Scope Ratings’ new report on the world’s leading multilateral development banks (MDBs) governance structures points to the need for reform at the World Bank Group and some regional MDBs to ensure that institutions have effective decision-making that appropriately captures the relative powers and interests of shareholders.¹

“Robust, transparent governance in supranational institutions is critical to maintain credibility and shareholder support,” says Alvise Lennkh, deputy head of sovereign ratings at Scope. “Our updated supranational rating methodology includes governance factors as an important rating input given that the institutions need to consider shareholder needs and balance potentially diverging interests among the government representatives on their boards,” says Lennkh.

“Ineffective governance risks a gradual decline in institutional relevance and credibility and the danger of waning shareholder support; a critical input for our supranational credit ratings,” he says.

In the study, Scope finds that the voting power of different shareholders in older institutions does not reflect their relative economic power today.

“This matters as multilateralism, which underpins the functioning of MDBs, can succeed only if the interests of shareholders are reflected in decision-making bodies,” says Julian Zimmermann, analyst at Scope.

Recent examples of shortcomings include the debate around voting shares and policy priorities in the World Bank after the global financial crisis, a controversy which also contributed to the recent creation of new MDBs in which middle-income countries, notably China, have significantly greater influence.

In addition to exerting influence on policies, governments also draw benefit from direct supranational financing. In countries where activities of MDBs overlap, it is also those countries - principally India, China, Indonesia, Brazil and Turkey – which are the main beneficiaries, both in gross terms and relative to the capital they provide as shareholders.

Looking at World Bank institutions - IBRD, IFC - emerging and middle-income economies, accounting for more than half of world GDP and CO₂ emissions, are under-represented in the governance structures, most notably China (A+/Stable) relative to its share in world GDP.

For European MDBs - CEB, EIB, ESM, NIB - capital shares are broadly in line with economic weight. Germany (AAA/Stable) tends to be under-represented relative to its economic weight, whereas Italy (BBB+/Stable) is slightly over-represented.

For other regional institutions - ADB, AIIB, AfDB, BSTDB, EBRD, IADB, NDB - governance varies, signaling the differing strategic interests of shareholders, including non-borrowing ones, some of which dominate the institutions in question.

¹Asian Development Bank, African Development Bank, Asian Infrastructure Investment Bank, Black Sea Trade and Development Bank, Council of Europe Development Bank, European Bank for Reconstruction and Development, European Investment Bank, European Stability Mechanism, Inter-American Development Bank, International Bank for Reconstruction and Development, International Finance Corp., Nordic Investment Bank.