no way, they are not colonies anymore, but at least we have some control over how much money they can get.

Countries, right and to me, when we think about development banks in that context, one way to think about it is these are mostly colonial powers that were forced to eventually give up their colonies and realize that if they wanted to remain in a world that remains peaceful, they need to ensure these colonies that they extracted so much value from do develop on their own. That will require them to have some capital, and we better create a system that allows some development money to go to these places. And you can control that a little bit so that no way, they are not colonies anymore, but at least we have some control over how much money they can get.

You're revealing so much about yourself actually in this description, because you know the way the rowbag was established was the European reconstruction after the War it wasn't actually about economic development and the empires. Like the IMF, the IMF's remit was not about conditionality on poor countries. It was about managing a global system of fixed exchange rates. So, in fact, what's quite innovative about these institutions is how they've actually repurposed themselves as their original purpose disappeared. You know, it's a story of all institutions. They were set up to do something, they achieved it, and they reinvented themselves to do something else so they could stay along. So now are these institutions if you look at the shareholders, and I recommend any listener have just google the shareholdings of the World Bank. It is an amazingly mixed structure. Russia is a major shareholder, Iran is a major shareholder of the World Bank. It's not as broad as it could be, but it is surprisingly broad, which is why I think it's role in climate finance helps to move us along this process of which we do need a global response to a global problem.

You're revealing so much about yourself actually in this description, because you know the way the rowbag was established was the European reconstruction after the War it wasn't actually about economic development and the empires. Like the IMF, the IMF's remit was not about conditionality on poor countries. It was about managing a global system of fixed exchange rates. So, in fact, what's quite innovative about these institutions is how they've actually repurposed themselves as their original purpose disappeared. You know, it's a story of all institutions. They were set up to do something, they achieved it, and they reinvented themselves to do something else so they could stay along. So now are these institutions if you look at the shareholders, and I recommend any listener have just google the shareholdings of the World Bank. It is an amazingly mixed structure. Russia is a major shareholder, Iran is a major shareholder of the World Bank. It's not as broad as it could be, but it is surprisingly broad, which is why I think it's role in climate finance helps to move us along this process of which we do need a global response to a global problem.

Why are they involved in climate The name is development, and I understand climate change can affect development. Is that the link climate.

Why are they involved in climate The name is development, and I understand climate change can affect development. Is that the link climate.

Is one of the biggest threats to poverty. We're seeing a tremendous number of people being pushed into poverty by climatic events. I was born in the Caribbean Akshatt and we often think about these hurricanes, and the same hurricane went over Grenada and almost a third of the population is homeless. The exact same hurricane goes over Caymans. In fact, Camans is probably underwater at one point and very little damage is done because of differences in development. So climate vulnerability has a lot to do with levels of development, but also the energy transition is probably the biggest best development.

Is one of the biggest threats to poverty. We're seeing a tremendous number of people being pushed into poverty by climatic events. I was born in the Caribbean Akshatt and we often think about these hurricanes, and the same hurricane went over Grenada and almost a third of the population is homeless. The exact same hurricane goes over Caymans. In fact, Camans is probably underwater at one point and very little damage is done because of differences in development. So climate vulnerability has a lot to do with levels of development, but also the energy transition is probably the biggest best development.

Strategy for many developing countries.

Strategy for many developing countries.

So we've just done this work which shows that we're Latin, American and Caribbean to reach net zero. The net economic benefits will be fifty percent of GDP, and a big chunk of that comes from the savings of electrification. You've taught me a lot about the power of electrification. A big chunk comes now from the fact that renewables are cheap, there's fuel savings, and an even bigger chunk comes from something that people don't realize. Fossil fuels are really bad.

So we've just done this work which shows that we're Latin, American and Caribbean to reach net zero. The net economic benefits will be fifty percent of GDP, and a big chunk of that comes from the savings of electrification. You've taught me a lot about the power of electrification. A big chunk comes now from the fact that renewables are cheap, there's fuel savings, and an even bigger chunk comes from something that people don't realize. Fossil fuels are really bad.

For your health.

For your health.

More people are dying from air pollution that dying from climate change. About four point seven trillion dollars is spent on health to manage the repercussions of pollution. So if we were to get to net zero, we will have a huge positive economic benefit and the development banks should therefore be playing a role in that.

More people are dying from air pollution that dying from climate change. About four point seven trillion dollars is spent on health to manage the repercussions of pollution. So if we were to get to net zero, we will have a huge positive economic benefit and the development banks should therefore be playing a role in that.

So in this reinventioned story from Europe in reconstruction to reducing poverty, is this now a new phase of reinvention?

So in this reinventioned story from Europe in reconstruction to reducing poverty, is this now a new phase of reinvention?

There is a reinvention, and I think it's a function firstly of the fact that climate has now become, as a result of it in action, become this global force that is having a huge impact on poverty. It's also a global public good. Very hard for us to manage climate individually. So the World Bank is part of it. Of this reinvention, you might say, it began to change its strap line. It's not just about eliminating poverty, it's about doing it in a livable world, and I think that's good and important. I think a recognition that development isn't all about climate is also important. The development banks are committing themselves to fifty percent of their lending is climate related climate positive, which I think is a good and reasonable number. It's I say reasonable because the scale of the task what we need to do, but it's not one hundred percent, and it shouldn't be one hundred percent. Okay, So if you're going to triple the lending on development banks a lot of that supporting climate work, how exactly do you get there? Because that will require these shareholders to actually put more money into the system.

There is a reinvention, and I think it's a function firstly of the fact that climate has now become, as a result of it in action, become this global force that is having a huge impact on poverty. It's also a global public good. Very hard for us to manage climate individually. So the World Bank is part of it. Of this reinvention, you might say, it began to change its strap line. It's not just about eliminating poverty, it's about doing it in a livable world, and I think that's good and important. I think a recognition that development isn't all about climate is also important. The development banks are committing themselves to fifty percent of their lending is climate related climate positive, which I think is a good and reasonable number. It's I say reasonable because the scale of the task what we need to do, but it's not one hundred percent, and it shouldn't be one hundred percent. Okay, So if you're going to triple the lending on development banks a lot of that supporting climate work, how exactly do you get there? Because that will require these shareholders to actually put more money into the system.

Correct.

Correct.

It's one of those wonderful issues where as you begin to delve into it, it gets more and more complicated.

It's one of those wonderful issues where as you begin to delve into it, it gets more and more complicated.

Okay, let's break it down.

Okay, let's break it down.

Well, let's begin at the topic where it's simple, which is, you know, you get out a multiple of what you put in. And if they want to do a lot more, they've got to put in some money. So the multil actual development banks at COPP made a announcement that if you know, business as usual, no new shareholder support, they could probably lend around one hundred and twenty billion dollars per year on climate by twenty thirty.

Well, let's begin at the topic where it's simple, which is, you know, you get out a multiple of what you put in. And if they want to do a lot more, they've got to put in some money. So the multil actual development banks at COPP made a announcement that if you know, business as usual, no new shareholder support, they could probably lend around one hundred and twenty billion dollars per year on climate by twenty thirty.

Right, and that would be roughly double or one and a half times what they're doing now.

Right, and that would be roughly double or one and a half times what they're doing now.

What they're doing now is not very far short of that number. It's more like seventy five billion dollars today, and the ability to be much higher is clearly limited by not having new resources, but there are things devin banks can do. There's been a whole push around what's called the cafe reform, the Capital Adequacy Framework reform. So what is the ratio of capital to lending? Can we change that ratio and lend a bit more with existing capital? Can we do something that was an idea of much led by the UK or what's called portfolio guarantees. So the develop banks might pull together a portfolio of the loans they've got and say to a donor interested in climate, say, well, here's ten loans that we lent for climate resilience. Would you guarantee the portfolio, not any individual loan, But the portfolio doesn't lose money, and that guarantee is unlikely to be hit that the whole portfolio loses money, but it allows the development bank to reduce the amount of capital it puts in and use that capital somewhere else. And then more so, the whole things they can do with the existing money being clever with it. Pulling the lever is the metaphor users squeezing the lemon, that the lemon can be squeezed a bit more. But there comes a point where you've squeezed or you can for my lemon, and so then you need new money. So if you think about it in the multiplier terms, it's sort of one pound in six or seven pounds out initially, and then you do these lemon squeezing activities and you get eight pounds maybe nine pounds out of.

What they're doing now is not very far short of that number. It's more like seventy five billion dollars today, and the ability to be much higher is clearly limited by not having new resources, but there are things devin banks can do. There's been a whole push around what's called the cafe reform, the Capital Adequacy Framework reform. So what is the ratio of capital to lending? Can we change that ratio and lend a bit more with existing capital? Can we do something that was an idea of much led by the UK or what's called portfolio guarantees. So the develop banks might pull together a portfolio of the loans they've got and say to a donor interested in climate, say, well, here's ten loans that we lent for climate resilience. Would you guarantee the portfolio, not any individual loan, But the portfolio doesn't lose money, and that guarantee is unlikely to be hit that the whole portfolio loses money, but it allows the development bank to reduce the amount of capital it puts in and use that capital somewhere else. And then more so, the whole things they can do with the existing money being clever with it. Pulling the lever is the metaphor users squeezing the lemon, that the lemon can be squeezed a bit more. But there comes a point where you've squeezed or you can for my lemon, and so then you need new money. So if you think about it in the multiplier terms, it's sort of one pound in six or seven pounds out initially, and then you do these lemon squeezing activities and you get eight pounds maybe nine pounds out of.

That's exactly right.

That's exactly right.

Yes, I don't need to explain anymore now, okay, So okay, So now we've got that level of complexity. Level, let's add another layer of complexity, so adaptation, climate adaptation of building stronger sea walls, better flood defenses, better drainage systems. It's not that easy to get the private sector involved in that because, yeah, they're no returns to be made. There's savings to be had, but no returns to be made. But mitigation investing in a solar farm or wind turbines, hydroelectric power today, nuclears coming back in those things, you could probably co invest with the private sector. The banks have what's called B loans. You know that they'll they'll do a loan and then they'll have another part of the loan which has almost exact same terms the maturity, the interest rate, and the private sector.

Yes, I don't need to explain anymore now, okay, So okay, So now we've got that level of complexity. Level, let's add another layer of complexity, so adaptation, climate adaptation of building stronger sea walls, better flood defenses, better drainage systems. It's not that easy to get the private sector involved in that because, yeah, they're no returns to be made. There's savings to be had, but no returns to be made. But mitigation investing in a solar farm or wind turbines, hydroelectric power today, nuclears coming back in those things, you could probably co invest with the private sector. The banks have what's called B loans. You know that they'll they'll do a loan and then they'll have another part of the loan which has almost exact same terms the maturity, the interest rate, and the private sector.

May fund that.

May fund that.

Right, So the A loan is the development banks loan and the B loan is the private sector in matching.

Right, So the A loan is the development banks loan and the B loan is the private sector in matching.

That's right.

That's right.

So that is another way in which they can expand a bit of leverage, but only for mitigation. So once we've got say the one to eight ratio, half of that one to eight could be done for adaptation adaptation loans, the other half could be on mitigation loans. So I've got now one to eight, but by mitigation loans could be blended with private sector loans, right, one to sixteen. Right, I could match whatever my lending on the on the development bank with lending on the private sector.

So that is another way in which they can expand a bit of leverage, but only for mitigation. So once we've got say the one to eight ratio, half of that one to eight could be done for adaptation adaptation loans, the other half could be on mitigation loans. So I've got now one to eight, but by mitigation loans could be blended with private sector loans, right, one to sixteen. Right, I could match whatever my lending on the on the development bank with lending on the private sector.

Now you're starting to talk like NASA talks about investing in one dollar and getting fifty dollars a return for the US economy because rockets are cool.

Now you're starting to talk like NASA talks about investing in one dollar and getting fifty dollars a return for the US economy because rockets are cool.

Yes, So on mitigation, maybe a dollar of capital can end up with sixteen dollars of lending on mitigation. But whilst adaptations want to eight and that therefore that means that if the shareholders of development banks put in say ten billion dollars of capital every year, we could probably expand about the debt banks lend by over one hundred billion a year lend directly themselves or mobilized directly with the private sector.

Yes, So on mitigation, maybe a dollar of capital can end up with sixteen dollars of lending on mitigation. But whilst adaptations want to eight and that therefore that means that if the shareholders of development banks put in say ten billion dollars of capital every year, we could probably expand about the debt banks lend by over one hundred billion a year lend directly themselves or mobilized directly with the private sector.

So this idea that was talked about at COP twenty nine around a new collective quantified goal on finance, which is supposed to be rich countries helping poor countries do mitigation and adaptation. There were these layers of onion, the first being direct money being given from a government to another government, the second layer being multilateral development banks lending more, and then the third being investors come in. Now already the explanation you've given to me is that MDBs are really already mobilizing private sector because the lending that MDBs are able to make is because they're able to go and create bonds and borrow from private markets which consider the MDBs to be a credit worthy lender to give money to, and then they use that money and give it to somebody else.

So this idea that was talked about at COP twenty nine around a new collective quantified goal on finance, which is supposed to be rich countries helping poor countries do mitigation and adaptation. There were these layers of onion, the first being direct money being given from a government to another government, the second layer being multilateral development banks lending more, and then the third being investors come in. Now already the explanation you've given to me is that MDBs are really already mobilizing private sector because the lending that MDBs are able to make is because they're able to go and create bonds and borrow from private markets which consider the MDBs to be a credit worthy lender to give money to, and then they use that money and give it to somebody else.

That's a great point that many people don't get. The way an MDB works is mobilizing private sector money.

That's a great point that many people don't get. The way an MDB works is mobilizing private sector money.

The donor the government.

The donor the government.

Has put up one and a dollar of capital, and I've used that dollar of capital to get seven or eight dollars of private sector money.

Has put up one and a dollar of capital, and I've used that dollar of capital to get seven or eight dollars of private sector money.

I've already mobilized private.

I've already mobilized private.

Sector after the break, Avinash wants to see much more money going to development banks. But what happens if President Trump polds back And by the way, if you've been enjoying this episode, please take a moment to rate and review the show on Apple Podcasts and Spotify. It helps other listeners find the show. There are lots of criticisms of MDBs that come up. One is that because they have to keep their Triple A status, they're quite conservative that they lend to projects, but they do a lot of work on those projects. It takes our long time to get those loans. They make sure that they're going to get their return because if they don't, then you know, their Triple A status is at risk. In a world where we're going to have to do this very quickly and we're expanding this lending, how is the MDB going to be prepared?

Sector after the break, Avinash wants to see much more money going to development banks. But what happens if President Trump polds back And by the way, if you've been enjoying this episode, please take a moment to rate and review the show on Apple Podcasts and Spotify. It helps other listeners find the show. There are lots of criticisms of MDBs that come up. One is that because they have to keep their Triple A status, they're quite conservative that they lend to projects, but they do a lot of work on those projects. It takes our long time to get those loans. They make sure that they're going to get their return because if they don't, then you know, their Triple A status is at risk. In a world where we're going to have to do this very quickly and we're expanding this lending, how is the MDB going to be prepared?

I think that's an important point.

I think that's an important point.

However, I would say there is beauty in the leverage of the one dollar capital leading to eight dollars of lending, and that is only really possible with the triple A status, so that we should maintain that leverage, try to make them as efficient as they can. But I think there's efficiency and results, so caution, and the caution is linked to the credit rating, so that is not going to change dramatically. But I think what you're saying is that the MDBs.

However, I would say there is beauty in the leverage of the one dollar capital leading to eight dollars of lending, and that is only really possible with the triple A status, so that we should maintain that leverage, try to make them as efficient as they can. But I think there's efficiency and results, so caution, and the caution is linked to the credit rating, so that is not going to change dramatically. But I think what you're saying is that the MDBs.

Can't do everything.

Can't do everything.

They will need to be a form of higher risk taking that probably has to be funded separately. So there's something called project preparation facility. You know that the most risky dollar in any project is the first dollar. It's the feasibility because you may determine that it's not feasible, in which case you've lost that dollar. So there's much talk about the MDB's doing more project feasibility, and maybe that needs to be separately funded because that's very risky. That's one of the reason why they don't do it. The MDBs often complain in that they say we've got money to lend. Actually, all this talk about giving us more money, we've got money to lend, we don't have projects. And the fact that there aren't projects in countries with huge amounts of potential is because there's not a lot of money invested in project preparation. There's a lot of work being done on solar and of course some of the poorest countries in the world have the most amazing solar resources, but projects aren't there. Is that because there aren't really good projects?

They will need to be a form of higher risk taking that probably has to be funded separately. So there's something called project preparation facility. You know that the most risky dollar in any project is the first dollar. It's the feasibility because you may determine that it's not feasible, in which case you've lost that dollar. So there's much talk about the MDB's doing more project feasibility, and maybe that needs to be separately funded because that's very risky. That's one of the reason why they don't do it. The MDBs often complain in that they say we've got money to lend. Actually, all this talk about giving us more money, we've got money to lend, we don't have projects. And the fact that there aren't projects in countries with huge amounts of potential is because there's not a lot of money invested in project preparation. There's a lot of work being done on solar and of course some of the poorest countries in the world have the most amazing solar resources, but projects aren't there. Is that because there aren't really good projects?

No, we haven't got them.

No, we haven't got them.

Need to invest in the feasibility.

Need to invest in the feasibility.

Well.

Well.

Another criticism that private sector branks make is that MDBs sort of are secretive.

Another criticism that private sector branks make is that MDBs sort of are secretive.

They do not.

They do not.

Share the loan portfolios that they've given out over the years, and if they did, you know, private sector could take that information and be like, actually, building this project in Ghana was very good. We didn't suffer any losses as a result. We don't need the MDBs. We are private sector banks. As long as we know we can make a return on a project, we'll just go there ourselves. And that would mobilize a lot of private capitals. It's share the information.

Share the loan portfolios that they've given out over the years, and if they did, you know, private sector could take that information and be like, actually, building this project in Ghana was very good. We didn't suffer any losses as a result. We don't need the MDBs. We are private sector banks. As long as we know we can make a return on a project, we'll just go there ourselves. And that would mobilize a lot of private capitals. It's share the information.

It's a nice narrative, you know.

It's a nice narrative, you know.

The reality is the private sector is not as much of a risk taker as it would like to think of itself. As often the risk taking is done by government, whether it is Tesla or many of these other big investments. Government has to put up the first dollars. But it's a valid argument in the past, but MDBs have jointly produced a database of their investments and loans and how they performed, so there's lots of information, and information sends a strong signal that investing in companies in developing countries is fairly low risk. The other thing I've learned actually, I learned this from speaking to the sustainability person at a major oil company about what they were investing in. And they were investing in these very speculative things, particular types of hydrogen. And I was saying to him, but sol and wind is out there, it works, it's cheap, and he looked at me and said, yeah, there's not enough return for us from that. So, you know, we used to think that the problem was that the renewables weren't profitable. That's not the problem for start. They're profitable today. It's they're not more profitable than other things. That's the problem we need to deal with.

The reality is the private sector is not as much of a risk taker as it would like to think of itself. As often the risk taking is done by government, whether it is Tesla or many of these other big investments. Government has to put up the first dollars. But it's a valid argument in the past, but MDBs have jointly produced a database of their investments and loans and how they performed, so there's lots of information, and information sends a strong signal that investing in companies in developing countries is fairly low risk. The other thing I've learned actually, I learned this from speaking to the sustainability person at a major oil company about what they were investing in. And they were investing in these very speculative things, particular types of hydrogen. And I was saying to him, but sol and wind is out there, it works, it's cheap, and he looked at me and said, yeah, there's not enough return for us from that. So, you know, we used to think that the problem was that the renewables weren't profitable. That's not the problem for start. They're profitable today. It's they're not more profitable than other things. That's the problem we need to deal with.

We have the CEO of Exonmobile come on a climate podcast this one, and he made the case that you know, Exonmobile doesn't have any expertise in delivering electrons. It does have expertise in moving molecules and delivering molecules, whereas when it comes to renewables, they've never built renewables before. And if the profit is lower anyway, why should they invest in those projects.

We have the CEO of Exonmobile come on a climate podcast this one, and he made the case that you know, Exonmobile doesn't have any expertise in delivering electrons. It does have expertise in moving molecules and delivering molecules, whereas when it comes to renewables, they've never built renewables before. And if the profit is lower anyway, why should they invest in those projects.

You know, I think that that's a wonderfully actually political point dressed up as a technical point, because the reality is that the problem with renewables is the barriers to entry are very low. While so if you look at the oil industry, they have found ways of limiting and restricting supply. They can do that and as a result they can get higher profitability. So one of the things is occurred to me in this space, working in this space, is we actually need that we have a different industry structure. We can't expect an industry or a market that is based around restricting supply and generating super profits to be finding this whole thing very exciting because anyone can put a solar panel.

You know, I think that that's a wonderfully actually political point dressed up as a technical point, because the reality is that the problem with renewables is the barriers to entry are very low. While so if you look at the oil industry, they have found ways of limiting and restricting supply. They can do that and as a result they can get higher profitability. So one of the things is occurred to me in this space, working in this space, is we actually need that we have a different industry structure. We can't expect an industry or a market that is based around restricting supply and generating super profits to be finding this whole thing very exciting because anyone can put a solar panel.

On their roof.

On their roof.

So either we find ways of restricting it, which I think would be a mistake, or we find ways of developing out.

So either we find ways of restricting it, which I think would be a mistake, or we find ways of developing out.

A different industry structure.

A different industry structure.

We have a once in a lifetime generational shift. It's massive, it's another revolution, and we can do it in a good way in terms of societal development and justice and equity, or we could do it in a bad way. It's not the tech doesn't tell us which way to do it, and we need to think about doing it in a way that is as democratic as possible.

We have a once in a lifetime generational shift. It's massive, it's another revolution, and we can do it in a good way in terms of societal development and justice and equity, or we could do it in a bad way. It's not the tech doesn't tell us which way to do it, and we need to think about doing it in a way that is as democratic as possible.

One other criticism of the MDB's that comes up is that they're pushing an agenda from rich countries. Many call it the neoliberal agenda, because they will end up supporting these developing countries through lending. Maybe some of these developing countries aren't able to pay those loans back, and then comes in the IMF for the World Bank and says, you have to pay this back. We can help you pay it back. Here are the things that you need to do. Typically those things are open up your markets, reduce the amount of public spending you're doing on social activities.

One other criticism of the MDB's that comes up is that they're pushing an agenda from rich countries. Many call it the neoliberal agenda, because they will end up supporting these developing countries through lending. Maybe some of these developing countries aren't able to pay those loans back, and then comes in the IMF for the World Bank and says, you have to pay this back. We can help you pay it back. Here are the things that you need to do. Typically those things are open up your markets, reduce the amount of public spending you're doing on social activities.

And it's a.

And it's a.

Very hands on approach that sometimes MDBs can end up taking, which from developing country perspective can be very annoying, can be quite colonial.

Very hands on approach that sometimes MDBs can end up taking, which from developing country perspective can be very annoying, can be quite colonial.

I think it's a fair criticism that many of the people in development banks their fundamental sort of starting point is that the problem here is that the countries have the wrong ideas and the wrong policies, and that we're here to correct their policies, and that there's a belief And I say this both as a development bank professional and an economist. Is often a belief in economics that comes out of theories that we teach but may not be very road tested in terms of what actually happens.

I think it's a fair criticism that many of the people in development banks their fundamental sort of starting point is that the problem here is that the countries have the wrong ideas and the wrong policies, and that we're here to correct their policies, and that there's a belief And I say this both as a development bank professional and an economist. Is often a belief in economics that comes out of theories that we teach but may not be very road tested in terms of what actually happens.

On the ground.

On the ground.

But it's equally fair to say that most developing country officials, and I say that as having been one of those too, also start off a position of believing that the only problem is they don't have enough money, and the truth is probably somewhere in between the two.

But it's equally fair to say that most developing country officials, and I say that as having been one of those too, also start off a position of believing that the only problem is they don't have enough money, and the truth is probably somewhere in between the two.

One of the instruments that could be used through development backed support but really bring in private players at a large scale and mobilized capital, is to use something called a debt for nature swap. Now, simply it means a country like Barbados, which has plenty of debt, will go to investors and say, take some of our debt off our books, and instead of us paying you money, we'll try and protect this ocean, which will be pretty beneficial to the rest of the world and to us, and that will help our economy grow faster and be more resilient, and thus we will be a better country that you can continue to lend to. Well, isn't it all good for business?

One of the instruments that could be used through development backed support but really bring in private players at a large scale and mobilized capital, is to use something called a debt for nature swap. Now, simply it means a country like Barbados, which has plenty of debt, will go to investors and say, take some of our debt off our books, and instead of us paying you money, we'll try and protect this ocean, which will be pretty beneficial to the rest of the world and to us, and that will help our economy grow faster and be more resilient, and thus we will be a better country that you can continue to lend to. Well, isn't it all good for business?

Almost?

Almost?

And to be fair to you, actually, it's an industry where it's every new debt for nature swap is different, so it's hard to kind of pin it down a bit. But within ten years it's gone from being exotic to being seen as a panaceer. And I hate panaceas. So I'm spending most of our time here and.

And to be fair to you, actually, it's an industry where it's every new debt for nature swap is different, so it's hard to kind of pin it down a bit. But within ten years it's gone from being exotic to being seen as a panaceer. And I hate panaceas. So I'm spending most of our time here and.

I hate telling you he hate exotic too, because you want scalable, trillion dollar instruments.

I hate telling you he hate exotic too, because you want scalable, trillion dollar instruments.

Yes, exactly, I'm just a hater. No, I think that.

Yes, exactly, I'm just a hater. No, I think that.

I think the challenge is now people thinking that the debt for nature swaps will solve everything.

I think the challenge is now people thinking that the debt for nature swaps will solve everything.

So even though we're.

So even though we're.

Doing we're doing most of them, we're also coutioning people at the same time, which is a slightly odd feeling. So today the latest debtfinature swap is one where a country has a pocket of high youding debt. It's very important that the country is not completely debt laden. So you've got a pocket of high youding debt. Maybe you issued some debt some time ago, maybe you've got a loan with somebody that was doing something specific and it's quite high youuding, and so a developm bank will come along and say, well, you know what, I'm going to allow you to use my triple A credit rating to guarantee a new bond that you're going to issue.

Doing we're doing most of them, we're also coutioning people at the same time, which is a slightly odd feeling. So today the latest debtfinature swap is one where a country has a pocket of high youding debt. It's very important that the country is not completely debt laden. So you've got a pocket of high youding debt. Maybe you issued some debt some time ago, maybe you've got a loan with somebody that was doing something specific and it's quite high youuding, and so a developm bank will come along and say, well, you know what, I'm going to allow you to use my triple A credit rating to guarantee a new bond that you're going to issue.

So you could borrow.

So you could borrow.

At five percent, and you've got some debt out there yielding nine percent, and you use a five percent bond to repurchase the nine percent bond, and so you've now saved yourself four percentage points of interest rate. But I'm saying to you, the Demand bank is saying to you, we're only doing this putting our credit rating on your debt, stretching our credit to you. If you use those savings in a particular way. We want a significant part to be used for a climate or a nature purpose. We just did a one point six billion dollar debt swap in Ecuador where massive conservation in the Galapagos was being funded by the debt swap. We did one in Barbados where we funded marine conservation. So the in the first Barbados debt swap, they were saving about four million dollars every year. And because I remember being a little bit skeptical at the beginning, thinking four million dollars, because as you say, actually, I keep on thinking will this move the needle. In the second one, we found a way of taking that ten years of four million dollars and basically capitalizing it. So up from in the second one is going to be a massive investment of perhaps one hundred million dollars for which they could do a big infrastructure investment, and they're basically redoing their waste management system on the south coast of the island. It's going to protect the water quality, it's going to protect the coral reef. It's going to allow this water to be reused for irrigation. It's a very water short country and that is all possible with this.

At five percent, and you've got some debt out there yielding nine percent, and you use a five percent bond to repurchase the nine percent bond, and so you've now saved yourself four percentage points of interest rate. But I'm saying to you, the Demand bank is saying to you, we're only doing this putting our credit rating on your debt, stretching our credit to you. If you use those savings in a particular way. We want a significant part to be used for a climate or a nature purpose. We just did a one point six billion dollar debt swap in Ecuador where massive conservation in the Galapagos was being funded by the debt swap. We did one in Barbados where we funded marine conservation. So the in the first Barbados debt swap, they were saving about four million dollars every year. And because I remember being a little bit skeptical at the beginning, thinking four million dollars, because as you say, actually, I keep on thinking will this move the needle. In the second one, we found a way of taking that ten years of four million dollars and basically capitalizing it. So up from in the second one is going to be a massive investment of perhaps one hundred million dollars for which they could do a big infrastructure investment, and they're basically redoing their waste management system on the south coast of the island. It's going to protect the water quality, it's going to protect the coral reef. It's going to allow this water to be reused for irrigation. It's a very water short country and that is all possible with this.

New death swap.

New death swap.

The US is the largest shareholder in most MDB's around the world. If under a Donald Trump presidency, the US says, we don't care so much about the world anymore. We have so many problems we have to deal at home. We've been giving these tens of billions of dollars every year, hundreds of billions. We can apply that to Middle America and re energize and put America first and starts to not contribute as much to MDBs or reduce as its shareholding in the MDBs. Doesn't that pose a risk for how much lending and how much more money MDBs can give out, which is the mandate that they are going to have to deal with to increase climate finance.

The US is the largest shareholder in most MDB's around the world. If under a Donald Trump presidency, the US says, we don't care so much about the world anymore. We have so many problems we have to deal at home. We've been giving these tens of billions of dollars every year, hundreds of billions. We can apply that to Middle America and re energize and put America first and starts to not contribute as much to MDBs or reduce as its shareholding in the MDBs. Doesn't that pose a risk for how much lending and how much more money MDBs can give out, which is the mandate that they are going to have to deal with to increase climate finance.

So the World Bank is the one of the largest development banks. The US has a sixteen percent shareholding, therefore plays an important role. I think that in the future shareholdings should relate to money put in, and I think that that's a way in which some of the large middle income countries can have a greater shareholding. If anything, if you look at the shareholdings at the moment, the countries that are disproportionately positioned are the middle income emerging markets. China shares is too low, India shares is too low relative to where they are in the world economy.

So the World Bank is the one of the largest development banks. The US has a sixteen percent shareholding, therefore plays an important role. I think that in the future shareholdings should relate to money put in, and I think that that's a way in which some of the large middle income countries can have a greater shareholding. If anything, if you look at the shareholdings at the moment, the countries that are disproportionately positioned are the middle income emerging markets. China shares is too low, India shares is too low relative to where they are in the world economy.

Thank you having USh, Thank you very much. Thank you for listening.

Thank you having USh, Thank you very much. Thank you for listening.

Zero.

Zero.

Join us next week for another episode of Moving Money, where we'll be discussing the role of the private sector. And now for the sound of the week. That is one of many sounds you may hear at a wastewater treatment facility. If you like this episode, please take a moment to rate and review the show on Apple Podcasts and Spotify. Share this episode with a friend or someone who thinks banks are beautiful. You can get in touch at zero port at Bloomberg dot Net. This episode was produced by Oscar Boyd. Bloomberg's head a podcast is Sage Bowman and head of Talk is Brendan Nuna. Our theme music is composed by Wonderly Special thanks to Mighta le Rau, Samersadi Mosses, Andem, Blake Maples, and Shawan Wagner I am Akshadrati. Back next week for another episode of Moving Money

Join us next week for another episode of Moving Money, where we'll be discussing the role of the private sector. And now for the sound of the week. That is one of many sounds you may hear at a wastewater treatment facility. If you like this episode, please take a moment to rate and review the show on Apple Podcasts and Spotify. Share this episode with a friend or someone who thinks banks are beautiful. You can get in touch at zero port at Bloomberg dot Net. This episode was produced by Oscar Boyd. Bloomberg's head a podcast is Sage Bowman and head of Talk is Brendan Nuna. Our theme music is composed by Wonderly Special thanks to Mighta le Rau, Samersadi Mosses, Andem, Blake Maples, and Shawan Wagner I am Akshadrati. Back next week for another episode of Moving Money