Development bank

Development bank
See also

Development bank - a type of International Financial Institution - bank that was designed to provide at least a couple, if not all, basic ingredients for economic growth. At the same time, the institution should prevent from inadequacy that would slow down the industrial growth. The purpose of a development bank is to entrench the needed organizational and technical know-how, capital and enterprise. It is also obligated to help develop the financial, social and economic infrastructure that is beneficial to rapid economic development[1].

Roles of development bank

Development bank might have different ownership, origins of funding, aims, strategies, and scope of procedures, depending on the particular cultural, financial, and political context under which it has to operate. However, development bank was created in order to realize the following tasks[2]:

  • Funding long-term investment in the light of national development policies to promote institutional conversion;
  • Financing public goods, such as prevention and adaptation to climate change;
  • Helping to ensure economic stability, especially by providing counter-cyclical funding, sustaining investments and diversifying risk within the financial sector;
  • Promoting greater inclusion - it can be accomplished through lines of credit to commercial or other financial institutions as well as by direct lending to small and medium companies;
  • Helping financial markets to grow and expand.

History

The oldest organization for industrial development sponsored by the government is the Societe General pour Favoriser I'Industrie Regional, founded in the Netherlands in 1822. Some of the most significant developments in long-term state-sponsored investment took place in France. In this regard, it was especially important to establish institutions such as the Credit Foncier, the Comptoir ' d'Escompte, and the Credit Mobilier in 1848–52. Credit Mobilier's participation in Continental European railroad investment illustrates how these organizations relate to both economic and financial growth. Credit Mobilier stated as a model for different governments. They funded financial institutions in Continental Europe but didn't stop there. A great example is The Industrial Bank of Japan, created with the help of Credit Mobilier. This was quickly taken as a model for other financial institutions, particularly in India[3].

Financial resources

Development bank might raise the founds it needs from the various sources. Domestic sources include[4]:

  • Private sources: Commercial banks, Private development finance institutions, Formal and informal markets, Specialized financial intermediaries,
  • Official sources: Finance Ministry, Central Bank, Other official institutions or funds

External sources of funds include [5]:

  • Private sources: International commercial bank loans, International commercial bond issuers, Foreign direct investment, International capital markets
  • Official sources: Bilateral government agencies, Multilateral Institutions, Special aid or development institutions (for example: UNESCO)

Examples of Development Banks

Below are the names of some well known development banks[6]:

  • ADB - Asian Development Bank
  • ADFIMI - Association of National Development Finance Institutions in Member Countries of the Islamic Development Bank
  • AfDB - African Development Bank
  • BNDES - Brazilian Development Bank
  • CAF - Development Bank of Latin America
  • CDB - China Development Bank
  • DBRB - Development Bank of the Republic of Belarus
  • EADB - East African Development Bank
  • IDB - Inter-American Development Bank
  • IsDB - Islamic Development Bank
  • TADB - Tanzania Agricultural Development Bank Limited
  • TSKB - Industrial Development Bank of Turkey

Footnotes

  1. Vaish K. (1993), pg. 1-2
  2. Griffith-Jones S. (2016), pg. 10-17
  3. De Aghion B. A. (1999), pg. 85-86
  4. Bruck N. (2001), pg. 39
  5. Bruck N. (2001), pg. 39
  6. Xu J., Ren X., Wu X. (2019), pg. 7-9

References

Author: Agnieszka Krztoń