CHINA’S new international development bank will offer loans with fewer strings attached than the World Bank, sources said, as China seeks to change the unwritten rules of global development finance.

    The Asian Infrastructure Investment Bank (AIIB) will require projects to be legally transparent and protect social and environmental interests, but will not ask borrowers to privatize or deregulate businesses for loans, four sources with knowledge of the matter said.

    By not insisting on some free market economic policies recommended by the World Bank, the AIIB is likely to avoid criticism leveled against its rivals, who some say impose unreasonable demands on borrowers.

    “Privatization will not become a conditionality for loans,” said a source familiar with internal AIIB discussions, but who declined to be named because he is not authorized to speak publicly on the matter.

    “Deregulation is also not likely to be a condition,” he added. “The AIIB will follow the local conditions of each country. It will not force others to do this and do that from the outside.”

    A reduced focus on the free market could give the AIIB greater freedom to run projects, said a banker at a development bank who declined to be named.

    For example, development banks that finance a water treatment plant may require the price of treated water to be raised to recoup costs, even if local conditions are not conducive to higher prices.

    The AIIB, on the other hand, could avoid hiking prices and rely instead on other sources of financing, such as government subsidies, to defray costs, he said.

    The bank also aims to have a simpler internal review and risk assessment system for projects compared with its peers to hold down costs and cut red tape, sources said.

    For one, the AIIB is not expected to delay some project approvals by months to allow all parties to do due diligence, a practice in place at other development banks, said a source familiar with the matter.

    The bank will also minimize expenditure by having only a handful of field offices and a staff strength of between 500 and 600, about a sixth of the size of the Asian Development Bank (ADB) and 5 percent of the World Bank, he said.

    In its infancy, two sources said the AIIB, with authorized capital of US$100 billion, would concentrate on securing its credit rating, implying a more cautious approach.

    This means it will run like an investment bank, funding only commercially sound projects, working on public-private partnerships where feasible, and charging market interest rates that are likely to be higher than those charged by its peers.(SD-Agencies)