Development Bank Functions

Functions

Development banks have certain characteristics which distinguish them from commercial banks and other financial institutions. Development banks have unique importance in the development process of a country. In Fact, they are a catalyst agent for development. Functions of development banks are listed below:

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1. They provide risk capital

2. They grant medium and long term loans or advances.

3. They subscribe to the issue of stock, shares, bonds and debentures of industrial concerns.

4. They underwrite the issue of stocks, shares, bonds and debentures of industrial concern.

5. They guarantee loans raised from within and outside the country.

6. They guarantee deferred payment of loans in connection with the purchase of capital goods

They provide necessary guidance, training and other facilities like project identification, project formulation, project implementation, etc. To new entrepreneurs.

16. They sponsor programmes for the up gradation of managerial skills and professionalism of management

17. They help in the dispersal of industries and development of backward areas.

Development banks have unique importance in the development process of a country. In Fact, they are a catalyst agent for development. We enumerate their role as active energies of growth.

(a) As an Initiator: Development banks play a role of ‘supply-leading’ (in anticipation of future demand) such as in technology transfer, strategic industries, environment issues, etc.

(b) As an Institution-builder: Development banks help in developing new methodologies and systems in raising capital and increasing investments through non-traditional areas such as financing large projects via Build-Operate and Transfer/Lease/Own (BOT, BOL, BOO), bonds, microfinance, etc.

(c) As a Catalyst: Development banks take a lead role in creating new financial packages with involvement of commercial banks and other financial institutions such as loan syndication of large projects, guarantee schemes for start-up industry sectors,

Along with the above, Development Banks act as:

1. Engines of development

Development banks are engines of development. They provide expertise, arranging for feasibility studies and finances, they act as active agents of growth.

2. Spirits of Development Finance

The importance of a development bank lies in spreading the spirit of development finance whereby entrepreneurs learn to invest in real fixed assets.

3. Creation and Promotion of Enterprise

Development banks are the instruments for the creation, promotion and spread of enterprise and initiatives.

4. Promotion of Balanced Regional Development

Development banks are important in that they help in decentralization and diversification by financing small, medium and large entrepreneurs in backward regions of the country. They are thus the promoters of balanced regional development.

5. Increasing Productivity of Investments

They help increase the productivity of investment by brining professionalism in the management and providing consultancy and extension services to the tiny, small and new