Callable capital has never been called at any major MDB and its character as a financial instrument and the rules surrounding its use are unclear. This limits the ability of MDBs to make the best use of this potentially valuable instrument and makes it more difficult for market participants and ratings agencies to account for the additional security it provides to MDB bonds.

This paper evaluates MDB statutes to better understand the legal underpinnings of callable capital and formulate policy options. The aim is to encourage MDBs and shareholders to clarify the nature, circumstances and processes of callable capital and incorporate it systematically into MDB financial planning, to reinforce confidence in the financial strength of MDBs.

Report by the Overseas Development Institute