Development And Specialized Banks

 

In this note, you shall be introduced to the concept of Development and Specialized banks.

You shall be made to understand that apart from the other types of banks discussed in the

previous notes, there could be Development and specialized banks that could be established to

purposely carter for some specific sectors in an economy.

In Nigeria, some of these

development banks include the Nigerian Bank for Commerce and Industry (NBCI), the Nigerian

Agricultural, Co-operative and Rural Development Bank (NACRDB), the Federal Mortgage

Bank of Nigeria (FMBN), and the Nigerian Industrial Development Bank (NIDB). The

Specialized banks include the Federal Savings bank (now FSB International), the Peoples Bank,

and the Community Banks.

2.0. OBJECTIVES

At the end of this note, you should be able to;

· Define a Development Bank

· Enumerate and explain the general functions of Development Bank

· Distinguish between the banking and development functions of a development

bank

· Differentiate between Development Banks and Specialized banks in Nigeria.

3.0. DEVELOPMENT AND SPECIALIZED BANKS

3.1. What is a Development Bank?

Development banks are specialized financial institutions providing medium and long –

term credit for the creation or expansion of agriculture, commercial and industrial enterprises in

developing countries such as Nigeria. They are mostly established by government. The main

objective of development banks is the promotion of economic development in the economy.

The idea of setting up development banks in Nigeria was mooted after the establishment of the

CBN. It became apparent that there was an urgent need for banking institutions capable of

providing medium and long-term finances, to fill the gaps in the economy which the merchant

banks at that time were not well – equipped to service. The gaps were specifically made up of the

priority sectors of the Federal Government such as the development of our agricultural and

industrial sectors. Since these areas involve large expenditures which cannot be met by the

commercial banks, because of the legal constraints and regulations by the CBN coupled with the

rapid development within the economy, the need to establish development banks devoted

primarily to stimulate these priority sectors of the economy and concerned with the promotion

and finance of enterprises by the provision of long-term and intermediate finance was accepted.

The development banks operating in Nigeria includes the Nigeria Bank for Commerce and

Industries (NBCI), the Nigeria Agricultural, Co-operation and Rural Development Bank

(NACRDB), the Federal Mortgage Bank of Nigeria (FMBN), and the Nigerian Industrial

Development Bank (NIDB).

3.2. General Functions of Development Banks

Development Banks are specialized banks which are established for specified purposes in the

economy. Their functions are therefore aimed at developing those sectors which they are

established for. However, they perform two broad functions which include the banking functions

and the development functions.

3.2.1. Banking Functions

i. Development Banks Provide long-term and medium-term finance / loans for

commerce, industry and agriculture as well as general development projects.

ii. Development Banks make funds available in the form of equity to development

projects.

iii. They raise bilateral and multilateral loans from international aid agencies like the

Noteed States Agencies for International Development (USAID), from international

donor agencies like the World Bank and from their own governments.

3.2.2. Development Functions

i. Development banks provide promotional activities such as identifying and properly

articulating investment proposals.

ii. Development Bank facilitates the establishment of institutions and enterprises which

fill specific gaps in the financial system.

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iii. They help to stimulate their nations’ capital markets (Market for long-term loans) by

selling their own stocks and bonds and / or selling and using the proceeds to invest in

new enterprises.

iv. Development Banks provide their clients with technical skill and advice at the

preparatory and implementation stages of projects.

v. They provide managerial assistance to their clients in project preparation and

evaluation.

vi. Development Banks ensure that allocations to projects are in line with the defined

economic, social and political priorities of the government.

vii. Development banks ensure efficient allocation to scarce financial resources in the

development planning projects.

viii. They thus help to quicken the pace of economic development.

3.3. Specialized Banks

Specialized banks are established in Nigeria to carter for the financial needs of some

segments of the society. The banks in this category include the Federal Savings Bank (Now

FSB International), people’s bank of Nigeria (PBN) and Community Banks (CB).

3.3.1 The Federal Savings Bank (FSB International)

The Federal Savings Bank (FSB) evolved from the post office savings banks in 1974, backed

by Decree No. 33 of 1973. The objective of setting up a Federal Saving Bank was to encourage

the savings habit among the low- income group in the society. It was recognized in 1990, as FSB

international Ltd.

3.3.2. Peoples Bank of Nigeria

People’s Bank of Nigeria was established in 1989 to encourage savings and provide

credit facilities for the underprivileged in both urban and rural areas. The Decree that set up the

bank specified its functions as the provision of basic credit requirements normally demanded by

banks’ customers. The bank was thus set up to facilitate access to credit for those at the grass –

roots and thereby increase their self – reliance.

3.3.3. Community Banks

A Community Bank (CB) is defined as a self – sustaining financial institution owned and

managed by a community or group of communities to provide financial services to that country.

Community Banks were established in Nigeria in 1990 to provide banking facilities for rural

dwellers as well as to support micro-enterprises in urban areas.

4.0. CONCLUSION

This note highlights the concept of development banks, and its functions. The note also

discusses specialized banks in Nigeria.

5.0. SUMMARY

In this note, we have learned about,

i. The concept of development banks

ii. Development functions of development banks

iii. Banking functions of development banks, and

iv. The various specialized banks and their purposes in the Nigerian economy

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