How do development banks work?

Although governments provide their paid-in capital, development banks raise funds on national and international capital markets. Moreover, these banks’ loans are typically co-financed by the private sector, which is especially helpful for governments facing budget constraints during and after economic crises.

Why are development banks important?

Development banks help to counteract the pro-cyclical nature of the private financial system, which lends too much in booms and rations credit during crises. The private sector also often fails to provide enough financing for small and innovative companies and infrastructure projects.

What is a Development Bank?

Although the efforts of the majority of development banks are directed toward the industrial sector, some are also concerned with agriculture. Development banks may be publicly or privately owned and operated, although governments frequently make substantial contributions to the capital of private banks.