Development Banks

Development banks are specialised financial institutions established with the primary goal of providing long-term loans.

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Development banks are specialised financial institutions established with the primary goal of providing long-term loans and financial assistance aimed at fostering economic development.

Characteristics of Development Banks

  1. Long-Term Focus: They primarily focus on offering loans and financial aid for projects that have longer gestation periods, such as infrastructure, industrial expansion, and other developmental initiatives.
  2. Support for Key Sectors: They often concentrate their efforts on sectors crucial for economic growth, such as agriculture, manufacturing, infrastructure, and small and medium-sized enterprises (SMEs).
  3. Risk Mitigation: They may take on higher risks than commercial banks by providing loans for projects that might be considered risky but have significant developmental potential.
  4. Government Support: Because they are mostly established or backed by governments, development banks may receive capital injections, guarantees, or subsidies from governments to facilitate their developmental activities.

Functions of these Banks

  1. Provision of Long-Term Loans: Development banks specialise in offering long-term financial assistance for capital-intensive projects. This includes funding for infrastructure, industrial expansion, and other projects with extended gestation periods.
  2. Implementation of the Government’s Industrial Policies: These banks actively participate in executing and supporting the government’s industrial development policies. They align their financial initiatives with governmental strategies aimed at fostering economic growth and industrial progress.
  3. Conduct of Extensive Sector Studies: They conduct comprehensive research and studies on various industrial sectors. This analysis helps in understanding market trends, identifying growth opportunities, and formulating strategies to support the development of specific industries.
  4. Supervision of Funded Projects: They engage in monitoring and supervision of projects to which they have provided loans. This oversight ensures that the funds allocated are used effectively and that projects adhere to established guidelines and objectives.
  5. Advisory Role: Development banks serve as advisors to both the government and industrialists. They offer guidance on financial matters, policy formulation, and strategic planning, leveraging their expertise to support informed decision-making.
  6. Contribution to Manpower Development: These banks play a role in enhancing the skill sets of the workforce. They might support educational initiatives, vocational training programmes, and skill-development schemes.
See also  Second-Tier Securities Market (SSM)
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