New Development Bank

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The New Development Bank (NDB), formerly referred to as the BRICS Development Bank, is a multilateral development bank established by the BRICS states (Brazil, Russia, India, China and South Africa).[1] According to the Agreement on the NDB, "the Bank shall support public or private projects through loans, guarantees, equity participation and other financial instruments." Moreover, the NDB "shall cooperate with international organizations and other financial entities, and provide technical assistance for projects to be supported by the Bank."[1]

The initial authorized capital of the bank is $100 bln divided into 1 mln shares having a par value of $100,000 each. The initial subscribed capital of the NDB is $50 bln divided into paid-in shares ($10 bln) and callable shares ($40 bln). The initial subscribed capital of the bank was equally distributed among the founding members. The Agreement on the NDB specifies that the voting power of each member will be equal to the number of its subscribed shares in the capital stock of the bank.[1]

The bank is headquartered in Shanghai, China.[2] The first regional office of the NDB will be opened in Johannesburg, South Africa.[3]

History

The idea for setting up the bank was proposed by India at the 4th BRICS summit in 2012 held in Delhi. The creation of a new development bank was the main theme of the meeting.[4] BRICS leaders agreed to set up a Development bank at the 5th BRICS summit held in Durban, South Africa on 27 March 2013.[5] According to Devex, the name of the bank is believed to have been proposed by Indian Prime Minister Narendra Modi.[6]

On 15 July 2014, the first day of the 6th BRICS summit held in Fortaleza, Brazil, the BRICS states signed the Agreement on the New Development Bank, which makes provisions for the legal basis of the bank.[1] In a separate agreement, a reserve currency pool worth $100 bln was set up by BRICS nations.[7] Documents on cooperation between BRICS export credit agencies and an agreement of cooperation on innovation were also signed.[8]

On 11 May 2015, K. V. Kamath was appointed as the President of the bank.[9]

The 7th BRICS summit in July 2015 marked the entry into force of the Agreement on the New Development Bank.

On 27 February 2016, the NDB signed Headquarters Agreement with the Government of the P.R.C. and the Memorandum of Understanding with Shanghai Municipal People’s Government concerning the arrangements in relation to Headquarters of the bank in Shanghai. The documents were signed on the sidelines of G20 Finance Ministers and Central Bank Governors meeting in Shanghai.[10][11]

According to the bank, most of the NDB policies and procedures for all functional areas were approved at the Board of Directors meeting in January 2016.[12]

In March 2016, the New Development Bank announced that it is planning to recruit 100 staff from BRICS countries by the end of 2016.[13]

Structure and Objectives

Corporate Governance

According to the Articles of Agreement, the main organs of the bank are:

  • Board of Governors
  • Board of Directors
  • President and Vice-Presidents

As of April 2016, the members of NDB Board of Governors are as follows:

The NDB President will be elected on a rotational basis from one of the founding members, and there will be at least one Vice President from each of the other four founding members.[14]

K. V. Kamath, from India, is the first elected president of the NDB.

The first chair of the Board of Governors is from Russia and the first chair of the Board of Directors is from Brazil.[15]

Development capital

The bank's primary focus of lending will be infrastructure and sustained development projects [16][17] with authorized lending of up to $34 bln annually.[17] The bank will have starting capital of $50 bln, with capital increased to $100 bln over time.[18] Brazil, Russia, India, China and South Africa will initially contribute $10 bln each to bring the total to $50 bln.[18][19] Each member cannot increase its share of capital without all other four members agreeing. This was a primary requirement of India.[20][21] The bank will allow new members to join but the BRICS capital share cannot fall below 55%.[18]

Objectives

The bank aims to contribute to development plans established nationally through projects that are socially, environmentally and economically sustainable. Taking this into account, the main objectives of the NDB can be summarized as follows:

  1. Promote infrastructure and sustainable development projects with a significant development impact in member countries.
  2. Establish an extensive network of global partnerships with other multilateral development institutions and national development banks.
  3. Build a balanced project portfolio giving a proper respect to their geographic location, financing requirements and other factors.

Membership

The Agreement on the New Development Bank entered into force in July 2015, with the ratification of all five states that have signed it.

New members can join but the share of the BRICS nations can never be less than 55%.

Founding Members

Country/Region Date of Accession
 Brazil 2015
 Russia 2015
 India 2015
 China 2015
 South Africa 2015

Shareholding structure

According to Articles of Agreement of the New Development Bank, the initial authorized capital of the bank is divided into 1 mln shares, having a par value of $100,000. The value of one share is also the minimum amount to be subscribed for participation by a single country. Attachment 1 to this document states that each founding member of the bank will initially subscribe 100,000 shares, in a total of $10 bln, of which 20,000 shares correspond to paid-in capital, in a total of $2 bln and 80,000 shares correspond to callable capital, in a total of $8 bln.[1]

The current distribution of shares between NDB member countries is presented in the following table.

Countries by Shareholding at the New Development Bank
Country Number of
Shares		 Shareholding
(% of Total)		 Voting Rights
(% of Total)		 Authorised Capital
(bln USD)
 Brazil 100,000 20 20 10
 Russia 100,000 20 20 10
 India 100,000 20 20 10
 China 100,000 20 20 10
 South Africa 100,000 20 20 10
Unallocated Shares 500,000 - - 50
Grand Total 1,000,000 100 100 100

The logo of the New Development Bank borrows from the mathematical concept of a Mobius strip that symbolizes the idea of continuous transformation. Its nature is not to disrupt but drive change in the existing system from within.[22][23]

The logo consists of a triangle in motion at one end signifying balanced evolution. The other end, moving in the opposite direction, is a propeller that represents speed and dynamism. These two entities are held together by a wireframe, the skeletal basic of infrastructure. The logo is rendered in gradient of green that symbolizes sustainability. This constant motion symbolizes the values that the bank strives to live by – agility, innovation and continuous transformation.[24]

Projects

The BRICS New Development Bank is planning to give a priority to projects aimed at developing renewable energy sources. As it was stated by the NDB Vice President, the Bank wants to cooperate with other institutions in accelerating ‘green’ financing expansion and promoting environment protection. He also pointed out that the NDB is planning to finance one project from each member state with the money raised via its first bond issue.[25]

First issue of the NDB bonds

In March 2016, the NDB announced that it will do a bond issue in China to raise funding domestically on the Chinese market. The bond issue is likely to happen in the second quarter of the year 2016, said the NDB Vice President Leslie Maasdorp. He added the bank is starting to finalize the exact size of this bond issue.[25]

According to media reports, the China’s bond market is bigger than the ones in other BRICS countries and theoretically more accommodating for the bank because it obtained a triple-A credit rating in the country, which should allow it to borrow cheaply.[26]

The NDB and the AIIB

In April 2015, the head of the Central Bank of Russia Elvira Nabiullina said that the BRICS New Development Bank and the Asian Infrastructure Investment Bank (AIIB) will not compete, but rather complement each other.[27]

The NDB and the Asian Infrastructure Investment Bank (AIIB) are sister institutions in many respects, said the NDB Vice President Leslie Maasdorp. These two banks have complimentary mandates and different geographic focuses, with the NDB being more focused on BRICS countries. At the same time, there is a certain overlapping between mandates of the NDB and the AIIB, as both of them are aimed at developing infrastructure and pay a special attention to sustainable development. However, due to the fact that current financing and investment patterns are inadequate in meeting investment needs, there is "space for newcomers", he said.[28]

Other Multilateral Development Institutions and the NDB

According to media reports, other multilateral development institutions, including the World Bank Group (WBG), have expressed an intention to work together with the NDB.[29]

Remarks by the President of the New Development Bank

Financing bankable Projects

According to K. V. Kamath, the President of the NDB, one of the key strategies of the bank will be financing profitable projects (bankable) with return on capital.[30][31]

AIIB Cooperation

In February 2016 the President of the NDB dismissed concerns over overlapping of interests of China-backed Asian Infrastructure Investment Bank (AIIB) and the NDB.[32]

Reception

Prominent Scholars

In July 2014, Nobel Prize winning economist Joseph Stiglitz said the NDB marks a "fundamental change in global economic and political power." In his opinion, "The existing institutions just don’t have enough resources."[33]

Officials

Chinese Premier Li Keqiang called the opening of the NDB an "important step forward" in cooperation among BRICS countries. "This is great progress in financial cooperation among developing countries and emerging economies, as well as a helpful supplement to the global financial system," Li Keqiang said at a meeting with K. V. Kamath in Beijing in July, 2015.[34]

China Finance Minister Lou Jiwei said that the establishment of the NDB and the Beijing-led AIIB would encourage existing multilateral institutions to do better. At a news conference at the conclusion of the G20 meeting of finance ministers and central bank governors in Shanghai he added that the New Development Bank could help drive aggregate global demand.[35]

Bankers

8 July 2015, VTB CEO Andrey Kostin said that the NDB is "important because it’s a first institution created by the BRICS countries." "Actually we are talking about the institutionalization of the BRICS process, and that’s quite important I think. It’s a permanent working instrument which will be working every day and which will be in the heart of BRICS cooperation," he added.

According to Reserve Bank of India governor Raghuram Rajan, the NDB "Is a co-operative effort between all BRICS countries." "We have already reached contingency reserve agreement (CRA). This is second. Let’s see how it develops. Lots of hopes embedded in it for greater cooperation (among the) BRICS countries,” he told reporters in February 2016.[36]

See also

References

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External links

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  7. ↑ "Brics nations to create $100bn development bank". BBC.com. 15 July 2014
  8. ↑ "BRICS establish $100bn bank and currency reserves to cut out Western dominance". RT.com. 15 July 2014
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  12. ↑ NDB Press Release entitled "Press Conference by NDB on the Eve of Signing Headquarters Agreement with Government of China" (http://www.ndb.int)
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