The BRICS New Development Bank (NDB) has officially opened for business. The bank’s initial US$50bn capital, consisting of US$10bn in cash (to be accumulated over a seven-year period) and US$40bn in guarantees, will fund infrastructure and sustainable development projects in the member countries, Brazil, Russia, India, China and South Africa.
The Shanghai-headquartered bank is expected to start lending in 2016 in local currency. “In developing countries, particularly BRICS, there are pools of capital which can be tapped and lent. Local currency financing is what we will look at in addition to hard currency finance,” explained the bank’s president Kundapur Vaman Kamath, a former ICBC banker, at the BRICS summit 2015.
The bank’s first project is yet to be announced, but Indian Prime Minister Narendra Modi has expressed his wish for it be a “green” project at the BRICS summit.
The bank is also supposed to be working along with other multinational banks operating in the area, including the Chinese-led Asia Infrastructure Investment Bank (AIIB) and the Philippines-based Asian Development Bank (ADB). In his speech, Kamath added: “Our objective is not to challenge the existing system as it is but to improve and complement the system in our own way.” He explained that the AIIB and the NDB had decided to set up a “hotline” to discuss issues and to forge closer ties between “new institutions coming together with a completely different approach”.
The ADB’s president Takehiko Nakao has expressed intentions to working with the bank “in areas of common interest in Asia and [the] Pacific, including possible co-financing for infrastructure and projects promoting sustainable development, utilising our long experience and expertise in the region.” The World Bank had also welcomed the formation of the NDB.
The BRICS countries expect to eventually raise US$100mn for the bank, and have also established a reserve currency pool worth another US$100bn called the Contingent Reserve Arrangement (CRA), designed to assist member countries at times of currency liquidity crises. Brazil, India and Russia will each contribute US$18bn to the CRA. South Africa is set to contribute US$5bn. China will be responsible for the largest share of the CRA after contributing US$41bn to the bank, giving it the largest share of voting rights at 39.5%. While the bank may open to membership from other nations, the combined share of the founding members won’t fall below 55%.