What is BRICS Bank?

BRICS Bank

Formerly referred to as the BRICS Development Bank, The BRICS New Development Bank is a multilateral financial institution established by BRICS countries – Brazil, Russia, India, China and South Africa. The purpose of the bank is to foster the infrastructure and sustainable development efforts in BRICS countries, developing nations and emerging economies. The regional multilateral body aims to support its member nations with the help of innovation and cutting-edge technology in a practical way. It has its headquarters in Shanghai, China. In 2018, the BRICS New Development Bank received ‘observer’ status in the United Nations General Assembly (UNGA). 

The NDB President is elected on a rotational basis from one among the five founding members. The BRICS NDB is governed by a board of governors, a board of directors, a President and four Vice-Presidents from each of the other four founding member nations. All the founding member nations of BRICS NDB enjoy equal shareholding and voting rights in the governance of the bank. The membership to the BRICS NDB is open to all the members of the UN, provided the share of founding members (BRICS nations) cannot go below 55% of the voting rights.

In February 2021, the New Development Bank was assigned an ‘AA+’ long-term and ‘A-1+’ short-term issuer credit ratings (stable outlook) by S&P Global Ratings. In September 2021, the NDB admitted the United Arab Emirates (UAE), Uruguay and Bangladesh as its first three new member countries. Later, in December 2021, Egypt was included as the fourth new member of the BRICS New Development Bank. 

History of New Development Bank

Observing the radical shift of the developing countries in the global economy, the idea of creating a multilateral, regional bank was brewing. Major developing countries, especially in Asia, observed a sharp growth in their GDP and demography. At this time, developing nations, Asia in particular, mooted the idea of creating a multilateral development body attuned to the needs of its borrowers.

The developing nations also realised the need for a regional body that would not challenge the global west and developing countries-led developing institutions like International Monetary Fund and World Bank but complemented them in plugging the gap in investments in a more agile, practical, and environmentally sustainable way. 

The BRICS New Development Bank (NDB) was founded in 2014 at the 6th BRICS Summit in Fortaleza, Brazil, but was formally opened on 15 July 2015. India proposed the idea behind the BRICS bank at the 4th BRICS Summit in New Delhi in 2012, later agreed to and signed by the BRICS leaders at the 5th BRICS Summit held in Durban, South Africa, in 2013. Later, the name of this multilateral development bank was changed to New Development Bank. K. V. Kamath, an Indian, was the first elected president of the BRICS NDB. 

Is the BRICS NDB a new funding source for developing countries?

Interestingly, the BRICS bloc brings together five of the world’s largest developing countries, representing over 40% of the global population, nearly 24% of the global GDP and 16% of the global trade. This overwhelming share of the global figure makes this regional body of utmost significance to lend its members and developing nations their needs and terms. The BRICS NDB supports public or private projects by means of loans, equity participation, guarantees, loans, and financial instruments.

Since its inception, the BRICS NDB has approved around 80 projects worth USD 30 billion. Approved by the member nations, the investment portfolio comprises projects in clean energy, water & sanitation, transport, social infrastructure, digital infrastructure, and the urban development sector. 

Approving numerous projects for its member nations, the BRICS NDB has also created a Project Preparation Fund to support bankable projects in member countries. This mechanism helps NDB measure the project preparation capability, facilitate the undertaking of feasibility studies, and help implement projects. 

Global multilateral development banks like IMF, World Bank and AIIB raise funds in currencies like the US dollar or the euro. However, the BRICS NDB upholds its commitment to make local currency funding available to all member nations and protect them from a stronger dollar or euro. NDB believes this will safeguard its member nations against the highly volatile currency market. Interestingly, this move has been lauded by the major global bankers and analysts. It has also successfully registered local currency bond programs in some member nations.

Unlike other multilateral financial institutions, the BRICS NDB has a unique ownership structure, with all the five founding member countries having an equal capital pool and vote share. While no member country has any veto power, this approach protects the multilateral body to avoid hegemony in investment projects regarding priority and lending terms. Simply, it marked a move from the hegemony that the western countries and developed nations had in existing multilateral institutions like World Bank, IMF, AIIB and the Asian Development Bank (ADB). Providing a level playing field for the member nations, the equality move aims to place the developing countries and emerging economies on the same global footing as developed countries.

With the NDB, the developing countries will be able to make increased long-term investments in new sustainable infrastructure in the developing countries. Respecting its member’s policies, the BRICS NDB accepts parameters for compliance with environmental and social standards designed by its borrowing nations. This is more agile when compared with other global lending institutions that are bound by their own set of ideologies which sometimes becomes tedious for the borrowing nations to cope with. 

The members of the BRICS bloc, especially India, have always been upfront in their Intended Nationally Determined contribution to climate change. Moving on this path of sustainable infrastructure development, the NDB issued a number of bonds – including ‘green bonds’ in 2016. Today, the BRICS NDB approved projects in its member countries are more than the AIIB’s portfolio.

However, the BRICS NDB has faced some criticism over the debate of the ‘Sustainability Issue’ it endorses in its investment portfolio. Nonetheless, the multilateral body has approved loans for climate change mitigation and renewable energy in Brazil and India. It has labelled several environmentally questionable projects as sustainable and has not explained the criteria it uses.

For example, one of its sustainable projects, the Trans-Amazonian highway in Brazil – a highly controversial road – has received flak from environmentalists for exacerbating deforestation in the world’s largest tropical rainforest.

Conclusion

To conclude, the BRICS NDB will help the low and middle-income countries termed ‘emerging’ countries to create new economic and social infrastructure for which they require billions of dollars as long term investment. Complementing the west-led American and British dominated global investment banks, the BRICS NDB offers more democracy in terms of lending and repayment of infrastructure funds. Also, the agile and environmentally sustainable investments by NDB will help the countries in achieving the social and economic developmental goals while keeping a check on rampant exploitation of the environment.