Functions of Development Banks

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What are the functions of Development Banks? Describe its Quantitative and Qualitative roles.

Solution: Development Banks or Development Finance Institutions (DFI’s) as these are normally called in the financial world are a post World War II phenomenon. Their establishment in Africa, Asia and 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 national DFI’s in the developing world have been in existence for two to three decades. They were established 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 the initial stages were existing large industrial houses, or Managing agency firms. These institutions had resources of men, material and money and were therefore, able to conceive, plan and implement 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 considered monopolistic and exploitative of the majority by the minority. These were conceived as institution 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.

DEVELOPMENT BANK is vested with the responsibility of co-ordinating the working of institutions engaged in financing, promoting and developing industries. It has evolved an appropriate mechanism for this purpose. IT also undertakes/supports wide-ranging promotional activities including entrepreneurship development programmes for...
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