A macro-framework for successful development banks

Abstract

The large-scale failures of development banks in the 1970s and 1980s meant that they all but disappeared from the development agenda. However, there are still a large number of development banks worldwide that operate with various degrees of success. Some governments are also looking to re-establish such banks to address the shortage of finance for higher-risk market segments. To avoid a repeat of the earlier failures, government policy needs to be informed by an objective framework for the success of these banks. This article, based on economic theory and informed by case studies, outlines such a framework. It addresses the following six dimensions of these banks: enabling environment, mandate, regulation and supervision, governance and management, financial sustainability and performance assessment. Development banking remains a risky initiative but, managed appropriately, and using this framework, it can help achieve development objectives.

National Development Banks in Europe – A Contribution to Sustainable Finance

“…The research approach attempts to understand the environment applicable to European NDBs in terms of their objectives, activities, investments, products, and services with a special view to their involvement in sustainable finance. Partially based on the macro-framework5 for the successful functioning of development banks (Thorne and Toit, 2009) the paper evaluates the strategic goals and key functions of NDBs in order to learn whether there is a need for further initiatives to better harmonisation with the European strategic sustainable objectives and the EU taxonomy regulations.…”

“…Development banks -which are practically present in all countries -have been an important instrument of governments to promote economic growth by providing credit and a wide range of advisory and capacity building programmes to households, small and medium enterprises, and even large private corporations, whose financial needs are not sufficiently served by private commercial banks or local capital markets. Development banks have successfully adhered to their mandates in a financially sustainable way (Thorne and Toit, 2009). During the crises, development banks appear to be more resilient when the economy slows down (Frigerio and Vandone, 2018) and most have assumed a counter-cyclical role by scaling up their lending operations precisely when private banks experienced temporary difficulties in granting credit to the private sector (De Luna-Martínez and Vicente, 2012;Farkas, 2018).…”

Industrial Policy for Growth and Diversification: A Conceptual Framework

“…If the credit is provided at interest rates below what a commercial bank would normally change, then this support is akin to a subsidy which has a fiscal cost. The large-scale failures of development banks in the 1970s and 1980s meant that many were privatized or closed (Thorne and du Toit 2009). But a large number continue to operate in a wide range of economic sectors, including agriculture, infrastructure, international trade, housing, tourism, and energy, and new ones continue to be established in developing and advanced economies alike (Griffith-Jones and Ocampo 2019).…”

The Lending Behavior of Investment and Development Banks in Turkiye: Evidence from Quantile Regression Approach

“…This also refers to a fundamental difference between conventional banking and investment & development banking. Thorne and du Toit (2009) analyze a macro-framework of successful development banks and argue that development banking is still a risky line of business. Therefore, this kind of banking mechanism should be managed properly and it should follow an objective framework to accomplish the goals in the financial sector.…”