Development banks are financial institutions which are set up to provide banking services that will help in the development of a particular sector or aspect of the economy. They are normally government owned institutions set up for the sole purpose of enhancing economic development rather than for profit motives. The major reason for the introduction of development banks is to bridge the gap in the provision of long-term finance for individuals. The existing Commercial and Merchant banks specialise in the provision of short term and medium-term finance because of their deposit structure. They could provide the much needed long-term finance. Another reason is the exigency of providing credit facilities to the priority sector of the economy. Other banks are reluctant to give such credit facilities because of the high-risk involved. Instances of such sectors are Agriculture, Commerce, Cooperatives, and small scale industries. This is what Professor G. O. Nwankwo (1980) called the “gap thesis” and “exigency thesis”.
Currently, there are six development banks operating in Nigeria. Each is set up to perform specific developmental role as discussed below.
(a) The Bank of Industry (BI) which is a culmination of the merger Nigerian Industrial Development Bank Limited (NIDB), National Economic Reconstruction Fund (NERFUND) and Nigerian Bank for Commerce and Industry (NBCI)
Bank of Industry (BOI) is owned by the Federal Government of Nigeria. This bank emerged from the government’s rationalisation of some development
Financial Institutions (DFIs) in 2004, namely: the Nigerian Bank for Commerce and Industry (NBCI) and the Nigerian Economic Reconstruction Fund (NERFUND).
The Bank of Industry has four subsidiaries from its merger, viz:
Leasing Company of Nigeria (LECON), NIDB Trustees Limited (NTL)
NIDB Consultancy and Finance Limited (NIDB Consult), and Industrial and Development Insurance Brokers (IDIB)
Types of Projects Financed by BOI
The types of projects financed by BOI include:
Projects in the areas where Nigeria has comparative advantage;
Projects that engage in the efficient conversion of local raw materials into finished products;
Ventures that can produce, with be least cost, of good quality products that could be successfully marketed locally and/or internationally.
Products and Services Deliverable by BOI Medium and long-term loans;
Working capital finance;
Equity financing;
Management of dedicated funds;
Loan guarantees;
Co-financing;
Investments in Corporate Boards;
Business Development Services;
Leasing financing;
Trusteeship;
Stock brokerage;
Foreign exchange dealership;
Insurance brokerage.
The huge SMIEIS funds currently accumulated by the Banks will help BOI fulfill its mandate. It is expected that the bank’s contribution to the economy will grow stronger as the implementation of the economic reforms progresses to widen the scope of needs for economic/business development financing.
(b) The Nigerian Bank for Commerce and Industry (NBCI)
The need to encourage the establishment and ownership of small scale industries and other business ventures by indigenous Nigerian Investors after the
promulgation of the Nigerian Enterprises Promulgation Decree of 1972 (also known as indigenisation Decree) led to the establishment of this bank in 1973.
Its main functions were to assist indigenous business through share underwriting, identification of viable projects, preparation of feasibility studies, offering of managerial and technical advice. It was therefore set up to provide the much needed capital for the implementation of the objectives of the Nigerian enterprises promotion. Thus, Nigerians were given ready sums of capital for the purchase of foreign business as provided for by the act.
(c) Nigerian Agricultural Cooperative and Rural Development Bank (NACRB) formerly Nigerian Agricultural and Cooperative Bank (NACB)
As a step towards encouraging agricultural production, the NACB was established in 1973 mainly to provide the needed finance for agricultural development projects and allied industries including poultry, farming, pig-breeding, fisheries, forestry and timber production, animal husbandry and any other type of Farming, as well as storage, and marketing of such production in Nigeria.
Its principal function is to promote agricultural assistance to interested individuals, Cooperative societies, companies and government agencies throughout Nigeria. It also offers technical assistance including advice and preparation of feasibility studies.
(d) Federal Mortgage Bank of Nigeria (FMBN)
The Nigerian Building Society (NBS) was established in 1957 with the main aim of providing loanable funds to Nigerians who were keen on investing in real estate. The NBS later in 1977, under Decree No. 7 of the Federal Military Government of Nigeria, metamorphosed into what is today known as the Federal Mortgage Bank of Nigeria (FMBN).
The Decree establishing FMBN assigned to it the responsibility of performing the following functions:
(i) The provision of long-term credit facilities to mortgage institutions in Nigerian at such rates and upon such terms as they may be determined by the Federal Government being rates and terms designed to enable the mortgage institutions to grant comparable credit facilities to Nigerian individuals desiring to acquire houses of their own.
(ii) The encouragement and promotion of mortgage institutional development at State and National levels.
(iii) The supervision and control of the activities of mortgage institutions in Nigeria in accordance with the policy directed by the Federal Government.
(iv) The provision of long-term credit facilities directly to Nigerian individuals at such rates and upon such terms as may be determined by the Board in accordance with the policy directed by the Federal Government.
(v) The provision of credit facilities with the approval of the Government, at competitive commercial rates of interest to commercial property developers, estate developers and developers of officers and other specialised types of buildings.
(vi) The Decree also allowed the banks to accept term deposits and savings from mortgage institutions trust funds, the post-office and private individuals as the board may determine and to promote the mobilisation of savings from the public.
(e) Urban Development Bank (UDB)
The Urban Development Bank was established by Decree 51 on 1992 mainly to take care of the problems of inadequate housing, transportation, electricity and water supply that have posed serious concern in most Nigerian Urban areas. The bank’s main function is to provide financial resources to both the public and private sectors of the economy for the development of urban dwellings, mass transportation and public utilities.
(f) Nigerian Export-Import Bank
The sharp decline in the prices of petroleum products in the international market during the late 1970s brought to fore the need to encourage non-oil export so as to ensure that Nigeria does not remain a mono-cultural economy. This and the need for financial import and exports generally led to the establishment of NEXIM in 1991. The bank is charged with the responsibility of helping the nation to attain increased export growth as well as a structured balance and diversification on the product composition and destination of Nigerian products. Its functions include the provision of export credit guarantee and export credit insurance functions, provisions of credit in support of support establishment and management of export funds and other related services.
3.2.1.3 Other Non-Banks Financial Institutions The non-banks financial institutions are as follows: