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What Is a Multilateral Development Bank?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 04 September 2016
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A multilateral development bank is a type of financial institution that functions as part of an effort organized by a group of nations, with the goal of supporting ongoing financial and social development in those member nations. This is often accomplished by working together on joint projects, providing incentives for businesses in the nations involved to develop ongoing business relationships, and advancing the implementation and use of technology in each of the settings served by the banks. There are a number of institutions that hold the distinction of being classed as a multilateral development bank (MDB), including the World Bank, the African Development Bank, the Asian Development Bank, and the European Bank for Reconstruction and Development. The Inter-American Bank is often included in listings of institutions that are considered to be MDBs.

One of the primary goals of a multilateral development bank is to support the national development of emerging and other nations around the globe. The idea behind this goal is that by supporting sound economic growth among these nations, the global economy will over time become stronger. This in turn will have an effect on nations that are already considered financially stable, since the potential for some type of worldwide economic crisis is minimized. For this reason, banks in this class will often approve loans and other types of credit for individuals, businesses, and even government entities in those regions that are currently seeking to build a stable internal economy.

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Along with economic stability, a multilateral development bank will also provide support in projects designed to support social growth and stability. Viewing social issues as having a direct impact on the ability to address and deal with economic circumstances, this means the banks will participate in activities design to promote education efforts, the creation of strong communication networks, and even improvement of road and other types of transportation systems within and between countries. This type of action is also seen as having a cumulative impact on the world in general, since the supporting social growth in turn helps to provide a framework that makes it easier for companies in different nations to develop ongoing working relationships, sometimes to the point of establishing international as well as domestic facilities.

While these foundational goals are important to the function of any multilateral development bank, it is important to note that these institutions do continue to operate on a for-profit basis. This is accomplished by structuring the bank so that is it supported by lender nations who function as donors as well as countries that receive the support and are classed as borrowers. With this arrangement, the roles of donor and borrower may change over time, with nations that were able to achieve growth thanks to the support from a multilateral development bank reaching a point of stability that resources can be committed to aid in the development of other countries within the group.

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