Development banks are vehicles put in place to assist in the provision of finance to those market segments that are underserved by the financial system. Those Banks therefore serve as a form of intervention focused on assisting with projects which propose social and economic benefits to a country.
The performance of development banks is best measured by their ability to create activity to contribute to economic growth through fostering the development of new industries, the dissemination of expertise, growth in technical and intellectual capacity and the social well-being of the countries that they serve. It is in that regard that development banks have attributes which:
- assume a greater appetite for risk in their lending; as they finance projects for which the intrinsic social benefits outweigh commercial ones;
- finance long term projects, new technologies, and small and new borrowers who have little collateral;
- provide for the diffusion of expertise such as technical assistance and support through their staff or strategic alliances, particularly in the productive sector;
- assist marginalized borrowers in realizing their goals through financial planning, counseling, and the exploration of alternatives to meet their funding needs;
- offer more variable methods of financing. For example, apart from loans, development banks may be more inclined to provide equity funding or venture capital to investors to enhance their financial capacity and grow the productive sector;
- usually price their loans lower than the market interest rates;
- reduce certain costs associated with borrowings, such as commitment and loan closing fees;
- constantly seek lower costs of funding from which their customers can benefit;
- work closely with Government to strategically promote opportunities for the economic and social advancement of individuals.
Generally, development banks have over the years complemented the private banking sector. They have facilitated access to credit, created employment, built intellectual capacity and have as well as, assisting with the implementation of government policies, also influenced them.
Development Banks, through their advisory and supportive role have been able to build strong bank-customer relationships and have assisted many disenfranchised individuals in the realization of what seemed a remote possibility.