The China Development Bank can make loans to potential industries without even being concerned about receiving any repayment. A loan can almost act as a grant. This China Development Bank has allowed China to develop itself from an impoverished nation incapable of making an acceptable razor blade to an international manufacturing power in less than half of my lifetime. Public Banking has been a major feature of China’s rise to prominence. A National Development Bank is a bank owned by the government on behalf of the people. It lends money for viable projects at all levels of society, from hydroelectric plants to an owner operator with a hydro-steam weed killer to replace poison systems. Here is a good policy example from the English language version website of the Development Bank of China:

“The mission of the State Development Bank of China consists in raising the competitiveness of Chinese economy and citizens’ standards of living. The main spheres of the Bank’s activity are as follows:

- Development of infrastructure;

- Support of basic industrial sectors;

- Support of new, modern economic branches, including the promotion, development and application of new technology and innovation;

- Assistance in a balanced regional development, urbanization of rural areas;

- International cooperation, support of the activity of Chinese companies at foreign markets.

The State Development Bank of China functions in the form of a state joint-stock company fully owned by the state.

The Bank’s activity is directly subordinate to China’s highest state executive body – the State Council.

In 2011 the State Development Bank of China created six rural banks, the main purpose of which consists in supporting agriculture and developing China’s rural areas.” [1]

Here is another National Development Bank from Russia:

“Vnesheconombank of the Russian Federation was established with the aim of raising the competitiveness of Russian economy, its diversification, stimulating its investment activity. The Bank provides investment, external economic, insurance, consulting support for projects in Russia and abroad aimed to develop infrastructure, innovation, special economic zones, to protect the environment, to support the export of Russian goods, labour and services, as well as to support small and medium-sized enterprises.” [1]

And the Brazilian National Development Bank:

“The BNDES is the main financial support instrument in Brazil for investments in all economic sectors. The Bank allocates special resources, preferably in the form of long-term funding and shareholdings, in addition to supporting undertakings that contribute to economical and social development.

The dynamic nature of the modern economic system encourages the BNDES to invest not only in large-scale projects, but also in undertakings by micro, small and medium-sized companies, individuals and public administration agencies. However, owing to the fact that the BNDES does not have agencies, the majority of operations are carried out indirectly through a partnership with a network of accredited financial institutions located nationwide. These agents may be commercial, public or private banks, development agencies or cooperatives. In indirect operations, the Bank reallocates financial resources to accredited agents, which are responsible for credit analysis and approval.” [4]

The role of National Development Banks is particularly important for growth and development of business. National Development Banks are needed to provide affordable long-term financing to areas of the economy that are not adequately serviced by the private bank industry. This includes giving access to credit to medium, small, and very small businesses. National Development Banks played an important role in the Industrial Revolution and generally provide large amounts of financing to growing industries. Regional stock markets can play a similar role. A National Development Bank may also take up share and loan capital and the underwriting of issues of shares. Private banks tend not to provide enough long-term finance to undertake the investments necessary for economic progress.

Private banks tend to lend for profit, whereas a National Public Bank tends to lend for the benefit of the nation. The return to the nation is beyond money. Bridges, roads, ports and sustainable energy add to the efficiency of the nation.

Some comments:

• National, state and regional development banks can play a valuable countercyclical role when the private financial sector cut back on lending.
• National, state and regional development banks play an important role in financing micro, small, and medium enterprises and providing money for investment in infrastructure.
• The private financial system is lending in a pro-cyclical manner. It has lent profusely in boom times. It has cut back on lending during lean times.
• The Public Bank can counter the negative impact of financial crises by increasing the volume of loans to counteract the reduction of lending by private banks.
• Interest has grown in the establishment of national development banks since the 2008 Global Financial Crisis because they are able to supply countercyclical credit when private banks cut back on lending.
• The lending practices of government public banks is less procyclical than their private counterparts. As citizens and business fail to obtain finance from private banks, public banks step in to fill the void. Public banks stabilize credit availability during the fluctuations created by the private financial sector.
• The most important task of a public bank is to enhance industrial development.
• Public banks are needed to ensure that there is adequate long-term finance to undertake the investments necessary for economic development.
• Public banks are an essential component of needed for the development modernisation of nations.

Further Reading

Please read the article by C.P. Chandrasekhar titled: ‘Development Banks: Their role and importance for development.’ [3]

Also read and article titled ‘The International Conference Financing for Development – The positive role of good development banks’ by Professor Stephany Griffith-Jones [2]

  websearch: “the role of national development banks”