The Asian Infrastructure Investment Bank has already raised more than a few eyebrows in its short life. However, rather than criticise, Western politicians should make note of its focus – oft-ignored infrastructure requirements – and ask why existing such institutions, namely the IMF and World Bank, are deemed insufficient to cope with Asia's needs.

The best thing about the Asian Infrastructure Investment Bank (AIIB) is the second word in its name – infrastructure. For too long now development banks have been distracted from their most useful role, which is financing infrastructure projects – the very things that private enterprise and governments struggle with because of the huge resources needed and the long payback times.

Buffeted by political agendas and development fashions, the established ​development ​banks have got themselves distracted from this core purpose by social agendas and small business lending. Worthy as these aims ​are, they are not what development banks do best. Social agendas are very tricky to get right and it can take generations before any results are noticeable, whereas SME lending is best done by private sector banks.​

Infrastructure, by contrast, whether its new transport systems, new power generation or ​water and sanitation, has an immediate beneficial impact on regional communities that is permanent and long lasting.

So, while most of the media attention surrounding China’s establishment of the AIIB has been the spat between the US and the Europeans over whether or not to join, and the geopolitics of setting up rival structures to the Bretton Woods’ institutions – the World Bank and the International Monetary Fund (IMF) – the point is missed that new initiatives in Asia often take a more common sense and practical approach to problems.

Highlighting the key role of infrastructure in development is an example of this, especially at a time when new banking rules are making bank lending for infrastructure almost impossible.

But obviously the failure of the Western development institutions, as well as entities such as the Asian Development Bank, to reform in a way that takes account of the new realities of the global economy, such as the rise of China and the other BRIC countries, has been a spur to the setting up of the AIIB. How could it be different?

The US has blocked long overdue changes to IMF quotas. In January, US Congress failed to ratify changes that were agreed in 2010. This would have moved six percentage points of total quota to developing countries and reallocated two of the 24 European directorships to developing countries. It was little enough but even this was too much for US lawmakers.

So we are now in the bizarre situation where, after years of the West telling China to reform, we now have China’s premier, Li Keqiang, bemoaning the failure of the West to reform in response to the financial crisis, as made clear in his interview with the Financial Times published on April 16.

“We are ready to continue to play our role in building the current international financial system,” he says. “We are also ready to work with other countries to help make the system more just, reasonable and balanced.”

In this context, expect to see more initiatives such as the AIIB. And though they may be borne out of frustration with the slow pace of change in the West, critics should also study the details of their operation – their approach to problem solving is likely to be more practical and more effective than that of existing institutions.​

Brian Caplen is the editor of The Banker.

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