What is the development bank

Development banks

Development Banks, Development Finance Companies. 1. Characterization: Name for different special institutes for the financing of long-term investment projects with developmental significance (e.g. large industrial projects, infrastructure measures) or national economic policy measures in developing countries. They are of particular importance for developing countries because they lack an efficient capital market and, as a result, capital formation is inadequate due to the low internal mobilization of savings (savings gap).

2. Functions: In addition to pure financing services, they also provide consulting services for the implementation of projects.

3. Refinancing: The development banks are mostly refinanced through state holdings, holdings of other development banks and the issuance of bonds, which can be placed on the capital market on favorable terms due to the good standing of the development banks.

4. Internationally active development banks: The World Bank Group includes the following interconnected organizations: International Bank for Reconstruction and Development (IBRD), International Finance Corporation (IFC), International Development Association (IDA), International Center for Settlement of Investment Disputes (ICSID) and Multilateral Investment Guarantee Agency ( MIGA).

5. National development banks: Development banks have been set up in many developing countries whose activities extend to the entire economy of the country or to specific sectors (e.g. development banks to promote exports, small and medium-sized enterprises or agriculture). They are familiar with the economic situation of their clientele and are better able to assess risks when planning projects. There are also development banks in industrialized countries, such as the Kreditanstalt für Wiederaufbau (KfW), which in the Federal Republic of Germany is responsible for financial cooperation with developing countries, among other things.

6. Important instruments: Granting of low-interest, project-linked loans with longer terms. More recently, non-project-related loans for structural adjustment have also been granted by internationally active development banks.