The Role of Development Banks in Economic Development of a Country

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What is Development Bank?

A development bank is a bank specifically established with the purpose of providing long-term financing for various development projects, which help to accelerate economic development of a country or region.

Characteristics of Development Banks

1 Development banks are usually government-owned enterprises and they're funded by the government, other financial institutions and international organizations. But sometimes, they are jointly owned by the government and private institutions or individuals

2 Development banks do not accept deposits from the public and they do not perform some of the other functions of commercial banks.

3 Development banks don’t issue their own cheques like commercial banks.

4 They provide medium and long-term loans, unlike commercial banks that provide mainly short-term loans.

Functions of Development Banks in Economic Development

1 Development banks provide medium and long-term loans to prospective investors in the areas of agriculture, industry and commerce.  Most development projects require long-term loans. Since commercial banks usually provide only short-term capital, the development banks fill the gap by providing medium- and long-term capital to entrepreneurs to finance their enterprises. For instance, the Nigerian Bank of Industry provides finance for industries, while Bank of Agriculture provides credits for agricultural projects.

2 They make direct investments in various sectors of the economy, thereby contributing directly to economic development. They usually have joint enterprises with private investors in the areas of agriculture, industry and housing.

3 Development banks offer technical and financial advice to potential investors in various sectors of the economy. They have experts in various fields of business. They can therefore advise investors on how best to carry out their business operations.

4 Development banks conduct studies on the economy. They usually carry out detailed studies of the economy to be able to identify impediments to economic growth in the areas of operations and to provide solutions to such challenges. Priority projects of the government are identified and embarked on. They are sometimes given mandates to embark upon such projects by the government.

With these functions of development banks, we can therefore say that development banks play important roles in economic development of a country.

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