DEVELOPMENT BANKS

DEVELOPMENT BANKS

Development banks are specialized financial institutions providing medium and long – term credit for the creation or expansion of agriculture, commercial and industrial enterprises in developing countries such as Nigeria. They are mostly established by government.

The main objective of development banks is the promotion of economic development in the economy. The idea of setting up development banks in Nigeria was mooted after the establishment of the CBN.

It became apparent that there was an urgent need for banking institutions capable of providing medium and long-term finances, to fill the gaps in the economy which the merchant banks at that time were not well – equipped to service.

The development banks operating in Nigeria includes the Nigeria Bank for Commerce and Industries (NBCI), the Nigeria Agricultural, Co-operation and Rural Development Bank (NACRDB), the Federal Mortgage Bank of Nigeria (FMBN), and the Nigerian Industrial Development Bank (NIDB).

Functions of Development Banks

Development Banks are specialized banks which are established for specified purposes in the economy. Their functions are therefore aimed at developing those sectors which they are established for. However, they perform two broad functions which include the banking functions and the development functions.

1. Banking Functions

i. Development Banks Provide long-term and medium-term finance / loans for commerce, industry and agriculture as well as general development projects.

ii. Development Banks make funds available in the form of equity to development projects.

iii. They raise bilateral and multilateral loans from international aid agencies like the United States Agencies for International Development (USAID), from international donor agencies like the World Bank and from their own governments.

2. Development Functions

i. Development banks provide promotional activities such as identifying and properly articulating investment proposals.

ii. Development Bank facilitates the establishment of institutions and enterprises which fill specific gaps in the financial system.

iii. They help to stimulate their nations’ capital markets (Market for long-term loans) by selling their own stocks and bonds and / or selling and using the proceeds to invest in new enterprises.

iv. Development Banks provide their clients with technical skill and advice at the preparatory and implementation stages of projects.

v. They provide managerial assistance to their clients in project preparation and
evaluation.

vi. Development Banks ensure that allocations to projects are in line with the defined economic, social and political priorities of the government.

vii. Development banks ensure efficient allocation to scarce financial resources in the development planning projects.

viii. They thus help to quicken the pace of economic development.