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Banking sector, Blogs, Institution-specific

Unleashing the human rights potential of national development banks

One of the tools that States have in order to respect, protect and fulfill human rights is the creation of national development banks. Indeed, if the financial sector is left to autonomously determine where capital should be allocated it is likely that private rather than overall social returns will end up determining the allocation of financial savings and investment. National development banks are totally or partially public sector financial institutions mandated to provide credit at terms that render certain socially desirable investments viable. Many countries have relied on them as part of the array of tools to intervene in financial markets and help ensure higher standards of living for their population.

In the 1980s, failures in risk management and accountability and the rise of structural adjustment policies that sought the removal of the State from any role in the economy, led to the use of national development banks coming under fire. Under the prevailing paradigm, national development banks would only be considered acceptable if they followed private sector risk management practices. But this largely defeated their purpose. National development banks are necessary precisely to do things that private sector dynamics would not allow. The global financial crisis of 2008-09 reset the terms of the debate by yielding as lesson that ineffective risk management practices, corruption and lack of accountability are equally or more likely to happen in the private financial sector. In the light of its experience, voices that question the role of public banks and national development banks or call for their adherence to private sector practices are now the ones with hard questions to answer.

But one should not confuse the potential of national development banks to support the achievement of human rights with an assumption that that is always the case. Some studies looking into the policies and practices of national development banks revealed weaknesses in the extent to which they are accountable to human rights commitments undertaken by their countries. To begin with, the model of development chosen by the bank would be a key indicator of whether the actions of the institution are likely to help or hinder human rights implementation.

A newly-released primer by RightingFinance argues that national development banks, as instruments of the State, should operate within a framework of human rights that binds the latter. The principles of maximum available resources, non-retrogression, minimum core obligations, non-discrimination and equality, participation, transparency and accountability, access to justice and access to remedies, should all guide the laws, policies and practices pertaining to these institutions.

The human rights community has a key role to play in calling for States to not relinquish the use of this tool but also monitoring that in resorting to it, States abide by such principles.

Read full primer.

 

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October 2017
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