DEVELOPMENT BANKING SYSTEM

1.0 INTRODUCTION

In this unit you will learn of a development Bank as a financial institution primarily designed to provide medium to long-term credits to the economy. The emphasis is development because it
is used by developing economy to help in key areas where conventional banks have short-coming in fulfilling their traditional functions. They take over development projects and prorammes which is of socio-community based with less emphasis on profitability and more on benefits example
infrastructural needs.

2.0 OBJECTIVES

At the end of this unit, you shall be able to:

1. Define a development Bank 
2. Narrate the Histology of Development Banking in Nigeria 
3. List Nigerian Development Banks 
4.  State reasons for Development Banking at local and global 

3.0 MAIN CONTENT

3.1 Meaning and Definition of a Development Bank

A development Bank is a financial institution primarily designed to provide medium to long-term credits to the economy. Generally, development banks do not operate chequering accounts of commercial banks nor engage in wholesale activities of the merchant banks. The development banks are well - structured to offer financial assistance and advice on projects whose gestation period are characteriscally long-term in nature. Infect, development banks cover the gap between the
short/medium projects and log-term projects.

3.2 Histology of Development Banking at the Global and Domestic Levels

The global financial system experienced deep depression in the 1930s especially in Europe and America. This situation did not improve up to early 1940s. Although some countries had already, commercial and merchant banks as at that time, these baits especially the commercial, could not provide any solution to the fledging world economy The reason was that these banks could only provide credits on short- team basis because of the character of their liabilities. Commercial banks liability are purely for the provision of working capital loans hence, could not have been part of any strategic solution to tackle the world's economic problem as at that time.
The precarious situation compelled the British and Americans and other parts of the world to think of an institution or institutions that could provide long-term funds for the reconstruction of Europe destroyed by the World War II. This type of institution or institutions was or was also needed to bring the world economies together to reduce the possibility of making the mistakes that prompted the depression of 1930s.


The institutions that then emerged after series of discussions and consultations were the International Bank for Reconstruction and Development (a.k.a world bank), the International Development Association, International Finance Association, Multilateral Investment Guaranty Agency etc. The International Monetary Fund was established the same year (1944) as the World Bank.

Nigeria:

The wind of Development banking blew across Nigeria and Indeed post independent African countries mainly in the 1960s. The African Development Bank (ADB) was established in 1963. In Nigeria, the first development bank was established in 1964 being replacement to some other smaller development institutions that existed before the 1960s. This was called the Nigerian Industrial Development Bank (NIDB). In1973, the Nigerian Agricultural and cooperative Bank (NACB) were established. The other development banks are the Federal Mortgage bank, Urban Development bank, etc.
In 2002, Bank of Industry (BOI) was established. The BOI is a Merger of the Nigerian Industrial Development Bank (NIDB), the Nigerian Bank for Commerce and Industry (NBC!) and the National Economic Reconstruction Fund (NERFUND). The BOI was officially launched by the federal government on May 17, 2002 with an initial authorized share capital of N50billion.
The Nigeria Agricultural Cooperative Bank (NACB), Family Economic Advancement Programme (FEN") and peoples' Bank of Nigeria were merged to form the Nigerian Agricultural Cooperative and Rural Development Bank (NACRDB) in October, 2002.

Self assessment exercise

Define a development Bank

3.4 The Nigerian Development Banks

3.4.1 Bank of Industry (801)

The bank of Industry is merger of the Nigerian Industrial Development Bank (NIDB), Nigerian Bank for Commerce and Industry (NBCI) and the National Economic Reconstruction Fund (NERFUND). Bank of Industry was conceived in 2001 and was launched on May17, 2002 with an authorized share capital of N50billion.
The bank was primarily established to provide long-term funds to the small, medium and large scale enterprises in the economy. The Functions of Bank of Industry (See Ajibola, 2005 pp. 100-1)