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Maximising the developmental value of MDB callable capital


Image credit:Notes in different currencies. Image license:Jason Leung / Unsplash

To improve the understanding of callable capital and inform policy decisions by key stakeholders related to the second recommendation of the G20 Independent Panel on Multilateral Development Banks' Capital Adequacy Frameworks report (2022), the MDB Challenge Fund is supporting an ODI-led research project on callable capital.

The project aims to evaluate how MDBs can best make use of callable capital to underpin greater development lending. In doing so, it will generate evidence and analysis to provide guidance for how callable can be better integrated into the capital adequacy frameworks of MDBs; reduce uncertainty on the circumstances and likelihood of a capital call; and contextualise how callable capital fits into the broader framework of capacities, policies and processes at MDBs.

Callable capital is central to the unique financial model of MDBs, but no one is sure what it is worth. In light of the huge development needs around the world and the scarcity of MDB capital, that is no longer acceptable. This project is designed to generate evidence that can help government shareholders, MDB management and credit rating agencies better understand the financial strength and lending capacity of MDBs and take decisions accordingly. Making the best use of callable capital is a key part of modernising the financial operations of MDBs to face the challenges of the coming decades.

This project is funded by the Multilateral Development Banks Challenge Fund. The Fund is a collaborative venture of the Bill & Melinda Gates Foundation, The Rockefeller Foundation, and Open Society Foundations. It aims to accelerate MDB financing for the United Nations’ Sustainable Development Goals (SDGs) and the Paris Climate Agreement, in line with the recommendations included in the G20 Independent Review of MDBs’ Capital Adequacy Frameworks report released in July 2022.

Maximising the developmental impact of MDB callable capital: project findings and path forward

This paper brings together the results and policy proposals of this year-long project investigating MDB callable capital.

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Backstopping multilateral development banks: the fiscal context of callable capital for shareholder governments

This paper gathers information from 21 governments that collectively represent 59.5% of callable capital commitments (US$530 billion) across the seven major MDBs.
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How likely are multilateral development banks to need callable capital? Implications for risk frameworks and lending capacity

This paper explains the financial modelling exercise, performed on a selection of MDBs using publicly available data, that set out to answer two fundamental questions. First, to determine what types of scenarios would cause an MDB to become financially stressed and potentially fail. How likely is it that this might happen? Second, how could the risk appetite of shareholders with regard to callable capital affect the lending capacity? Would it be possible to expand the balance sheet further with a clear understanding of the probability of a call taking place?
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Enhancing multilateral development bank resilience and lending capacity: crisis management, recovery planning and improving loss-absorbing capacity

This ODI working paper discusses the essential building blocks multilateral development banks need to develop wider crisis management arrangements and loss-absorbing capacity.
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Notes in different currencies.

The legal underpinnings of MDB callable capital: implications and policy options

This paper evaluates MDB statutes to better understand the legal underpinnings of callable capital and formulate policy options. The aim is to encourage MDBs and shareholders to clarify the nature, circumstances and processes of callable capital and incorporate it systematically into MDB financial planning, to reinforce confidence in the financial strength of MDBs.
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Making sense of hybrid capital for multilateral banks

This emerging analysis examines how hybrid capital can be used to modernise multilateral development bank capital structures, build resilience to financial stress and increase lending capacity.
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