Basel III—the international standard for banking regulation—has strengthened global financial stability but has also led to unintended consequences that may hinder progress toward key Sustainable Development Goals (SDGs). This paper examines how Basel III’s regulatory framework may restrict bank lending to SMEs (impacting SDG 10) and constrain infrastructure finance (impacting SDG 8). Addressing these challenges requires refining risk assessment methodologies while preserving Basel III’s core objective: accurate risk evaluation. For SMEs, tailoring risk weights using local credit registry data can better reflect economic conditions in emerging markets. For infrastructure, recognizing it as a distinct asset class and leveraging credit risk mitigation tools could improve financing. Greater engagement from multilateral institutions, particularly the World Bank, is essential to advancing these solutions while maintaining financial stability.
This paper also appears as chapter in For the World’s Profit: How Business Can Support Sustainable Development (Kharas, Makino, McArthur, Nelson, eds. Brookings Institution Press, 2025).
