Mobilization Effects of Multilateral Development Banks

Can a single loan pull private lenders into markets they would otherwise avoid?

Chiara Broccolini, Giulia Lotti, Alessandro Maffioli, Andrea Presbitero, and Rodolfo Stucchi ask whether multilateral lending crowds in private capital, in their paper "Mobilization Effects of Multilateral Development Banks".

They use loan-level data on syndicated lending to 117 developing countries from 1993 to 2017. They flag where a multilateral bank enters at the country-sector-year level, then track private lending in the following years and isolate the indirect pull on other private lenders.

Their main conclusions include:

• Once a multilateral bank enters a country-sector, private syndicated lending rises for up to three years, with a cumulative effect of about 2.4 additional loans against a baseline average below 1.
• Cumulative private loan volume climbs by roughly 0.16% of GDP over three years, close to 150% of the average yearly volume of private syndicated lending in a country-sector.
• Multilateral participation draws in almost two extra lending banks per loan and lengthens average maturity by close to 0.8 years, so borrowers reach more creditors on better terms.
• The extra bank lending does not come at the expense of corporate bonds, where issuance holds steady or edges up, so the mobilisation is additional rather than a reshuffle between instruments.
• Counting the banks that co-lend directly alongside the multilateral, total mobilisation reaches almost three extra banks and about 0.31% of GDP.
• The effect is uneven: it concentrates in infrastructure and in investment-grade and more financially developed countries, and fades in low-income ones, exactly where the financing gap is widest.

This article shows multilateral participation is a de-risking mechanism beyond concessional capital that measurably shifts private lenders' willingness to enter with a large volume effect relative to the market.

Mobilisation is real and it lasts, mostly in middle-income and investment-grade markets, while cautioning that it thins out precisely in the poorest countries who need to leverage private capital at scale the most.

The design captures syndicated bank lending only, leaving equity, direct lending and local-currency finance outside the frame. Fixed effects reduce, but do not eliminate, the risk of reverse causality.