The Asian Infrastructure Investment Bank (AIIB) is a global development bank whose goal is to improve social and economic conditions in Asia. It was set up by a multilateral treaty called the AIIB Articles of Agreement, which went into effect on December 25, 2015. Membership of the Bank is made up of the 57 original members who signed the agreement. The Bank is based in Beijing and started doing business in January 2016.
• By the end of 2020, AIIB would have 103 approved Members who made up about 79% of the world’s people and 65% of the world’s GDP.
• By putting money into sustainable infrastructure and other useful areas in Asia and around the world, it will be easier to connect people, services, and markets. This will improve the lives of billions of people over time and build a better future.
• To support long-term economic growth, build wealth, and connect Asia’s infrastructure by investing in infrastructure and other productive sectors.
• Work closely with other multilateral and bilateral development institutions to support cooperation and partnerships in the region to solve development problems.
• To encourage public and private investment in growth, especially for building up infrastructure and other productive areas.
• To use the money it has to pay for this kind of development in the region, including the projects and programmes that will help the region’s economy grow in a way that doesn’t hurt anyone.
• To support private investment in projects, businesses, and activities that help the region’s economy grow when private capital is not available on fair terms.
How is the AIIB Governed?
Board of Governors:
Each partner country picks one Governor and one Alternate Governor for the Board of Governors.
Governors and Alternate Governors serve as long as the person who chose them wants them to. The AIIB is run by the Board of Governors, which has all of its powers. The Board of Governors can delegate some or all of its powers to the Board of Directors, except for the power to: admit new members and decide the terms of their admission; increase or decrease the authorised capital stock of the Bank; elect the Directors of the Bank and decide the expenses to be paid for Directors and Alternate Directors; and appoint, suspend, or remove the President.
Approve the Bank’s general balance sheet and statement of profit and loss after reading the auditors’ report, Change the “AIIB Articles of Agreement,”
• Annual Meeting
In 2016, the first meeting of the AIIB Board of Governors took place in Beijing, China.
The second one was in 2017 in Jeju, Korea, and the third one was in 2018 in Mumbai, India.
In July 2019, Luxembourg was the first place outside of Asia to host AIIB’s Annual Meeting.
AIIB’s 6th Annual Meeting took place in October 2021.
What is the Board of Directors of the AIIB?
• The Board of Directors is made up of twelve people who are not on the Board of Governors. Of these twelve, nine are chosen by the Governors to represent regional members, and three are chosen by the Governors to represent members who don’t live in a specific area.
• Directors of the Board are people with a lot of knowledge about business and money.
• Directors speak for members whose Governors chose them and members whose Governors gave them their votes.
• The Board of Directors is made up of non-residents to cut down on running costs.
• It is in charge of the Bank’s general activities and has all of the powers that the Board of Governors has given it. This includes approving the Bank’s strategy, yearly plan, and budget, setting policies, making decisions about how the Bank works, overseeing the Bank’s management and operations, and setting up a way to keep track of everything.
What is the Role of Senior Management?
• The President is in charge of the AIIB staff. The President is chosen by AIIB owners for a five-year term, and they can vote for him or her again.
• The President is helped by Senior Management, which is made up of five Vice Presidents who are in charge of policy and strategy, investment operations, finance, administration, and the company secretariat. The Chief Risk Officer and Chief Programmer Officer are also part of Senior Management.
• Urjit Patel, who used to be governor of the Reserve Bank of India (RBI), is now vice president of the Asian Infrastructure Investment Bank (AIIB).
IAP – “International Advisory Panel.”
• The Bank has set up an IAP to help the President and Senior Management make decisions about the Bank’s strategies, policies, and other operating matters.
• The President chooses and appoints IAP members for a two-year term that can be extended after the first year is up.
The Panel meets at least twice a year, once at the Bank’s Annual Meeting and again at the Bank’s headquarters in Beijing. Panellists get a small stipend but don’t get paid. The Bank pays for the appropriate costs of the meetings of the Panel.
Who can be an AIIB Member?
• Anyone who is a member of the World Bank or the Asian Development Bank can join the AIIB. Members are either from the same region or from outside the region.
Regional members are those who live in what the UN calls Asia and Oceania. Unlike other multilateral development banks, the AIIB lets non-sovereign organisations apply for membership as long as their home country is a member.
So, national wealth funds like the China Investment Corporation or state-owned companies from countries that are already members of the Bank could join.
What is the Role of Senior Management?
• The AIIB’s starting capital is USD 100 billion, which is split into 1 million shares of $100,000 each. Only 20% of the shares have been paid for, but 80% can be called at any time.
Paid-up share capital is the amount of money that buyers have already given in exchange for stock shares.
Called-up share capital is when a company gives owners shares with the agreement that they will be paid later.
o This makes the terms of investing more flexible and may get buyers to put in more share capital than they would if they had to pay for their shares all at once.
• China gives the most money to the Bank. It gave USD 50 billion, which was half of the starting capital.
• India is the second-largest shareholder, with USD 8.4 billion worth of shares.
Who has the Voting Rights in AIIB?
• China has the most vote shares in the bank, with 26.61%. India, Russia, and Germany are next, with 7.6%, 6.01%, and 4.2%, respectively.
• The members from each area have 75% of the voting power in the Bank.
• The AIIB’s framework for making decisions is similar to that of other MDBs, but there are two main differences:
It doesn’t have a local board of executive directors that looks out for the interests of member countries on a daily basis, and the AIIB gives more power to make decisions to regional countries and China, which is the biggest shareholder.
What are the chances of getting a loan from the AIIB?
• AIIB financing can go to member countries (or agencies, entities, or businesses in those countries) as well as foreign or regional organisations that care about the economic growth of the Asia-Pacific region.
The AIIB has signed a co-financing framework deal with the World Bank and three non-binding Memoranda of Understanding (MOU) with the Asian Development Bank (ADB), the European Bank for Reconstruction and Development (EBRD), and the European Investment Bank (EIB).
• Most of the AIIB’s work is in South Asia.
• The Bank can give outside of Asia as long as the loan helps Asia connect to the rest of the world or is for a global public good and helps Asia a lot.
The limit for loans from outside the area is 25%.
Energy, transportation, water, and urban development are the most important areas for the Bank. About two-thirds of the loans that the bank has accepted have been co-financed with other multilateral lending institutions, such as the World Bank and the Asian Development Bank.
• The triple-A ratings from Standard & Poor’s, Moody’s, and Fitch show that the Bank is committed to the highest standards of governance, increased transparency, and responsibility.
• In April 2019, the AIIB’s approved investment projects came to USD 7.94 billion.
What was China’s Motivation for Creating the AIIB?
• The AIIB is part of a larger reorientation of China’s foreign and international economic strategy that has been going on since Xi Jinping became the General Secretary of the Chinese Communist Party in 2012 and President in 2013.
• Initiative “One Belt, One Road” (OBOR)
It chose 65 countries to take part in the initiative, which aims to improve economic ties between China and dozens of other countries along a land route (the Silk Road Economic Belt) and a sea route (the 21st Century Maritime Silk Road) by promoting trade, building infrastructure, and connecting regions.
To make this vision come true, China is investing in a number of institutions and projects, such as the AIIB, the Silk Road Fund (which was set up in 2014), and the New Development Bank (also known as the BRICS Bank), which was also set up in 2014 with Brazil, Russia, India, and South Africa. China also wants to shape the structure of trade and investment relationships in the region as they develop.
AIIB could change these ties by helping to pay for OBOR. It could also help build up a regional infrastructure with China as the centre.
Because of this, regional economies may be more likely to trade and spend more with China than with other economies like Japan, South Korea, Taiwan, and the US.
What about the Cooperation between AIIB and India?
China Factor
India’s membership in the Nuclear Suppliers Group (China says it won’t support India’s entry until there’s a way to accept applications from all countries that haven’t signed the Non-Proliferation Treaty, which indirectly helps Pakistan’s case), territorial disputes in the Himalayas, and worries about the China-Pakistan Economic Corridor going through disputed territory in Kashmir.
• India is worried about China’s foreign policy in its region in general and the OBOR initiative in particular. It is very interested in Beijing’s attempts to gain power in its immediate neighbourhood.
• Despite the problems between India and China, the AIIB plays a key role in building consensus:
The AIIB has become a multilateral lending venture, so India and China don’t have any trouble putting aside their differences and working together at the AIIB.
With the help of AIIB, India can find new ways to invest in the area.
By holding the AIIB’s third annual meeting in Mumbai in 2018 with the theme “Mobilising Finance for Infrastructure: Innovation and Collaboration,” India has shown again that it is open to working together on infrastructure.
AIIB’s Contribution to the Economy
• India is the country that gets the most money from the AIIB for building projects. Five projects in India have been given the OK by the AIIB. These are the Bangalore Metro Rail Project (USD 335 million), the Transmission System Strengthening Project, the Gujarat Rural Roads (MMGSY) Project (a 13-year loan for USD329 million to connect 4,000 villages in the 33 districts of Gujarat state), the India Infrastructure Fund, and the Andhra Pradesh 247 – Power For All project.
• The AIIB has given USD 1.074 billion in loans to five Indian projects. This is almost 28% of all the money that the bank has given to 24 building projects around the world. The AIIB has agreed to let the National Investment and Infrastructure Fund (NIIF) borrow USD 200 million.
The Indian government set up NIIF to provide long-term capital to the infrastructure industry of the country. It has interests in ports and logistics, real estate, and renewable sources of energy.
• In February 2019, the AIIB and the Indian government signed a loan agreement for $455 million to pay for the Andhra Pradesh Rural Roads Project. This project will join 3,300 settlements with more than 250 people and help about 2 million people.
What are the Concerns Associated with AIIB?
• The US has been against the AIIB, which it sees as an unwelcome addition to the multilateral banking system.
AIIB, which is mostly funded by China, is a threat to the United States’ control of the world’s banking system for more than 50 years.
• Japan and the U.S. are not members of the AIIB because they are worried about the following: There is no guarantee that the bank will keep its strict loan-screening practises or keep its financial operations separate from China’s political goals.
To join the AIIB, you would have to give a lot of money to the organisation.
• Asia needs so many different kinds of infrastructure investments that no single institution provider can meet all of these needs on its own.
Through nationalism and a trade war, the U.S. government seems determined to make decisions that are only good for the U.S.
• The bank is worried that the slow global economy and trade war will cause project financing to go down.
When economies slow down, governments may not be able to meet their contractual obligations to the AIIB, and trade frictions may make building projects less useful.
• The fact that AIIB’s board members don’t live in the country limits transparency and responsibility.
It makes it seem more likely that the Chinese government will have a lot more power over the AIIB.
Conclusion
• The history of economic growth and development shows that strong financial institutions make markets more competitive, which leads to overall growth and development of society.
• The AIIB can carve out its own space by contributing to sustained economic growth that raises the living standards of millions of poor people in Asia and other parts of the world.
• The AIIB is still in its early stages of development, so it has a long way to go.
