capital for industrialization. As has already been mentioned, external public lending agencies have played an important role in assisting and encouraging the creation of such institutions.
PRINCIPAL FUNCTIONS OF INDUSTRIAL DEVELOPMENT BANKS
The motivation for the creation of industrial development banks has arisen from those conditions generally found in less developed countries which inhibit the formation of industrial capital. These conditions in- clude:
1.
The absence of private capital markets for raising equity and long-term loan capital;
2.
The unwillingness of commercial banks oriented toward trade financing to provide even short- and medium-term loans to any but well-established foreign and domestic firms;
3.
The relatively low rate of profits in relation to risk in the field of industrial investments compared with alternative uses of financial capital, such as construction, land speculation, trade, and loans for consumptive purposes;
4.
An unfavorable climate for foreign investment;
5.
Limited markets and high production costs as a consequence of a shortage of skilled labor, technicians, and managerial competence;
6.
The need for pre-investment surveys and adequate assessment of industrial ventures; and
7.
For at least some countries, the inability to obtain foreign exchange for imports of industrial equipment and materials.
This list could be extended, but it would include conditions which are common to all underdeveloped countries and which explain in large measure why they are underdeveloped.
Many of these obstacles to industrialization lie outside the ability of financial institutions to correct or ameliorate. Although there are notable exceptions, industrial development banks generally do not play an entre- preneurial role in initiating industrial projects or in managing new in- dustrial ventures. However, their activities frequently extend to assistance in mobilizing other sources of capital and in providing various forms of technical and advisory services in connection with proposed new indus- trial ventures or the expansion of existing ones. Yet, the role of industrial development banks is essentially a supplementary one in the indus- trialization process in the sense that in the absence of a large number of conditions favorable to the creation of productive private industrial enter- prise, their existence by itself will not create such enterprise.
The majority of industrial development banks are concerned mainly
-7-
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Publication Information: Book Title: Public External Financing of Development Banks in Developing Countries. Contributors: Robert W. Adler - author, Raymond F. Mikesell - author. Publisher: Bureau of Business and Economic Research. Place of Publication: Eugene, OR. Publication Year: 1966. Page Number: 7.
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