World Bank boosts lending capacity by 50%, India set to gain most from $150 billion global push, says India head Kouame

This move, achieved through balance sheet optimization, spells significant benefits for India, the Bank’s largest client, with new funds directed towards areas ranging from climate resilience to rural development.

"India is the biggest client and will have a bigger share of funding available from the World Bank," Auguste Tano Kouames, World Bank's country director (India) told Mint in an interview.

Annual lending to India has already surged to $5 billion, supporting projects across energy, healthcare, and digital education, among other critical sectors.

The Washington DC-headquartered multilateral development bank (MDB), which has recently undergone balance sheet optimisation to lend more, will now make available about $150 billion over the next 10 years to various countries, with a large portion of the funds dedicated to green projects.

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"India is the biggest client and will have a bigger share of funding available from the World Bank," Kouame said.

The World Bank has also approved a measure to waive commitment fees on loan balances for middle-income countries, like India, for four years, effectively reducing annual borrowing costs by 0.25%—a cumulative savings of nearly 1%, he added.

The World Bank finances projects through its lending arm, the International Bank for Reconstruction and Development (IBRD), which offers financing assistance to developing and middle-income countries.

The recent World Bank Group annual meetings focused on two key areas: internal reforms within the organisation and broader reforms across the MDB landscape. The latter, guided by the recommendations of the G20-backed international expert group (IEG), aims to enhance MDBs' impact and sustainability, Kouame said

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"We (the WBG) have made several reforms to be a better bank, in the sense of being faster, collaborating better, as well as mobilising financing with the private sector, and by being closer to the client countries by being more strategic and engaging in operations and projects that are transformational," he said.

"We have also worked on the bigger bank agenda by making internal reforms to expand our ability to lend more to countries, especially to middle-income countries like India," he added.

Interestingly, the G20-backed IEG report, released last year, suggested a triple agenda for reforms to strengthen the potential of MDBs. It included an increase in MDBs’ annual spending by $3 trillion by 2030, including $1.8 trillion for additional climate action and $1.2 trillion for achieving other sustainable development goals (SDGs).

The two-part report also stated the need for MDBs to mobilise $240 billion in private capital by shifting from risk avoidance to informed risk-taking, apart from introducing new lending instruments like pooled portfolio guarantees and hybrid capital.

"For us at the World Bank, we cannot reach the triple agenda without more injection of capital. To reach the 50% increase in funding, one way is to reduce our equity-to-loan ratio so that with the same equity we can give out more loans," said Kouame.

"The second way is to use hybrid capital, with member countries increasing capital (contribution) without increasing their voting share. The member countries can share this guarantee as a part of the portfolio so that it can free up space to give out more loans without stretching our balance sheet," he added.

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As the WBG is funded by member countries and serves sovereign clients, it must strategically manage its balance sheet to enhance lending capacity.

By adjusting the equity-to-capital ratio, the WBG can increase loan sizes without needing additional capital, thereby maximising its impact.

The World Bank has forecast a 7% GDP growth for India in FY25, a target that Kouame believes the country, as the fastest-growing major economy, will meet despite a slowdown to 6.7% in the first quarter of FY25, driven by reduced government capital expenditure in the lead-up to the general election.

"We expect a pickup in private investment in the coming quarters. Our high-frequency data shows signs of interest from the private sector to make new investments," he said.

"The high cost of money will not change their mind if they can get a high return on their investments," he added.