THE ROLE AND FUNCTIONS OF DEVELOPMENT BANKINGIntroductionDevelopment Banks or Development Finance Institutions (DFI’s) as these are normally called inthe financial world are a post World War II phenomenon. Their establishment in Africa, Asiaand other developing countries in most cases coincided with the attainment of independence.Their mission being
“to expedite the pace of development in accordance with the national priorities and aspirations of the people”.
DFI’s fall into two broad categories viz. national DFI’s and regional DFI’s. Most of the nationalDFI’s in the developing world have been in existence for two to three decades. They wereestablished to serve as handmaidens of their governments in the implementation of their development plans.In places like India, a majority of the applicants for financial assistance from the DFI’s in theinitial stages were existing large industrial houses, or Managing agency firms. These institutionshad resources of men, material and money and were therefore, able to conceive, plan andimplement new or expansion projects successfully. Therefore, there was no problem of arrears.In the wake of socialist policies pursued by these newly independent states, further growth of large industrial houses and managing agency firms through DFI assistance was consideredmonopolistic and exploitative of the majority by the minority. These were conceived asinstitution reminiscent of the former British regime. This attitude led to a greater intervention of the state in the regulation and operation of DFI’s, which in almost all cases were state owned.
FRESH ORIENTATION IN OPERATIONS
In pursuit of the socialist policies, there was need for a redefinition of guidelines to be followed by DFI’s in extending credit to their clients. The new guidelines placed greater emphasis onencouraging new entrepreneurs, technocrats, educated unemployed, professionals, and small-scale enterprises and above all upon balanced regional development. All these were aimed atfulfilling socially desirable objectives. This was a beginning of a new phase in the operations of DFI’s, and called for fresh orientation. It entailed relaxation in a number of aspects likesponsors’ contribution, security margin, longer gestation period etc. Inadequate resources andabsence of any fall back reserves of the new category of sponsors and their insufficientmanagerial skills were manifest soon. Pursuit of new guidelines exposed DFI’s to greater risks,resulting in widespread sickness of the enterprises. Starting at a moderate level, the problemassumed great dimensions over a period of time, although it did have a spin off in the form of anew breed of successful entrepreneurs.Regional DFI'sRegional DFI's were established as part of the economic cooperation of blocks of neighbouringstates in Africa. Their main role being to facilitate the process of accelerating regionalintegration process.These included East African Development Bank (EADB), which was established at the timewhen the East African Community was one of the strongest unions in the whole of Africa.EADB was set to promote the economic development in the region and to act as a catalyst in promoting balanced economic development amongst member countries.Among the regional DFI's are African Development Bank (ADB), Preferential Trade Area Bank (PTA), Arab Bank for Economic Development of Africa (BADEA) and Islamic Development