With Kamath as the president, will BRICS Bank challenge World Bank?

Five BRICS countries including India launched the New Development Bank in Shanghai on Tuesday. The new bank’s head quarters in Shanghai will be led by Indian banker, M.V.Kamath as president besides Vice Presidents representing each of the five countries.

The launch of the NDB comes on the heels of the recent formation of the Asian Infrastructure Investment Bank, in which India is the second biggest shareholder after China. Put together, the two banks provide alternative project financing sources besides the World Bank and the Asian Development Bank.

“Our objective is not to challenge the existing system as it is but to improve and complement the system in our own way,” Kamath said at the inauguration ceremony.

The five participants–Brazil, Russia, India, China and South Africa– are contributing $10 billion each in the NDB’s initial capital of $50 billion. It has an authorized capital of $100 billion.

To reduce their dependence on the International Monetary Fund, the new bank also announced creation of a $100 billion contingency fund for emergencies. China is contributing $41 billion, India, Russia and Brazil $18 billion each and South Africa $5 billion.

Kamath indicated that the NDB and the AIIB, both based in China, will not compete with each other.

He said NDB and the AIIB will set up a “hotline” to discuss issues develop close links between “new institutions coming together with a completely different approach.” He suggested that the new institutions will have a “completely different approach” to multilateral banking as compared to the World Bank.

“The NDB and AIIB may have overlapping functions. They will play competitive as well as complementary roles with each other,” Liu Xiaoxue, a researcher at the Beijing based National Institute of International Strategy, told TNN.

Some Chinese analysts have said that the two new institutions will break the monopoly of the World Bank, which will now face severe competition to get customers.

“I expect the NDB to be in a better position to understand the financing needs in developing countries,” Bala Ramasamy, professor of economics at the China Europe International Business School in Shanghai, told TNN.

The World Bank has often been criticized for taking a rigid attitude and rejecting financing proposals on the grounds of environmental hazards in developing countries.

“The NDB will also take a more reasonable approach to environmental issues instead of rejecting projects that do not meet certain standards,” Ramasamy said.

Both the World Bank and the Asian Development Bank have welcomed the launch of the new bank. A World Bank official said it was helping both NDB and AIIB on issues like human resources.

The Japan led ADB’s president Takehiko Nakao said he was looking forward to co-financing projects with the NDB.

Source: http://timesofindia.indiatimes.com/world/china/With-Kamath-as-the-president-will-BRICS-Bank-challenge-World-Bank/articleshow/48163201.cms