Every country felt the need to accelerate the rate of development in post world war era. Some countries were directly involved in war while many others were indirectly affected by it. There was a need for reconstructing economics at a faster speed. The existing machinery for developmental activities was not sufficient to the requirements of industry. There was a need to set up such institutions which would take up promotional activities besides financing. In this background developmental banks were needed for the following reasons:
1. Lay Foundations for Industrialization
A number of countries got independence from colonial rule. Their economies needed to be rehabilitated. Other underdeveloped and developing countries too needed to accelerate the pace of industrialization. To lay a solid foundation for growth, establishment of certain key industries such as cement, engineering, machine making, chemicals, etc. is essential. Private entrepreneurs were not forthcoming to invest in these vital’ areas due to risk involved and long gestation period in those industries. The governments of under developed countries set up development and institutions to fill the vacuum.
2. Meet Capital Needs
Theere was a dearth of capital needed to foster industrial growth in underdeveloped countries. Owing to the low level of income of the people there were no sufficient surpluses for capitalization. There was a need for institutions which could meet this gap between demand and supply for capital.
3. Need for Promotional Activities
Besides capital needs, underdeveloped countries suffered from lack of expertise, managerial and technical know-how. Developmental banks could take up the job of and joint sectors and provide managerial and resources and skills and of channeling them into approved fields under private auspices are needed in these countries.
4. Help Small and Medium Sectors
The large scale was, to some extent, able to meet its needs. There was a need to mitigate sufferings of small and medium size industries which form a sizeable sector of the industrial economy. Despite the important role played by these sectors they experience scarcity of capital owing to the apathy of investors to invest their savings because of their credit worthiness and profitability. There was a need for special institutions to help these sectors in playing vital role in the industrialization of developing and under developed countries.