Development banks are those financial institutions engaged in the promotion and development of industry, agriculture and other key sectors.
In the words of A.G. Kheradjou “A development bank is like a living organism that reacts to the social-economic environment and its success depends on reacting most aptly to that environment”. Kheradjou assigns an important task to the development banks. He feels that these banks should react to the socio-economic needs. They should satisfy the developmental needs of the economy and their success is linked to the satisfactory growth of the economy.
In the views of William Diamond “A development bank has the opportunity to promote enterprises i.e. to conceive investment proposals and to stimulate others to pursue them or itself to carry them through, from ‘conception’ to ‘realization’. In principle, a development bank is well suited to assume this kind of role. Yet, enterprise creation is fraught with costs and risks which development bank cannot neglect. Development banks can prudently undertake them only when they have the requisite financial strength, technical expertise and the managerial skill to bank”. In his views, a development bank is an institution which takes up the job of developing industrial enterprises from its inception to completion. This process involves costs as well as risks. The bank should have sufficient financial sources and expertise to promote a new unit.
D.M. Mithani states that. “A development bank may be defined as a financial institution concerned with providing all types of financial assistance (medium as well as long-term) to business units in the form of loans, underwriting, investment and guarantee operations and development in general and industrial.”
The role of a development bank has been emphasized in this definition. In this view a development bank aims to provide financial and promotional facilities for the overall development of a country.
Features of a Development Bank
- A development bank has the following features or characteristics:
- A development bank does not accept deposits from the public like commercial banks and other financial institutions who entirely depend upon saving mobilization.
- It is a specialized financial institution which provides medium term and long-term lending facilities.
- It is a multipurpose financial institution. Besides providing financial help it undertakes promotional activities also. It helps an enterprises from planning to operational level.
- It provides financial assistance to both private as well as public sector institutions.
- The role of a development bank is of gap filler. When assistance from other sources is not sufficient then this channel helps. It does not compete with normal channels of finance.
- Development banks primarily aim to accelerate the rate of growth. It helps industrialization specific and economic development in general
- The objective of these banks is to serve public interest rather than earning profits.
- Development banks react to the socio-economic needs of development.