For more than a decade foreign assistance agencies have been providing financial and technical assistance to industrial development banks and other intermediate credit institutions in developing countries. In recent years increasing amounts of public foreign aid have been channeled through such institutions. The principal reasons are the desire to provide a larger volume of external aid to the private sector of developing countries and to promote the mobilization of private domestic and foreign capital for investment in private enterprise. The purpose of this study is to review the functions and experience of industrial development banks in promoting private industry. Special emphasis will be given to the problems arising out of the transfer of capital to these institutions by public international lending agencies.
The terminology employed in the field of development banks is not standardized and is complicated by the existence of institutions having a variety of functions. United Nations publications have defined a "development bank" as an institution providing mainly long-term loan capital to domestic enterprise and a "development corporation" as one providing long-term equity capital. In a recent publication the International Finance Corporation employs the term "private development finance companies" in discussing private intermediate credit institutions organized mainly to provide loans and equity capital to private industry.1 In this study we shall be concerned with both private and public institutions which provide long-term loans and/or equity capital to private industrial enterprise, and we shall refer to such entities as "industrial development banks" regardless of whether they call themselves "development banks," "development corporations," "industrial finance companies," or otherwise, so long as they meet the conditions indicated. Some industrial development banks undertake nonfinancial assistance to prospective and existing industrial enterprise, such as pre-investment surveys, technical and managerial advice, and underwriting services. It is also recognized that some industrial development banks undertake types of financing other than financial assistance to private industrial enterprise, such as agricultural and housing credits and the financing of publicly owned enterprise. However, we shall not be concerned except incidentally with the financing of nonindustrial or public sector activities.
The classification of industrial development banks on the basis of the____________________