Asian Infrastructure Investment Bank

Relevance –

  • How AIIB has impacted Indian finance?
  • What are AIIB’s strengths?
  • What are the challenges and way ahead?
  • How developed countries like USA do not react well to a changing global financial order?


Data in ‘red’ is important for prelims. 

About AIIB:

The Asian Infrastructure Investment Bank (AIIB) is a multilateral development bank with a mission to improve social and economic outcomes in Asia. Headquartered in Beijing, it began operations in January 2016 and has now grown to 93 approved members worldwide. By investing in sustainable infrastructure and other productive sectors in Asia and beyond, it better connects people, services and markets that over time will impact the lives of billions and build a better future.

How useful is AIIB for India?

In January 2019, the Asian Infrastructure Investment Bank (AIIB) marked its third anniversary. India has been the bank’s biggest beneficiary, with a quarter of the AIIB’s approved projects geared towards its development. India is also the only country apart from China to enjoy a permanent seat on the Bank’s board of directors.

Functioning of AIIB

The bank has been both a rule-maker and rule-taker, devising innovations in multilateral development finance while upholding existing best practices. Most of its projects are co-financed with the World Bank or the Asian Development Bank, suggesting a healthy mix of complementarity and competition with its peers.

The Bank has been wrongly criticised by many (especially USA) pointing to concerns related to governance and environmental and social safeguards. The reality is that the AIIB’s lending practices have been socially conscious and prudent, attested by its triple-A credit rating secured from the three major international rating agencies. Disregarding the U.S.’s ‘dog in the manger’ attitude towards infrastructure finance, 90-odd countries have signed up as founding or prospective members.

Way ahead for AIIB

AIIB should develop a wider portfolio of projects in areas such as smart cities, renewable energy, urban transport, clean coal technology, solid waste management and urban water supply. Along with the New Development Bank, its uniqueness must lie in faster loan appraisal, a lean organisational structure resulting in lower cost of loans, a variety of financing instruments, including local currency financing, and flexibility in responding to its clients’ needs. It should leverage its unique ‘special funds mechanism’ to crowd-in infrastructure financing from external sources, including extra-regional, public and private, as well as nurture infrastructure as a profitable asset class for capital market investors.

The USA question

A distracted U.S. appears neither willing nor capable of fundamentally reshaping and resourcing the much-vaunted Bretton Woods-era institutions for the challenges of the 21st century. India, China and other multilaterally minded major countries will need to pick up this gauntlet in the areas of trade, development and finance. The successful mainstreaming of the AIIB in three short years must become just the beginning of system-wide reform and overhaul.

Sources: The Hindu and AIIB

Categories: POINT IAS

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