There are different types of financial institutions within the banking sector of an economy.
In this article we are going to examine the differences between the commercial banks and the development banks. The two classes of banks play important roles in economics development of a country. In their functions there are similarities as well as differences.
Commercial Banks
Commercial banks are what most people think of when they hear the word "bank." They lend money, accept deposits, offer checks and savings accounts and offer a variety of other financial products. Even though the word "commercial" makes it sound like they deal only with or primarily with businesses, this is not the case. Commercial banks provide banking services to both individuals and companies or enterprises.
Development Banks
A development bank is a bank specially established to provide long-term finance for various development projects, which help to accelerate economic development.
Difference between Development Banks and Commercial Banks
Despite the fact that commercial banks and the development banks belong to the class of financial institutions in the money market which deal in money and credits, contribute to the economic development and carry out certain similar banking functions for their customers, they differ in certain respects.
Ownership: Development Banks are usually government-owned enterprises and they obtain their funds from the government, other financial institutions and international organizations. Sometimes they are jointly owned by the government and the private institutions or individuals.
Deposits: Commercial banks accept deposits from the public and perform other functions for them. Development banks do not accept deposits from the pubic and they do not perform some of the other functions of commercial banks.
Funding: Development banks are funded by the government, other financial institutions, international organizations and other private institutions. Why commercial banks are funded by the shareholders and deposits from public individuals.
Loan Facilities: They provide medium- to long-term loans, unlike commercial banks that provide mainly short-term loans.
Cheque: Development Banks do not issue their own cheques like commercial banks.
Investment: Development banks make direct investments in various sectors of the economy especially in the housing agriculture, healthcare sector, thereby contributing directly to economic development. Commercial banks provide credit facilities to their customers in all sectors of the economy. Commercial banks also invest in the money market.
Research: Development banks carry out studies on the economy. They usually conduct detailed studies of the economy to be able to identify obstacles to economic growth in their various areas of business and provide solutions to them. Priority projects of the government are identified and embarked upon. They are sometimes given mandates to embark upon such projects by the government. Most times, commercial banks carry out research on the money bank, banking sector aimed at maximizing profits.