Unlocking Hundreds of Billions in Additional Lending Headroom at the World Bank and Other MDBs

Multilateral development banks were not using their capital efficiently, underutilizing resources provided by taxpayers in shareholder countries. They were lending far less than they could against their capital because of overly conservative risk models. CGD played a key role as part of the G20’s independent expert panel on capital adequacy framework reform, whose analysis demonstrated that MDBs can lend much more without endangering their high credit ratings. That analysis convinced shareholders, MDB leadership, and credit rating agencies that MDBs collectively have hundreds of billions of dollars in additional lending headroom that can be deployed to accelerate development and growth at a time of urgent global needs.

The challenge

Multilateral development bank (MDB) lending has lagged far behind demand from client countries. But in the current economic and political environment, major shareholders have little appetite for large new contributions to MDB capital to expand lending capacity. That means MDBs must use their capital more efficiently to meet demand.

Like all banks, MDBs must judge how much they can lend against their capital without taking undue risk that could endanger the AAA ratings that let them pass on their low borrowing costs to developing nations.

Both the MDBs’ own frameworks and the methodologies credit rating agencies used to judge them were too cautious. Rating agencies also lacked access to actual MDB credit performance data, relying instead on proxies that overstated risk. Both sides underrated the value of callable capital—capital that shareholders have legally committed to pay if an MDB faces a severe crisis that threatens its ability to service its bonds (something that has never happened). And MDBs were slow to deploy responsible innovations that make more capital available. Some of the capital that could have backed more lending was therefore left idle.

What we did

In 2021, the Italian presidency of the G20 commissioned an independent review of MDB capital adequacy frameworks, appointing a set of 14 experts, including from CGD. After careful analysis, the panel published a report in 2022, An Independent Review of Multilateral Development Banks’ Capital Adequacy Frameworks, that includes six findings and recommendations:

1. MDB capital adequacy policies make inefficient use of shareholder capital: better capital adequacy policy frameworks (CAFs) would permit much more lending based on existing capital without endangering institutional credit ratings.
2. MDB callable capital, which shareholders convert into paid-in capital if needed, reduces risk and therefore enables more lending.
3. Financial innovations like issuance of hybrid capital, portfolio risk transfers, and deployment of shareholder guarantees can safely support significant increases in lending.
4. One of the most important weaknesses in MDB capital adequacy policies is that sovereign portfolio risks have not been accurately assessed.
5. MDBs’ own detailed credit track records (rather than proxies) should be used for proper risk weighting.
6. Data on these track records (including GEMs data) need to be made available to credit rating agencies, private investors, and other stakeholders.

CGD experts took a prominent role in helping the panel ensure that those recommendations reached stakeholders and led to change. Through a sustained body of research and analysis, numerous public and private events, and intensive consultations with large shareholders, borrowing countries, MDB management, credit rating agencies, and private sector stakeholders, CGD experts played a pivotal role in overcoming concerns and misperceptions about risk, filling gaps in knowledge and understanding, and moving these issues to the center of the MDB reform agenda.

What we helped achieve

Three central actors moved to unblock reform:

• Shareholders: G20 nations, which constitute most of the largest MDB shareholders, endorsed the panel’s recommendations and issued a roadmap directing MDBs to implement them.
• MDB management: The heads of the MDBs issued a joint statement affirming that new measures could yield several hundred billion in additional headroom based on existing capital. MDBs began implementing the report's recommendations: issuing hybrid capital, enacting portfolio risk transfers, deploying shareholder guarantees, and publishing far more detailed data on sovereign and non-sovereign credit performance through the GEMs database. According to the 2025 progress report to the G20, actions taken by seven MDBs have already led to an estimated $200 billion in additional lending capacity.
• Credit rating agencies: Using the newly available GEMs data and a more realistic treatment of callable capital, all three agencies revised their approaches. S&P assessed the collective additional lending capacity (without threatening credit ratings) at between $600 billion and $800 billion. Both Moody’s and Fitch have revised their methodologies to align them more closely with the CAF report findings.

These are stock figures to be deployed over years, not annual flows, and will take time to be disbursed. But this effort, at this crucial time, enables MDBs to unlock vast amounts of new money for critical investments in health, education, infrastructure, social protection, agriculture, and resilience to global shocks.

Next steps

The next challenge is to deploy this headroom more rapidly while also ensuring that it is used effectively. CGD experts are focusing on shedding light on the pace of progress in using MDB capital more efficiently; prioritizing finance allocation to the poorest, most vulnerable countries and people; deploying the finance through more catalytic instruments that mobilize more private capital; and building systems for measuring and reporting impact, including at the market level, that ensure that finance goes where it drives the greatest development gains.