Financing Faultlines

“If fragmentation of the

supply chain continues, the

‘’green’ transition will slow,

costs will rise and developing

nations will get left behind.”

— Ngozi Okonjo-Iweala

Alarm bells seldom wake up a sleeping world with a single ring, they come in a cascade. The realm of global finance is no different. The first sign of fragility in this system, one that had sustained and ruled since World War II, was Sri Lanka’s sovereign default in 2022. Lanka saw chaos on the streets, queues for fuel, power outages and bloody protests. It was unceremoniously followed by a protracted debt restructuring slug-fest in Zambia, one that dragged on as creditors panicked and bickered. Pakistan was next, moving precariously close to economic collapse, surviving only thanks to a ‘last-minute lifeline’ dangled pityingly by the International Monetary Fund. In the shadows, Nepal raised its head to look towards Everest and a new economic high, only to temporarily simmer down.

Elsewhere, unprecedented climate disasters—such as crippling floods in Libya that claimed thousands of lives and record-breaking heatwaves across South Asia in 2024 that scorched crops and strained power grids—pushed vulnerable economies to the brink. What was once seen as an ‘isolated crises’ suddenly became a failure of the global financial architecture to protect the most exposed nations.

Corporate World Hit Too

The shockwaves hit boardrooms and negotiating tables alike. At COP28 and subsequent climate forums, leaders asked whether the decades-old model of West-led lending could respond to today’s overlapping emergencies. “The current system is not delivering at the speed or scale required,” World Bank President Ajay Banga warned in 2023 itself, urging reform. His words resonated across the Global South, where calls for support morphed into frustration as promised climate finance was sluggish, insufficient or inaccessible. The assumption that development capital would flow from Bretton Woods institutions in exchange for policy reforms was also shattered.

Let’s admit it, development finance is witnessing a change as vivid as any geopolitical upheaval. The post-war architecture built around the World Bank and the IMF, once believed to be the bulwark of global economic support, is being challenged by new lenders, priorities and aspirations. Nations facing climate shocks, rising debt and infrastructure gaps are seeking a competitive landscape, a trend that China’s Belt and Road Initiative, Gulf sovereign funds, climate financiers and regional banks are vying to capture. The result is reshaping development pathways, as also the very nature of global power.

Shifting Power Structure

For decades, development finance revolved around Washington and Brussels. Today, Beijing, Riyadh, Abu Dhabi and Nairobi are turning influential. Chinese lending to developing nations, at over $1 trillion since the launch of BRI, is a clear alternative to West-led institutions. While China’s investments have fast-tracked infrastructure creation in Asia and Africa, concerns over debt sustainability, transparency and politics have grown. “We cannot solve debt problems country by country in isolation,” IMF chief Kristalina Georgieva said, highlighting the fragmented nature of the system.

At the same time, climate-linked financing is emerging as a dominant theme. The 2009 promise of $100-billion grants annually for climate action in developing nations has been fulfilled only partially. Multilateral firms are adapting, with blended finance models, sovereign guarantees and private sector mobilization plans. But a gnawing gap remains. The International Energy Agency says ‘new’ economies will require $2 trillion annually in clean energy investments by 2030. Without such flows, the global commitment to limit warming to 1.5°C will be unattainable.

The rising role of Gulf sovereign wealth funds a layer of complexity. Riding on hydrocarbon revenues, Saudi Arabia, Qatar and the UAE are investing in infrastructure, renewables and logistics across Asia and Africa. Their approach is driven as much by economic expansion goals as by geopolitical strategy, reshaping alliances and dependencies.

India’s Moment is Now

Given this backdrop, India is in a unique position. As a fast-growing economy and still a trusted voice among developing countries, India is the bridge between competing financial architectures. Its G20 presidency in 2023 placed development finance reform at the centre of the debate, culminating in calls to enhance the lending capacity of multilateral development banks and expand concessional climate finance. India’s own development partnership programs—stretching from lines of credit to capacity building—have grown, especially in Africa and South Asia. Though smaller in scale compared to China’s investments, they are regarded as far more transparent and locally-embedded.

The catch is that India’s domestic financing needs remain immense. It requires massive capital inflows to achieve its renewable energy targets, estimated at 500 GW of non-fossil capacity by 2030, and to upgrade urban infrastructure and climate resilience. The 2024 heatwaves strained power grids and agricultural output to near-death. Analysts feel India needs to attract both public and private financing while maintaining fiscal prudence, a delicate balance in a volatile global environment.

Despite growing acceptance of the need for reform, the field of development finance is mired in suspicion and mistrust. Borrowing nations view Western institutions as imposing conditionalities that restrict policy space, while alternative lenders are chastised for opaque contracts and self-centric motivations. This undermines cooperation at a time when global challenges demand quick and coordinated responses, unduly impacting climate finance. Developing nations express frustration that available funds are labelled as ‘loans’ and not grants, raising debt. “We are being forced to pay for a crisis we did not create,” a negotiator from an island nation said during the recent COP30 talks.

For India, this trust deficit plays out both externally and internally. While the country seeks greater access to global capital, it needs to navigate domestic concerns around foreign influence and control. The task is to craft a financing strategy that propels growth and resilience without crippling autonomy.

Life-Changing Moment

This is a moment that presents a window to overhaul development finance. Multilateral development banks can adopt structural reform, expanding lending capacity through balance sheet optimization and commitments. Ajay Banga has advocated a “better, not just bigger” World Bank, focused on leveraging private capital and enhancing impact. Calls for innovative instruments, such as climate risk guarantees and debt-for-nature swaps, are also gaining traction.

India could play a key role in shaping this picture. Its credibility, combined with its growing economic weight, positions it as a champion for reforms that align finance with sustainability and equity. By partnering with multilateral institutions, Gulf investors and responsible private capital, India could help build financing models that avoid the pitfalls of excessive debt while accelerating development. But success depends on cooperation. Without coordination between creditors, debt restructuring will remain slow. Without transparency, mistrust will deepen. And without significant scaling of climate finance, the world will fail to meet its environmental targets, with devastating consequences.

India’s Stakes are High

The future of development finance will determine not only the growth of individual nations but the stability of economies. The stakes are high for India and it must find the funds needed for sustainable growth while shaping a fairer global system. Its approach needs to be balanced, such as engaging with multiple financial partners while pushing reform, offering a carrot to those who need to chomp on more than just the proverbial bit. World leaders need to reorient their priorities too. Development finance must move beyond geopolitical competition toward shared resilience; after all, climate adaptation, energy transition and social development cannot be subjugated to strategic rivalry.

For India, the imperative is clear. Mobilize diverse financing sources, strengthen institutional capacity and champion a transparent, equitable global architecture. In doing so, India can both secure its own future and help lead the Global South toward a development paradigm that aligns growth with justice and sustainability. If the moment is seized smartly, the emerging development finance landscape could become a foundation for shared prosperity, not one of division. If not, the fractures visible today will deepen into faultlines that shape the global order for decades.

He can be reached on [email protected]. Views expressed are personal. The writer is a veteran journalist and communications specialist