AIIB Business Strategy Decisions: What It Can Do Differently to Make a Difference

Abstract

The Asian Infrastructure Investment Bank (AIIB) must break from World Bank and Asian Development Bank (ADB) practices to close Asia’s $8.3 trillion infrastructure gap during 2016-2020. Otherwise, AIIB’s stand-alone 2020 investment capacity, projected at $250 billion, will fall far short of the needs. AIIB should invest innovatively to develop infrastructure finance as an asset class and quickly organize concessional financing. AIIB should focus on mobilizing new money from institutional investors by mitigating risks and facilitating the pricing of illiquid long-term infrastructure assets. In particular, AIIB should split its investments between new projects and purchases of existing infrastructure financing, including bank loans (switched then into bonds) and equity to establish Asian infrastructure bond and equity funds. AIIB’s direct investments in new infrastructure projects should emphasize equity, subordinated debt, and guarantees rather than senior debt. AIIB could catalyze new money by addressing legal/regulatory/tax issues and providing political comfort. In addition, AIIB should quickly organize concessional financing and consider easing graduation thresholds based on GDP per capita to avoid too-early member exits from concessional finance.