International Financial Management - Unit-12 - Regional Development Bank

Regional Development Bank
Unit 12
Regional Development Banks
Table of contents
12.1 Introduction
Learning Objectives
12.2 Regional Development Banks
12.1.1 Objectives
Self Assessment Questions
12.3 Asian Development Bank
12.3.1 Aim
12.3.2 Focus areas
12.3.3 Financing
12.4 African development bank
12.4.1 Characteristics of AfDB
12.4.2 Goals
12.4.3 Business Constraints
12.5 Council of European development bank
12.5.1 Goals
12.5.2 Member States
12.5.3 Services Offered
12.6 Inter-American development bank
12.6.1 Focus areas
12.6.2 Financial overview
12.7 Summary
12.8 Glossary
12.9 Case Study
12.10 Terminal Questions
12.11 Answer Keys
A. Self Assessments Questions
B. Terminal Questions
12.12 Suggested Books and e-References
Conceptual Map
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Regional Development Bank Unit12
12.1. INTRODUCTION
Regional development banks or multilateral developmental banks are the financial

institutions which are incorporated by various international governments with some
specified objective that they take on for their member countries or states. The primary
objective of the RDB’s is to make available finances to the developing countries for the
social welfare, infrastructure and developments projects.
The MDB’s raise their maximum resources for

STUDY NOTE: lending by issuing of bonds in capital market while
the shareholding capital is issued to the member
The first best known regional governments. In this chapter you will learn-
development bank is the World
 What are the Regional development banks
Bank which was created in
 Their origin, aims and objectives
1944.
 Their financial overview and the focus areas
Different banks have their different views and objectives for which they work. Here you
will learn about the four main regional development banks i.e. African Development Bank,
Asian Development Bank, Council of European Development Bank and Inter-American
Development Bank.
These banks generally focus on reducing poverty and developing the nations by providing
them non-profitable loans. They look after the children’s education and try to make
countries more socially and economically developed.
These banks started with the motive that the industrialization pace should be increased.
The traditional banks have their own limitations due to which they were not able to take
the challenges. These banks were assigned for promotional work too along with the
financing. Development banks not only provide long-term and short-term loans but also
help industries in many other ways too.
In the previous chapter you have learned about from GATT to WTO their general
agreement on tariff and trade (GATT), consensus on international trade practices, journey
of GATT and WTO.
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LEARNING OBJECTIVES
After studying this chapter, you will be able to:
 Explain about Regional Development Banks

 Explain about Asian Development Bank
 Explain about African Development Bank
 Explain about Council of European Development Bank
 Explain about Inter-American Development Bank
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12.2 REGIONAL DEVELOPMENT BANKS
The financial institutions that are established to provide the investment capital for the
countries which have low or middle income are known as the regional development bank
(RDB). These banks provides assistance by giving finance to the new businesses and
provide them loans at low interest as well as technical assistance for developing the new
businesses.
Currently there are about 20 MDB’s, of which following

STUDY NOTE:
four institutions are the major ones:
Being highly rated by the rating
1. Asian Development Bank (ADB).
agencies, RDB can issue bonds at
a very low cost. This enables them 2. African Development Bank (AfDB).
to lend the members at a very low 3. Council for European Development Bank (CEB).
rate of interest with long 4. Inter-American Development Bank (IDB).
maturities.
The unavailability of funds can weaken the business so
the investment capital plays a very crucial role for any successful business. Regional
Development Banks provides financial and technical help to the businesses without
searching to maximize profits for shareholders. The main aim of RDB is the development of
businesses that is why these Regional Development Banks loans at very little or no interest
in order to help the developing businesses. These banks also offers the loans for the
developmental projects like education, agriculture, health and others as these projects are
the major economical development sectors. The RDB’s are ranked in accordance to their
tangible and non tangible assets or the valuable possessions they own. There are mainly
two types of MDBs
 MDBs which are formed by the famous institutions

 MDBs which are formed by the governments of the low-income countries.
12.2.1 OBJECTIVES OF REGIONAL DEVELOPMENT BANKS
The main objectives of these banks are:
 The development of backward areas by promoting the industrial growth

 To create more employment opportunities
 To generate maximum exports and provide encouragement for import substitution
 To encourage the improvement and modernization in the technology
 To revive the sick people
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 To provide training so that the management of large industries can improve

 To provide more projects for self employment
 To improve the capital market
 They provide the risk capital in order to encourage science and technology in new
areas
 There motive is to remove the regional imbalance or regional disparities.
SELF ASSESSMENT QUESTIONS
1. Regional Development Banks provide loans to countries which have ……

a. low or middle income
b. good income
c. developed infrastructure
d. none of the above
2. What is the full form of AFDB

a. Asian Development Bank
b. American Development Bank
c. African Development Bank
d. European Development Bank
3. What are the objectives of Regional Development Bank

a. To create more employment opportunities
b. To encourage the improvement and modernization in the technology
c. Both a and b
d. None of the above
ACTIVITY:
Regional development banks are developed by various governments of different

countries for the purpose of providing financial and other assistance to the people
of those countries. You are required to list down some challenges that RDB may
face while operating in different countries.
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12.3 ASIAN DEVELOPMENT BANK
The Asian Development Bank, formed on 19 December 1966, is a regional development

bank which has its headquarter in Ortigas Center which is located in the city of
Mandaluyong, Metro Manila, Philippines. The accepted members of the bank are non
regional developed countries and the members of United Nation Economic and Social
Commission for Asia and the Pacific (UNESCAP). With the establishment of 31 members of
ADB now the member count is increased to 68.
STUDY NOTE: The voting system of the ADB is closely similar to the
The ADB maintain 31 field system of World Bank. Here the distribution of the
offices around the world, in votes is directly in the proportion of capital
order to maintain the subscription of the members. The budget and other
economical and social material are released annually in the form of
development in Asia. In India, summarized report so that the public can review it.
the office is situated at New
Delhi There is a program called ADB-Japan Scholarship
Program (ABD-JSP), according to which 300 students
are enrolled per year in different institutions which are situated across 10 countries with in
their region. According to this program after the completion of the study program the
students have to contribute for the social and economical development of their own
countries. The ADB is considered to be the official United Nation Observer.
12.3.1 AIM OF ASIAN DEVELOPMENT BANK
The ADB is a social development organization that aims to reduce poverty across Asia and
Pacific, including regional integration, economic growth and environmentally sustainable
growth. This is accomplished by investment and other services:
 It can be in the form of grants and information sharing

 It can be in the form of loans
 It can be financial and public administration system
 It can be in the form of infrastructure
 It can be about the impact of climate change and helping the nation to prepare for it
 Manage their natural resources
12.3.2 FOCUS AREAS
The five main operational sectors in which ADB lends its eight percent of the lending of
public sector are:
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 Private sector lending- Regan Administration introduced private sector lending

and insisted to make this as the priority in ADB’s activities. But this actually became
the priority when Tadeo Chino became the president and bought an American
banker Robert Bestani. After that the Private Sector Operation Department (PSOD)
became the largest sector in terms of finance from the smallest sector of Asian
Development Bank.
 Education- In last three decades there is a drastic change in the enrolment rate of
the primary education in the most developing countries in Pacific and Asia, but the
intimidate challenges kept on threatening social and economical growth.
 Regional cooperation and integration- The president Kuroda joined the Asian
development bank in 2004 and introduced the Regional cooperation and integration
(RCI) program. In order to make the national economies more regionally connected
this process became the permanent preference of the Japanese government. This
plays a vital role in speeding up the economical growth, increasing productivity and
employment, reducing economic disparity and poverty and giving strength to the
institution.
 Finance sector development- In the country’s economy the financial system is the
main lifeline as it gives the benefits to the poor and most vulnerable peoples and
provides growth that can be mutually shared throughout the society. In order to
decrease the poverty in Asia and Pacific capital market development and financial
sector play a vital role. It also includes small and medium sized enterprises,
regulatory reforms and microfinance.
 Environment, disaster management and climate change- For poverty reduction

and economic growth in Pacific and Asia, the environmental sustainability is the
basic.
12.3.3 FINANCING
The Asian Development Bank provides both types of loans, hard loans and soft loans. Hard
loan is offered mainly on the commercial terms to the middle income countries of Asia
whereas, the soft loan is provided to the countries which are poorer of the region at the
lower interest rates. The private sector department of ABD offers the loans which are
beyond the commercial loans and offers a broader range of financing as they have the
capability to give equity, guarantee and a combination of debt and equity.
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The Asian Development Bank obtains its funding on world’s capitalist market, by issuing
bonds. It also depends on the retained earnings from lending operations, repayment of
loans and the contribution of the member countries. The five largest borrowing countries
are China, India, Pakistan, Indonesia and Bangladesh.
Source- en.wikipedia.org/wiki/Asian_Development_Bank
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4. When was the Asian development bank established?
a. 25 December 1956
b. 19 December 1966
c. 19 October 1966
d. 17 November 1968
5. The aim of Asian Development Bank is to ………
a. reduce poverty
b. regional integration
c. economic growth
d. All of the above
6. Which type of loan is offered mainly on the commercial terms to the middle
income countries of Asia?
a. Soft loan
b. Hard loan
c. Both a and b
12.4 AFRICAN DEVELOPMENT BANK
The African Development Bank (AFDB) is a financial institution that promotes economic
and social progress in Africa. The AFDB is
STUDY NOTE: dedicated to economic and social
development of its African member
The AFDB Group comprise of following countries. The AfDB comprise of 54 African
three entities- and 26 non-African countries.
1. The African Development Bank –
Created on August 14, 1963 in The AFDB provides resources to its
Khartoum, Sudan borrowers through two main lending
2. The African Development Fund – “windows”
Created on November 29, 1972
1. The non-concessional African
3. The Nigeria Trust Fund – Created in
Development Bank which lends at
1976
market based rates
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2. The concessional African Development Bank which lends at minimal or zero interest
to poorest countries.
Following are the main features of concessional and non-concessional window of African
Development Bank:
Non-Concessional Concessional
It raises resources by issuing bonds in It charges zero interest rate or offers
international capital market. outright grants to its member countries.
The lending activity is self-financing from The lending here is financed through
its shareholding capital contributions. contributions by donor shareholder
The size of lending is limited as a function countries rather than debt.
of its equity capital.
12.4.1 CHARACTERISTICS OF AFDB
The unique set of characteristics of the AfDB that differs it from other development
institutions operating in Africa are –
1. It can channelize considerable resources at very low ROI and with long maturities,
which help them in long term development challenges.
2. It has a huge equity capital base which helps it in financing non-concessional
development lending without even need for shareholders contributions.
3. Being a multilateral development bank, this strengthens its legitimacy in terms of
effective development in the African countries which are less politicised as in the
case of bilateral development projects.
4. Unlike other development banks, the AFDB is truly African in character, being 60
percent owned by African countries and is dedicated solely to the development of
the continent.
12.4.2 GOALS OF AFRICAN DEVELOPMENT BANK
Following are the goals of this Regional Development Bank as mentioned below:
 To end poverty
 To promote agriculture and improve nutrition and food security
 To promote healthy life for all
 To promote quality education and lifelong learning opportunities
 To promote gender equality
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 To sustainable water management and sanitation for all

 To provide access to modern energy to all
 To promote inclusive economic growth with productive employment and decent
work for all
 To promote infrastructure with sustainable infrastructure and adoptive innovation
 To reduce inequality among countries
 To make cities safe, resilient and sustainable
 To promote sustainable consumption and production pattern
 To combat climate change and its impact
 To propagate sustainable use of marine natural resources
 To protect terrestrial ecosystem, manage forest, combat desertification, reserve land
degradation and halt biodiversity loss
 To provide access to justice for all and build effective institutions at all levels
 To strengthen the global partnerships for sustainable development
12.4.3 BUSINESS CONSTRAINTS
No matter what strengths does the AfDB possess, there are various hurdles on the road to
offers loans and other development services that restrict the borrower country demand.
Few of the constraints in the working of AfDB are explained below:
 Financial Alternatives –The underdevelopment of the various African countries

limit the AFDB’s ability to offer development projects. For instance, out of the 30
countries in the world that are experiencing social violence, 14 are in Africa. A chart
showing the GDP per capita among the various MDB borrowing countries, clearly
show the underdevelopment state in Africa. Apart from this, external financing has
been increasing in many African countries through Chinese and Indian bilateral
lenders becoming active in Africa. Apart from Foreign Direct Investment which rose
from 12 billion USD in 2002 to 60 billion USD in 2012, the African government has
now access to international capital markets. In 2013, the Sub-Saharan government
also issued bonds worth USD 4.6 billion which is considered as the highest level
ever. All these new channels of financing have created pressure on the AFDB.
 The size and the pricing policy–On the pricing front, the AfDB offers the most
attractive rate of interest than most of the other financial institutions. The maturity
term and the interest rate offered by the AfDB are at par with the other MDB’s, and
are much better than the majority of the other financial institutions of African
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countries. The bilateral (having direct agreement with any of the government in the
world such as India or China) also offers the rates that are well above the AfDB but
better than the financial institutions, however, they impose restrictions on the usage
of the funds. The sizes of the finance on the other hand, impose limitations on the
business of AfDB. The scales of demand of the African countries in infrastructure
projects are higher than the resources available with the AfDB to offer. This pushes
the African countries to resort to other financial institution that offers higher
interest rates.
GDP per Capital (USD) vs MDB Borrowing

Countries
12000
10000
8000
6000
4000
2000
0
World Bank IADB AfDB AsDB EBRD
Group
Source- www.oecd.org/derec/sweden/The-African-Development-Bank.pdf

7. AfDB is promoted for what kind of development in African countries?
a. Social & economic welfare

b. Industrial Development
c. Infrastructure Development
8. Following are the goals of AfDB-
a. To end poverty
b. To make cities safe, resilient and sustainable
c. Both of the above
9. The African countries are having access to external finances through-
a. Bilateral lenders like China and India

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c. Bonds issue in International Capital Market
d. All of the above
12.5 COUNCIL OF EUROPEAN DEVELOPMENT BANK

STUDY NOTE:
The Council of European Development Bank (CEB) is
Earlier CEB was names
another regional development bank with primary aim
“Council of Europe
Resettlement Fund for National of social mandate. It is the oldest multilateral
Refugees and Over-Population development institution in Europe, founded in 1956
in Europe” which was since by the 8 member states of the Council of Europe in
changed in 1999 to the one order to being solutions to the problems of refugees.
which is being used now. The CEB invest in social projects to its 42 member
states. The potential borrows include governments,
local or regional authorities and financial institutions.
12.5.1 GOALS OF CBE

The CEB primarily focuses on the following four lines of action-
1. Strengthening of social integration
 Promoting plans in favour of refugees and displaced persons
 Promoting social housing and job creation
 Up gradation of living conditions in urban and rural areas
2. Environment preservation
 Planning and responding in the event of natural or ecological disorders
 Promoting environment preservation
 Promoting preservation of historic and cultural heritage
3. Public infrastructure with social vocation
 Providing support to the key infrastructure projects like health, education,
administration and judicial public services
4. Supporting micro, small and medium enterprises
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12.5.2 MEMBER STATES

The member of the CEB can be; the member state of the Council of Europe, or upon the
Bank’s authorisation other European State which is not a member of the Council of Europe,
although no institution has been member of the Bank. Currently there are 44 members of
the Council with their capital allocation as on 31st December 2019, are set forth in the chart:
Source- sec.report/Document/0001193125-20-100085/d862814dex3.htm
12.5.3 SERVICES OFFERED BY CBE
The CEB can provide the following set of services to its member states –
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1. Loans to co-finance projects –The CEB is having a very good rating from the
international rating agencies due to which it can raise funds at a very competitive
rates in the international capital market. Being a non-profit making organisation, a
very limited margin is applied to its loans and also no fee for processing is charged.
This helps its borrowers to carry on the social development projects at a reduced
cost. CEB offers tailor made loan structures to its clients with great deal of flexibility.
2. Technical assistance to help develop the project – The workforce in the CEB
possesses skills that are beyond the traditional banking knowledge. It assists their
clients with project management skills, civil engineering, education and health
expertise. These expert services ensure that both the project structure and finance
are applied in an inclusive manner.
3. Grants through its trust funds – The CEB provide finance either through the
external donor funds which are held for disposal or its own resources raised
through internal instruments. It can also provide grants through one of its trust
funds which can help develop the projects and make them bankable.
10. Founded in 1956, the Council of European Development Bank, was formed to solve
the problems of –
a. Governments
b. Education
c. Refugees
d. Development
11. As on 31st December 2019, how many states were member to CEB?
a. 54
b. 44
c. 45
d. 49
12. Which of the following services does the CEB can provide to its member states?
a. Loans at high rate of interest

b. Providing grants through its trust funds
c. Both of the above
d. Note of the above
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12.6 INTER- AMERICAN DEVELOPMENT BANK
The Inter American development bank (IDB),

STUDY NOTE:
established in 1959, is the largest source for
IDB is owned by 48 sovereign providing developmental finance to the Latin America
states which are its and Caribbean. These banks provide finance to the
shareholder and member government, government agencies and even state
states. cooperation of Latin America and Caribbean, so that
they can develop economically, socially and
regionally. There are four official languages that are used in IDB bank which are French,
Spanish, Portuguese and English.
12.6.1 FOCUS AREAS
The institutional strategy of the bank for the year (2010-2020) was updated in March
2015. According to this strategy they wanted to transform Latin America and Caribbean
into a prosperous and more inclusive society. For this they had to address the three main
challenges of development: First, low productivity, secondly limited economical integration
and lastly, inequality and social exclusion. The above three challenges are inter related to
each other and in order to achieve them there are some other underlying issues related to
public policies which are needed to be addressed. These are climate change and
environmental sustainability, gender equality and diversity and the rule of law and
institution.
The initiatives taken by the bank for their institutional strategy are:
Educational initiative: The vision of IDB’s is to ensure that the children’s and the
adolescents utilize their right to quality education, accomplish their future goals and
reverse the poverty cycle. The IDB works in the collaboration with Latin America and
Caribbean’s 26 borrowing countries.
The mission of the IDB’s education initiative is to focus in three main areas that are
 Early Childhood Development

 School to Work Transition
 Teacher Quality
Poverty Reduction: Due to heavy responsibilities of maintaining building infrastructures,

meeting the obligations of payroll and debts, the developing countries government is not
equipped to reduce poverty. The tax revenues of these countries are very weak or even
non–existing. Business investments in global market have a large effect on poverty
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reduction as more investment creates more job opportunities for the individuals in order
to increase their economic empowerment. To develop international companies the funding
is needed but the problem arises when the investment bank are unable to invest due to
their administrative difficulties.
The existence of small businesses are largely responsible for the lives of local families, as
there are inherit businesses of the people from which they raise the social economic status
of their families. These businesses help them to fight poverty and as they are the head of
family they have to look after their household requirements and the education expenses of
their children’s, so by running their business they are in the better position to fulfil their
family needs. Hence, in order to fulfil the needs of these local businesses, the empowering
institution like World Bank, IFC, IADB and others are bound under certain regulations that
work in developed nations which becomes obstacles to progress in the nations which are
developing.
Water And Sanitation: The objective of IDB makes sure that everyone get sustainable
access to high quality water, solid waste management and water sanitation services in
order to make sure that there is economic sustainable growth of the countries in Latin
America and the Caribbean which are members of the bank and also makes sure that
citizen of the countries get a better quality of life.
The bank is also focusing on the concept of water security by protecting supply watersheds,
reducing flooding risks and increasing wastewater treatment coverage. It is also expanding
the quality services for the people who have low income or are vulnerable and promoting
sustainable and comprehensive solutions. It is also improving the financial sustainability
and governance sector.
Infrastructure: The objective of IDB is to promote the sustainable development through

investment and knowledge that promotes involvement, productivity and flexibility of the
cities in Latin America and Caribbean. The satisfactory administration of infrastructure
encourages the competitiveness and economic growth. It is very important to be a part of
modern society to live a quality life, so IDB is trying to make improvements in
infrastructures.
The priority areas of action that identify infrastructure strategies are:
 Supporting the development of infrastructure for global and regional integration.

 Promoting the access to infrastructure services.
 Promoting and adopting a multi sector agenda.
 Financing mechanisms and leverages the participation of private sector in
infrastructure for fosters.
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 Promoting the improvements that are going on in the infrastructure governance.

 Supporting the maintenance and construction of socially and environmentally
sustainable infrastructure.
Environment and Natural Disaster: The objective of IDB is to fully incorporate natural
disaster risk, natural capital and climate change management into economic sustainable
development planning in Latin America and Caribbean. They provide the innovative
solutions to overcome the impact of climate change. They provide knowledge about the
natural disasters risks and aware them about the tools which they can use while
emergency. They make sure the quality of life by valuing the ecosystem services and
biodiversity of the region.
12.6.2 FINANCIAL OVERVIEW
The IDB is the world’s oldest regional development bank which is the main source of
multilateral finance for social, institutional and economic development in Latin America
and Caribbean. The IDB provides technical assistance, loans, and grants and conducts
extensive researches. In order to achieve the highest standards of transparency, integrity
and accountability and achieve measurable results it strongly maintains its commitment.
The strong financial standing of the bank is based on the solid capital base, the support for
its financial policies and practices that is received from its members. The support of the
members can be seen in the capital backing received and the attentiveness with which the
members who are borrowing meet their debt-service commitments. The banks builds its
retained earnings and limits a variety of risks including market, liquidity risks and credit by
prudent financial policies and practices.
The debt securities are issued to the worldwide investors by the bank in variety of
currencies, structures, maturities and formats. The bank’s equity along with these
borrowings is used to fund general operations as well as lending and funding activities.
After swapping the assets and liabilities they are held commodiously in US dollars. The
bank reduces its risk by changing all its equity in US dollars. It matches the currencies of its
liabilities with those of assets and maintains it virtually.
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13. One of the major challenge in Latin America and Caribbean to promote
development is-
a. Inequality and social exclusion

b. Illiteracy
c. Political scenario
d. All of the above
14. The institutional strategy of IDB includes-
a. Reducing Poverty
b. Infrastructure
c. Environment and natural disaster management
d. All of the above
15. Inter-American Development Bank was incorporated in which year?
a. 1955
b. 1949
c. 1959
d. 1945
16. In which currency does the IDB held its assets and liabilities?
a. Euro
b. Sterling Pound
c. USD
d. Yen
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12.6. SUMMARY
 The financial institutions that are established to provide the investment capital for
the countries which have low or middle income are known as the regional
development bank (RDB).
 Regional Development Banks were assigned for promotional work along with the
financing. Development banks not only provide long-term and short-term loans but
also help industries in many other ways too.
 Currently there are about 20 MDB’s, of which following four institutions are the
major ones: Asian Development Bank (ADB), African Development Bank (AfDB),
Council for European Development Bank (CEB), Inter-American Development Bank
(IDB).
 The Asian Development Bank, established on 19 December 1966. The ADB is a social
development organization that aims to reduce poverty across Asia and Pacific,
including regional integration, economic growth and environmentally sustainable
growth. This is accomplished by investment and other services.
 The five main operational sectors in which ADB lends its eight percent of the lending
of public sector are Private sector lending, Education, Regional cooperation and
integration, Finance sector development and Environment, disaster management
and climate change.
 The African Development Bank (AfDB) is a financial institution that promotes
economic and social progress in Africa. The AfDB is dedicated to economic and
social development of its African member countries. The AfDB comprise of 54
African and 26 non-African countries. The AFDB provides resources to its
borrowers through two main lending “windows”-The non-concessional and the
concessional.
 No matter what strengths does the AfDB possess, there are various hurdles on the
road to offers loans and other development services that restrict the borrower
country demand. Few of the constraints in the working of AfDB are Financial
Alternatives and the size and pricing policy.
 The Council of Europe Development Bank (CEB) is another regional development
bank with primary aim of social mandate. It is the oldest multilateral development
institution in Europe, founded in 1956 by the 8 member states of the Council of
Europe in order to being solutions to the problems of refugees.
 The member of the CEB can be; the member state of the Council of Europe or upon
the Bank’s authorisation other European State which is not a member of the Council
of Europe, although no institution has been member of the Bank. Currently there are
44 members of the Council.
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 The Inter American development bank (IDB), established in 1959, is the largest
source for providing developmental finance to the Latin America and Caribbean.
These banks provide finance to the government, government agencies and even
state cooperation of Latin America and Caribbean, so that they can develop
economically, socially and regionally.
 The initiatives taken by the bank for their institutional strategy are Educational
initiative, poverty reduction, water sanitization, infrastructure and environment and
natural disaster.
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12.7. GLOSSARY
 Asset- Anything that is owned by the business/bank that has value is determined as
an asset. It can be tangible or intangible.
 Bonds- It refers to an instrument of indebtedness acknowledged by the issued to

the holder. These can be issued by any financial institution, government, or a
company. These can be in the form of paper or an e-form.
 Capital- It refers long term worth or the overall wealth of a business as

demonstrated in its accounts. It comprise of net assets which can be tangible or in-
tangible, investments and cash account.
 Capital Market- It refers to a market where trading of financial instruments is done

between the buyers (usually the investors) and sellers (usually the financial
institution). It helps to channelize the surplus funds of the buyers being routed to
the seller for some productive purpose.
 Equity financing- It is an act of making an investment in any business in exchange

of a piece of share in profits of the entity,
 Finance- It is the process of channelizing money from the people having surplus
(called the investors) to the entities that need it. The entities use the money for
productive purpose and pay the investors interest/dividend in return.
 Interest rate- It refers to the sum percentage of money charged in proportion of

loan from the borrower. Usually it is expressed in terms of annual percentage.
 Investment- It is to allocate money in the expectation of some return or income in

the future. The money can be so allocated in any capital market, private institution,
equity capital etc.
 Liability- It refers to the legal obligation of any business entity to repay or settle
any debt. Any loan repayable, expense payable, amount payable to creditors are all
considered as liabilities.
 Loan- It refers to lending of money whether with or without security, having certain
terms of repayment in respect of rate of interest and repayment schedule.
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12.8 CASE STUDY
ABC Development Bank is one of the leading development bank in the world which was
incorporated with the primary objective of infrastructure development and improvement
in the basic amenities for the citizens of the member country. Apart from the
conventional set of services which the banks offers to its customers, ABC Development
Bank offers to its clients bundled services which is like one stop shop to its clients. They
manage meetings with the clients and provide then the consultancy about the various
registration requirements in the country along with the NOC to be taken. The bank’s
expert panel further suggest the client with the best technical know-how help them find
the best vendors weather by accepting direct quote or by offering tenders.
The best which the any bank knows to do is providing financial services. The services
which the ABC Bank is offering require highly skilled technical and managerial staff to
assist the member countries in the best possible manner. As mentioned above, to achieve
the primary objective of the bank, loans are provided at a very low rate of interest
without even charging for extra services provided by the bank. The income to expense
ratio is getting decreased year on year. The bank is losing its colour and so does the rating
in the capital market. Further the banking hierarchical structure was making it quite
difficult for an under developed country to make an approach for any financial assistance.
Thus in principal, the more developed nations were taking the benefits of the bank
policies in the place of developing nations. The future sustainability of the ABC Bank
seems to be bleak.
QUESTIONS:
1. The country is considered to be developed when its basic amenities reaches to each
section of the society. In the light of basic objectives of regional development bank,
discuss what should be the primary focuses of a development bank for the
integrated development of the member countries.
2. Bureaucracy in loan approval is one of the major constraints in a banking system.
Mention in brief any two other banking constraints that may restrict the growth of
a bank.
Page | 23
12.9. TERMINAL QUESTIONS
SHORT ANSWER QUESTIONS
1. What are the main objectives of Regional Development Banks?

2. What are Regional Development Banks? Give the name of 4 major development
banks?
3. What are the aims of Asian Development Bank?
4. What are two main lending windows through with African Development Bank
provide resources to its borrower?
5. What are the major goals of Council of European Development Bank?
6. What are the priority areas of action for infrastructure facilities of IDB?
LONG ANSWER QUESTIONS
1. Write a short note on Asian Development Bank. What are the main operational
sectors in which Asian Development Bank lends?
2. What are the goals of African Development Bank?
3. Write a brief note on focus areas of Inter-American Development Bank.
4. Write short note on financial overview of Inter-American Development Bank.
12.10 ANSWERS
SELF-ASSESSMENT QUESTIONS
1. a. low or middle income
2. c. African Development Bank
3. c. Both a and b
4. b. 19 December 1966
5. d. All of the above
6. b. Hard loan
7. a. Social & economic welfare
8. c. Both of the above
10. c. Refugees
11. b. 44
12. b. Providing grants through its trust funds
13. a. Inequality and social exclusion
15. c. 1959
16. c. USD
Page | 24
TERMINAL QUESTIONS
SHORT ANSWER QUESTIONS
Answer 1:
The main objectives of these banks are:
 The development of backward areas by promoting the industrial growth

 To create more employment opportunities
 To generate maximum exports and provide encouragement for import substitution
 To encourage the improvement and modernization in the technology
 To revive the sick people
 To provide training so that the management of large industries can improve
 To provide more projects for self employment
 To improve the capital market
Answer 2:
The financial institutions that are established to provide the investment capital for the
countries which have low or middle income are known as the regional development bank
(RDB). These banks provides assistance by giving finance to the new businesses and
provide them loans at low interest as well as technical assistance for developing the new
businesses.
Currently there are about 20 MDB’s, of which following four institutions are the major
ones:
1. Asian Development Bank (ADB).

2. African Development Bank (AfDB).
3. Council for European Development Bank (CEB).
4. Inter-American Development Bank (IDB).
Answer 3:
The ADB is a social development organization that aims to reduce poverty across Asia and
Pacific, including regional integration, economic growth and environmentally sustainable
growth. This is accomplished by investment and other services:
 It can be in the form of grants and information sharing

 It can be in the form of loans
 It can be financial and public administration system
 It can be in the form of infrastructure
Page | 25
 It can be about the impact of climate change and helping the nation to prepare for it
 Manage their natural resources
Answer 4:
The AFDB provides resources to its borrowers through two main lending “windows”
1. The non-concessional African Development Bank which lends at market based rates
2. The concessional African Development Bank which lends at minimal or zero interest
to poorest countries.
Answer 5:
The Council of European Development Bank primarily focuses on the following four lines of
action-
1. Strengthening of social integration
 Promoting plans in favour of refugees and displaced persons
 Promoting social housing and job creation
 Up gradation of living conditions in urban and rural areas
2. Environment preservation
 Planning and responding in the event of natural or ecological disorders
 Promoting environment preservation
 Promoting preservation of historic and cultural heritage
3. Public infrastructure with social vocation
 Providing support to the key infrastructure projects like health, education,
administration and judicial public services
 Supporting micro, small and medium enterprises
Answer 6:
The objective of IDB is to promote the sustainable development through investment and
knowledge that promotes involvement, productivity and flexibility of the cities in Latin
America and Caribbean. It is very important to be a part of modern society to live a quality
life, so IDB is trying to make improvements in infrastructures. The priority areas of action
that identify infrastructure strategies are:
 Supporting the development of infrastructure for global and regional integration.

 Promoting the access to infrastructure services.
 Promoting and adopting a multi sector agenda.
 Financing mechanisms and leverages the participation of private sector in
infrastructure for fosters.
 Promoting the improvements that are going on in the infrastructure governance.
 Supporting the maintenance and construction of socially and environmentally
sustainable infrastructure.
Page | 26
LONG ANSWER QUESTIONS
Answer 1:
The Asian Development Bank, established on 19 December 1966, is a regional development
bank which has its headquarter in Ortigas Center which is located in the city of
Mandaluyong, Metro Manila, Philippines. The accepted members of the bank are non
regional developed countries and the members of United Nation Economic and Social
Commission for Asia and the Pacific (UNESCAP).
The voting system of the ADB is closely similar to the system of World Bank. Here the
distribution of the votes is directly in the proportion of capital subscription of the
members. The budget and other material are released annually in the form of summarized
report so that the public can review it.
The five main operational sectors in which ADB lends its eight percent of the lending of
public sector are:
 Private sector lending- The Private Sector Operation Department (PSOD) became
the largest sector in terms of finance from the smallest sector of Asian Development
Bank.
 Education- In last three decades there is a drastic change in the enrolment rate of
the primary education in the most developing countries in Pacific and Asia, but the
intimidate challenges kept on threatening social and economical growth.
 Regional cooperation and integration- The president Kuroda joined the Asian
development bank in 2004 and introduced the Regional cooperation and integration
(RCI) program. In order to make the national economies more regionally connected
this process became the permanent preference of the Japanese government.
 Finance sector development- In order to decrease the poverty in Asia and Pacific
capital market development and financial sector play a vital role. It also includes
small and medium sized enterprises, regulatory reforms and microfinance.
 Environment, disaster management and climate change- For poverty reduction

and economic growth in Pacific and Asia, the environmental sustainability is the
basic.
Answer 2:
Page | 27
The African Development Bank (AfDB) is a financial institution that promotes economic
and social progress in Africa. The AfDB is dedicated to economic and social development of
its African member countries. The goals of this Regional Development Bank are as follows:
1. To promote quality education and lifelong learning opportunities

2. To promote gender equality
3. To sustainable water management and sanitation for all
4. To provide access to modern energy to all
5. To promote inclusive economic growth with productive employment and decent
work for all
6. To promote infrastructure with sustainable infrastructure and adoptive innovation
7. To reduce inequality among countries
8. To make cities safe, resilient and sustainable
9. To promote sustainable consumption and production pattern
10. To combat climate change and its impact
11. To propagate sustainable use of marine natural resources
12. To end poverty
13. To promote agriculture and improve nutrition and food security
14. To promote healthy life for all
Answer 3:
The institutional strategy of the bank for the year (2010-2020) was updated in March
2015. According to this strategy they wanted to transform Latin America and Caribbean
into a prosperous and more inclusive society. For this they had to address the three main
challenges of development: First, low productivity, secondly limited economical integration
and lastly, inequality and social exclusion. The above three challenges are inter related to
each other and in order to achieve them there are some other underlying issues related to
public policies which are needed to be addressed. These are climate change and
environmental sustainability, gender equality and diversity and the rule of law and
institution.
The initiatives taken by the bank for their institutional strategy are:
Educational Initiative- The vision of IDB’s is to ensure that the children’s and the
adolescents utilize their right to quality education, accomplish their future goals and
reverse the poverty cycle. The IDB works in the collaboration with Latin America and
Caribbean’s 26 borrowing countries.
Poverty Reduction- Business investments in global market have a large effect on poverty
reduction as more investment creates more job opportunities for the individuals in order
to increase their economic empowerment. To develop international companies the funding
Page | 28
is needed but the problem arises when the investment bank are unable to invest due to
their administrative difficulties. The existence of small businesses are largely responsible
for the lives of local families, as there are inherit businesses of the people from which they
raise the social economic status of their families. Hence, in order to fulfil the needs of these
local businesses, the empowering institution like World Bank, IFC, IADB and others are
bound under certain regulations that work in developed nations which becomes obstacles
to progress in the nations which are developing.
Water And Sanitation- The objective of IDB makes sure that everyone get sustainable
access to high quality water, solid waste management and water sanitation services in
order to make sure that there is economic sustainable growth of the countries in Latin
America and the Caribbean which are members of the bank and also makes sure that
citizen of the countries get a better quality of life.
Infrastructure- The objective of IDB is to promote the sustainable development through

investment and knowledge that promotes involvement, productivity and flexibility of the
cities in Latin America and Caribbean. The satisfactory administration of infrastructure
encourages the competitiveness and economic growth. It is very important to be a part of
modern society to live a quality life, so IDB is trying to make improvements in
infrastructures.
Environment and Natural Disaster- The objective of IDB is to fully incorporate natural
disaster risk, natural capital and climate change management into economic sustainable
development planning in Latin America and Caribbean. They provide the innovative
solutions to overcome the impact of climate change. They provide knowledge about the
natural disasters risks and aware them about the tools which they can use while
emergency. They make sure the quality of life by valuing the ecosystem services and
biodiversity of the region.
Answer 4:
The IDB is the world’s oldest regional development bank which is the main source of
multilateral finance for social, institutional and economic development in Latin America
and Caribbean. The strong financial standing of the bank is based on the solid capital base,
the support for its financial policies and practices that is received from its members. The
support of the members can be seen in the capital backing received and the attentiveness
with which the members who are borrowing meet their debt-service commitments. The
banks builds its retained earnings and limits a variety of risks including market, liquidity
risks and credit by prudent financial policies and practices.
Page | 29
The debt securities are issued to the worldwide investors by the bank in variety of
currencies, structures, maturities and formats. The bank’s equity along with these
borrowings is used to fund general operations as well as lending and funding activities.
After swapping the assets and liabilities they are held commodiously in US dollars. The
bank reduces its risk by changing all its equity in US dollars. It matches the currencies of its
liabilities with those of assets and maintains it virtually.
Page | 30
12.11. SUGGESTED BOOKS AND E-REFERENCES
BOOKS:
 Christopher Humphrey, 2015, The African Development Bank: Ready to face the
challenges of a changing Africa?, Elanders Sverige AB, First Edition

E- REFERENCES:
 Regional Development Bank viewed on 9-April-2021.

<https://thebusinessprofessor.com/banking-lending-credit-industry/regional-
development-bank-definition>
 Regional Development Bank-Objectives viewed on 9-April-2021.
<https://www.ilearnlot.com/development-banks-features-functions-and-
objectives/55078/#Objectives_of_Development_Banks>
 Asian Development Bank viewed on 9-April-2021.
<https://en.wikipedia.org/wiki/Asian_Development_Bank#Objectives_and_activitie
s>
 African Development Bank-Business Constraints viewed on 10-April-2021.
<https://www.investopedia.com/terms/a/african-development-bank.asp>
 Council for European Development Bank viewed on 10-April-2021.
<https://sec.report/Document/0001193125-20-100085/d862814dex3.htm?>
 Inter-American Development Bank viewed on 11-April-2021.
<https://www.iadb.org/en>
Page | 31
U
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F
S
K
B
T
M
P
V
D
L
A
N
O
I
G
E
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Regional Development Bank
AIM
AIM
FOCUS AREA
FINANCING
Page | 32
CHARACTERSTICS
GOALS
BUSINESS
CONSTRAINS
Fig 4: Conceptual Map

GOALS
MEMBER STATES
SERVICES
OFFERED
Unit12
FOCUS AREAS
FINANCIAL
OVERVIEW

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Regional Development Bank

Regional development banks or multilateral developmental banks are the financial

The MDB’s raise their maximum resources for

 Explain about Regional Development Banks

12.2 REGIONAL DEVELOPMENT BANKS

Currently there are about 20 MDB’s, of which following

 MDBs which are formed by the famous institutions

12.2.1 OBJECTIVES OF REGIONAL DEVELOPMENT BANKS

The main objectives of these banks are:

 The development of backward areas by promoting the industrial growth

 To provide training so that the management of large industries can improve

SELF ASSESSMENT QUESTIONS

1. Regional Development Banks provide loans to countries which have ……

2. What is the full form of AFDB

3. What are the objectives of Regional Development Bank

Regional development banks are developed by various governments of different

12.3 ASIAN DEVELOPMENT BANK

The Asian Development Bank, formed on 19 December 1966, is a regional development

12.3.1 AIM OF ASIAN DEVELOPMENT BANK

 It can be in the form of grants and information sharing

12.3.2 FOCUS AREAS

 Private sector lending- Regan Administration introduced private sector lending

 Environment, disaster management and climate change- For poverty reduction

SELF ASSESSMENT QUESTIONS

4. When was the Asian development bank established?

5. The aim of Asian Development Bank is to ………

12.4 AFRICAN DEVELOPMENT BANK

12.4.1 CHARACTERISTICS OF AFDB

12.4.2 GOALS OF AFRICAN DEVELOPMENT BANK

 To sustainable water management and sanitation for all

12.4.3 BUSINESS CONSTRAINTS

 Financial Alternatives –The underdevelopment of the various African countries

GDP per Capital (USD) vs MDB Borrowing

SELF ASSESSMENT QUESTIONS

a. Social & economic welfare

8. Following are the goals of AfDB-

9. The African countries are having access to external finances through-

a. Bilateral lenders like China and India

12.5 COUNCIL OF EUROPEAN DEVELOPMENT BANK

12.5.1 GOALS OF CBE

12.5.2 MEMBER STATES

12.5.3 SERVICES OFFERED BY CBE

SELF ASSESSMENT QUESTIONS

a. Loans at high rate of interest

12.6 INTER- AMERICAN DEVELOPMENT BANK

The Inter American development bank (IDB),

12.6.1 FOCUS AREAS

 Early Childhood Development

Poverty Reduction: Due to heavy responsibilities of maintaining building infrastructures,

Infrastructure: The objective of IDB is to promote the sustainable development through

The priority areas of action that identify infrastructure strategies are:

 Supporting the development of infrastructure for global and regional integration.

 Promoting the improvements that are going on in the infrastructure governance.

12.6.2 FINANCIAL OVERVIEW

SELF ASSESSMENT QUESTIONS

a. Inequality and social exclusion

14. The institutional strategy of IDB includes-

15. Inter-American Development Bank was incorporated in which year?