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THE ROLE AND FUNCTIONS OF DEVELOPMENT BANKING Introduction Development Banks or Development Finance Institutions (DFI’s) as these are normally called in the financial world are a post Worl d War II phenomen on. 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 i nto two broad categories viz. national DFI’s and r egional DFI’s. Most of the national DFI ’s in the devel opi ng world have been in exist ence for two to thr ee decade s. The y wer e establ ish ed to ser ve as hand mai dens of their gove rnment s in the imple mentat ion 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 s uccessfully. 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 monopolis ti c and exploi tat ive of the maj ori ty by the min ori ty. The se wer e concei ved 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. FRESH ORIENTATION IN OPERATIONS In pursuit of the socialist policies, there was need for a redefinition of guidelines to be followed  by DFI’s in extendi ng credit to their clients . The new guidelin es placed greater emphasi s on encouraging new entrepreneurs, technocrats, educated unemployed, professionals, and small- scale enter prise s and above all upon balance d regional develop ment. All these were aime d at fulfilling socially desirable objectives. This was a beginning of a new phase in the operations of DFI’s, and calle d for fres h ori ent ati on. It entai led relaxati on in a number of aspects li ke sponso rs’ contribu tion, securit y margi n, longer gestat ion period etc. Inadeq uate resources and abs ence of any fall bac k res erves of the new cat egory of sponsors and the ir ins uff ici ent managerial skills were manifest soon. Pursuit of new guidelines exposed DFI ’s to greater risks , resul ting in widespread sickness of the enterpri ses. Star ting at a moder ate level, the probl em assumed great dimensions over a period of time, although it did have a spin off in the form of a new breed of successful entrepreneurs. Regional DFI's Regional DFI's were established as part of the economic cooperation of blocks of neighbouring states in Afri ca. Their main role bei ng to facilitate the process of accel er ati ng regional integration process. These included East African Development Bank (EADB), which was established at the time when the East African Community was one of the strongest unions in the whole of Africa. EADB was set to promote the economic development in the region and to act as a catalyst in

The Role and Functions of Development Banking

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