^m^-^-^
»j-'*^j^
LIBRARY
OF THE
MASSACHUSETTS INSTITUTE
OF TECHNOLOGY
WORKING PAPER
SLOAN SCHOOL Or MANAGEMENT
DEVELOPMENT BANKING:
Global Patterns
J. D. Nyhart
August, 1968 347-68
MASSACHUSETTS
INSTITUTE OF TECHNOLOGY
50 MEMORIAL DRIVE
CAMBRIDGE MASSACHUSETTS 02139
This paper is not to be reproduced in whole or in part without
the author's permission.
RECEIVED
OCT 17 1968
M. I. T. LIBRAKIES
TABLE OF CONTENTS
1 . INTRODUCTION 1
2. TWO HUNDRED AND NINE DEVELOPMENT FINANCE INSTITUTIONS: 5
Time and Place, Geographical Scope, Size, and Ownership.
2.1 Introduction 5
2.2 The Growth of Development Banking in the Less Developed Countries 5
Pre-Depression - 1929 and Before y
The Depression Period - 1930-1939 8
The War Years - 1940-1946 9
The Contemporary Period - 1947 onward g
2.3 Location 2^2
2.4 Geographical Scope of Operations I -5
2.5 Age and Time of Establishment ]^4
2.6 Size lA
2.7 Ownership -ly
2.8 Summary 28
3. PRIMARY, NATIONAL PRIVATE, AND SUB-NATIONAL DEVELOPMENT 2 0
FINANCE INSTITUTIONS
3.1 Introduction
20
3.2 The Rationale of Classification 21
3.3 Cluster One - The Primary Institutions 27
Two Acceptable Aberrations 3q
One Hundred and Fifty-three Primary Institutions jq
3.4 Cluster Tvo - The ^'ational Private Institutions 36
Seventy-two National Private Institutions 36
3.5 Cluster Three - The Sub-national Institutions 40
Eighty-six Sub-national Institutions 41
3.6 Fifteen Exceptions 45
3.7 Change of Cluster Characteristics and Membership 48
3 . 8 Summary 5 0
s :^t;(ii4
-2-
4, THE EVOLUTION OF DEVELOPMENT FINANCE STRUCTURES WITHIN 52
COUNTRIES
4«1 Introduction 52
4.2 The Primary Stage 52
Fifty-eight Primary Structure Countries 53
Rationale of the Primary Stage 54
Significance of Transition to a Subsequent Stage 57
4.3 The Dualistic Stage 58
Twenty-one Dualistic Structure Countries 59
Rationale of Dualistic Stage with National Private Institutions59
Timing of Dualism 61
4.4 The Polydynamic Stage 62
Ten Polydynamic Structure Countries 62
Rationale of Polydynamism 63
Timing of Polydynamism 65
4.5 The Dynamics of Transition from Stage to Stage 66
4.6 Stage and External Determinants 6 7
4.7 Summary 71
DEVELOPMENT BANKING:
Global Patterns
J. D. Nyhart
August, 1968
1. INTRODUCTION"
Until recently, relatively little has been known of the global dimen-
sions of development banking. The fact that substantial growth in the
number of development finance institutions was underway has been widely
recognized for many years, but the scope of that growth was not clear.
The identification of 334 institutions qualifying as institutions "pro-
viding general medium and long-term financial assistance to a developing
economy" in an OECD study in late 1967 represented the culmination of
the first thorough attempt to estimate the approximate size of the world-
wide development finance structure. The OECD Development Centre's Global
Directory of Development Finance Institutions in Developing Countries now
provides a multitude of data for examination by those concerned with de-
velopment finance. The dimensions of development banking - its size, form,
age, location - can now be measured with some reliability. In addition,
the resources in the system, the uses to which they have been put, and
the performance record can all now be examined.
"The author gratefully recognizes the contribution of three research
assistants in this work: Mr. Ruben Gomez, Mr. J. W. C. Thomlinson, and
Mr. Henry VJeil and the support of the Development Centre of the Organization
for Economic Cooperation and Development.
J. D. Nyhart and E. F. Jannsens, eds . A Global Directory of Develop-
ment Finance Institutions in Developing Countries. Development Centre of
the Organization for Economic Cooperation and Development. Paris, 1967.
2
This paper is the first in a series on these subjects. Here the develop-
ment finance institutions appearing in the Directory are given a logical or-
dering by a classification scheme which facilitates an understanding of the
way the large variety of development finance institutions have evolved in
different countries.
The Directory identifies 334 development finance institutions by name
and address. For 209 institutions of these, operating at the national or
sub-national level in 92 countries, it provides the additional material des-
cribed below. Similar material is also given for an additional eight regional
institutions whose operations span more than one country or territory,
A listing in the Directory typically provides a 300 - 400 word sketch
of the operations of the development finance institution to date, including
its purposes, major areas of activity, commitments or disbursements to date
(or both), a brief summary of the last year's operations along the same lines,
a breakdown between debt and equity commitment (frequently with debt further
broken dov;n as to term) a record of other activities (such as underwriting
or assistance to enterprises), and finally a comment on the future. In addi-
tion, the board of directors or comparable policy organ is named, along with
those responsible for management and a brief description of the departmental
structure. The juridical basis is also given. This information is in ad-
dition to vital statistics such as address, cable address, gecgraphical
scope of operations, ownership, and time of establishment.
A recent balance sheet, organized under standard headings to provide
comparability, is presented for 202 of the Directory's 209 listings. De-
velopment finance institutions v;ere asked to allocate their capital and
3
liabilities among the major sources: local government, local private funds,
external aid funds, internally generated funds, and other funds (mostly in-
cluding foreign private funds). In addition a slightly smaller number of
institutions also provided elementary pro^-'t and loss statements for a re-
cent year, again in standardized form to provide comparability.
The listing for the Banque Nationale pour le Developpment Economique
of Morocco is presented as an example in Appendix One.
This large number of comparable balance sheets and profit and loss
statements, when combined with other facts available about development fi-
nance institutions, provides a basis for useful analysis of the structure
and evolutionary pattern of the global network of development finance in-
stitutions.
For the most part the institutions with listings in the Directory, as
well as those on an additional list, are either focused on industrial de-
velopment finance or general development finance including a number of sectors.
However, 35 of the 92 countries represented have created institutions
whose aim, as reflected solely by their title, is directed especially to-
ward agriculture. The institutions range from three in Peru and Colombia
to 29 other countries which have one agricultural development finance in-
stitutions. Thus, 43 of the 326 institutions appear to be specializing in
agriculture. An additional seven are specialized in the mining sector.
In addition, several institutions are in fact general credit institutions
(most frequently government-owned) which, in addition to being sources of
development finance are also short-term credit sources. Very frequently
these are large government-owned state banks which have a multitude of
credit functions.
The Directory, and hence this study, is limited geographically to
countries which appear on the International Development Association's
List of Member Countries of the Second Part, i.e. those eligible for IDA
3
loans, plus five overseas or dependent areas (Barbados, British West In-
dies, New Caledonia, Puerto Rico, Surinam). Two additional dependent areas,
Fiji Islands and French Polynesia, are represented among the eight regional
institutions mentioned earlier.
The second section summarizes the data concerning several basic charac-
teristics of institutions listed in the Directory: their time and place
of establishmsat , their geographic scope, their size, and their ownership.
The following section suggests an ordering scheme based on these character-
istics, while the final section uses the scheme to examine the way the struc-
ture of development finance evolves in countries.
2
For example, the objectives of Costa Rica s Banco Anglo Costarricense,
as stated in the Directory, are to "cooperate with the Republic in implemen-
ting its policies with regard to monetary matters, foreign exchange, credit
and banking policies; to assist in keeping the national banking system li-
quid, solvent and working smoothly; and to accept deposits."
"'Annual Report of the International Development Association (IDA)
1965-1966. Annex E,
2. TWO HUNDRED AND NINE DEVELOPMENT FINANCE INSTITUTIONS:
Time and Place, Geographical Scope, Size, and Ownership,
2 .1 Introduction
Two hundred and nine development finance institutions provide the
data for most of the analysis in this paper. This section describes their
location and the national or sub-national character of their operations; the
point in time they were created; their size; and their ownership, here cate-
gorized very broadly as government, mixed with government interest pre-
dominant, mixed with private interest predominant, and private. These
characteristics form the basis of a classifying structure presented in
Section 3.
The 209 national development finance institutions are those for
which listings appear in the OECD Development Center's A Global Directory
1
of Development Finance Institutions in Developing Countries. One hun-
dred and seventeen development finance institutions, most frequently iden-
tified only by name, address, and chief executive, are recorded in an
2
additional list at the end of the Directory. These 209 "basic study"
Hereafter referred to as the Directory. See Section 1.
2
Included in the "additional list" of the Directory, but excluded
in this study are six funds which serve primarily as accounting centers for
resources passed on to development finance institutions, and only second-
arily as direct sources for borrowers. They operate within central govern-
ment institutions and are not separate entities, however, and so have been
excluded in the study. They are in Brazil: the Fundo de Financiamento a
Pequena e Media Empresa (f IPEME) ; Fundo de Financiamento de Estudos, Pro-
jetos e Programas para o Desenvolvimento Econdmico (FINEP) ; Fundo de Finan-
ciamento para Aquisicao de Maquinas e Equipamentos Industrials (FINAME);
Fundo de Desenvolvimento Te'cnico-Cientif ico (FUNTEC) ; and the Carteira de
6
institutions and the 117 "additional list" institutions are found by coun-
try and order of establishment in Appendix Two. The additional list in-
stitutions are incorporated in the present analysis of location and in
Sections 3 and 4 as necessary.
3
2 .2 The Growth of Development Banking in the Less Developed Countries
Development banking in the developing countries is extremely young.
As of 1968j fully 50 percent of the "basic study" institutions had been in
existence for only ten years or less. Yet from an historical viewpoint
roots go back to the post World War I era. Table 2.1 shows when the basic
A
study institutions were established^ over a period from 1856 to 1965. The
2
(Cont.) Cre'dito Agrxcola e Industrial (GREAT); in Golombia: the
Private Investment Fund of the Banco de la Republica.
With these exceptions, the "basic study" institutions correspond to
those for which listings were given in the Directory and the "additional
list" institutions correspond to those in the additional list, beginning on
p. 445 of the English language edition of the Directory. (In the Spanish
language edition, the names of the first three countries appearing in the
additional list - Algeria, Saudi Arabia, and Argentina - were inadvertently
omitted. With this correction, the additional list in Spanish contains the
same institutions) .
The Directory also contained entries on eight regional development fi-
nance institutions operating on a multi-national rather than a national basis.
They are: Banco Gentroamericano de Integracion Economica, Financiera Centro-
americana de Desarrollo S.A. (Central America); Fiji Development Company, Ltd.
(Fiji); Credit de I'Oceanie (French Polynesia); Kuwait Fund for Arab Economic
Development (Arab Countries); Adela Investment Company, S.A. (Latin America);
Southeast Asia Development Corporation, Ltd. (Southeast Asia), Industrial Pro-
motion Corporation Central Africa, Ltd. (Central Africa).
The names and basic data (address, telephone, ownership, scope, and data
of commencement of operations) were provided for eight bilateral and inter-
national finance and aid institutions co-operating in the study.
■^For an account of development finance in the industrialized world^ see
Diamond, Development Banks, Johns Hopkins, 1957, pp 19-37.
The 1965 figure is undoubtedly incomplete as the effort to identify
insitutions and include them in the Directory closed that mid-year.
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span may be divided into four periods.
Pre-Depression - 1929 and Before. Only 13 of the 209 basic study in-
stitutions were created prior to the beginning of the Great Depression of
the 1930- s. Although the oldest bank in the study, Banco Anglo-Costarricense
in Costa Rica, began operations in 1863, the first institution organized spe-
cifically for development credit purposes probably was the National Develop-
ment Company of the Philippines, formed in 1919.
One year earlier, in 1918, the Banco de Cre'dito Agricola de Cartago'
began operations in Cartago, Costa Rica, becoming the first of the basic
study institutions that specialized in agricultural credit. Thus started
a long string of agricultural credit institutions, the second of which was
the Agricultural Bank of Greece, established in 1929. The first institution
specially aimed at industrial credit appears to be Spain's Banco de Cre'dito
Industrial, established in 1920 by the Spanish government to assist industry.
Only seven basic study institutions were created before World War I.
They are all in Argentina, Costa Rica, and Nicaragua and can best be clas-
sified as general credit institutions begun primarily as commercial banks.
The three in Costa Rica acquired medium-term credit functions along the
way, most probably in 1948, when they were nationalized and given wider
scope, or in 1963, when they were integrated into the banking system as a
whole. The three Argentine banks created in the 19th century were also
banks with v.'ide general credit purposes, emphasizing short-term or com-
mercial banking activities. The provision of medium or long-term industrial
credit aas until recently played an apparently minor role. Two of these
Argentine institutions were provincial banks, thus inaugurating a distinct,
major segment of development finance institutions, e.g., those operating
8
on a sub-national level (regional _, provincial ^ or state), rather than on
the national plane.
The Depression Period - 1930-1939. The depression year of 1931 was
the first in which more than two basic study institutions were founded.
The Land and Agricultural Bank of Kenya, the Banco de Fomento Agropecuario
in Peru, and the Agricultural Bank in Egypt, all dealing in the rural sector,
were founded in that year. 1934 also saw the creation of three banks and in
1936 five institutions made their appearances. Overall the depression years
saw the establishment of 15 basic study institutions. During this period,
a number of banks concentrating in specific sectors of the economy were
created. The three agricultural banks mentioned above were joined by
others in Colombia and Iran. The first two of five institutions among the
basic study institutions with a special interest in the mining sector were
established in this period, in Mexico and Bolivia.
In addition, two large, multi-functional development finance institutions
began operations during the Depression. These were the Industrial Credit
Corporation of Ireland and Mexico's Nacional Financiera. The establishment
in Brazil of the first two bancos do estado or state banks, not dissimilar
to those in Argentina begun earlier, continued the trend of sub-national
general credit institutions in these two countries. Credito Bursatil, S.A.
and Compania General Aceptaciones S.A., both established in Mexico in 1936,
saw the beginning of the private corporaciones f inane ieras in that country.
After che spurt of creative energy in 1936, the chronology of creation
trails off toward the end of the decade. Only two development finance in-
stitutions were established in 1938 and one in 1939.
9
The War Years - 1940-1946. With one exception^ all of the 18 basic
study institutions recorded as starting during this seven-year period were
located in Central and South America, and the Caribbean.
This period saw the extension of agricultural institutions to Bolivia,
Ceylon, Venezuela, Dominican Republic, and the area that was later to become
Trinidad and Tobago. Four additional corporaciones f inancieras in Mexico
continued the development of the private institutions there. The appearance
of the word "fomento" in the titles of new entities, found earlier in Peru's
Banco de Fomento Agropecuario, continued during this period with the creation
of Chile's Corporacion de Fomento de la Produce ion (CORFO), Bolivia's CORFO and
Venezuela's Corporacion Venezolana de Fomento.
During the War years, development finance institutions were being created
at a rate of three or four a year. With the exception of the three-year period
1946-1948, this pace was not only to be maintained, but to be accelerated dra-
matically. Up to the end of the War, the preponderant activity in development
finance was in Central and South America, and the Caribbean. Thirty-six of
the 45, or 80 percent, of the basic study institutions established so far were
in this geographical area. Only Egypt, Greece, Kenya, Iran, Ireland, the
Philippines, and Spain established basic study institutions outside Central
and South America.
The Contemporary Period - 1947 Onward. The establishment in 1947 of the
Rehabilitation Finance Corporation in the Philippines (now the Development
Bank of the Philippines), with the objective of hastening that country's re-
covery from World War II, marks the beginning of the post-war or current
period of development finance in the developing countries. This one entry
10
during 1947 is a low point in terms of numbers^ and seems to start a new era.
The Philippine activity^ followed the next year by the establishment of the
Industrial Finance Corporation of India and the Singapore Factory Develop-
mentj Ltd. under the leadership of the Colonial Development Corporation (now
Commonwealth Development Corporation) ^ marks a break in the predominant role
Central and Latin America played in the growth of the development finance net-
work. The door was opened for the virtual world-wide explosion that has occur-
red since then. 78 percent of the basic study institutions have come into be-
ing since 1947.
The first national system of development finance institutions began formally
in 1951 with the passage of India's State Finance Corporation Act. (Although
the Madras Industrial Investment Corporation, the first of 14 similar state-
level institutions in India, was created two years earlier.) At least one
new Indian state financial corporation was begun in most of the years of the
decade between 1951 and 1961.
In the Philippines, the Pasay City Development Bank, the first of the
basic study institutions belonging to that country's system of local, private
development finance institutions, was started in 1960. 1962 and 1963 saw bank-
ing reform legislation enacted in Spain, aimed at the separation of invest-
ment banking from commercial banking. As a result, in the following two years,
there began to be created new industrial banks engaging in several types of
operations, including medium and long-term loans, direct participation in share
capital of enterprises, and underwriting. These systems, plus those in Ar-
gentina. Brazil, Colombia, and Mexico, will be discussed further in a later
study, for they are one of the significant phenomena of the current period.
11
Approximately one-third of today's development banks are estimated to be as-
sociated with one of these national networks.
In 1950, the Industrial Development Bank of Turkey was established. It
was the first of approximately two dozen institutions known as private develop-
ment finance companies which have received financial and technical support from
the World Bank Group. In the same year, the Banque Nationale Malgache de
De'veloppement (known then as the Credit de Madagascar) was created in the
Malagasy Republic. It appears to be the first of a large number since es-
tablished in f rancoph<}.ne Africa,
The establishment of Jamaica's Industrial Development Corporation and
the Agricultural Development Corporation in 1952, the Uganda Development
Corporation in the same year (included in the additional list), and the
British Guiana Credit Corporation in 1954, which took over the assets of
the Cooperative Credit Bank, all serve as examples of growth among British
dependencies that continued through the decade of the 1950's. One Common-
wealth member, Nigeria, has accounted for six basic study institutions, plus
at least two others on the additional list. Another, Pakistan, also accounts
for four basic study institutions.
The rapidity with which new development finance institutions were begun
during the current period makes it difficult to identify global patterns.
This brief historical account shows, however, that by 1965 a few fundamental
trends had begun to form. They include: the early emphasis given agricul-
tural credit; the parallel rise of both general development finance institu-
tions ar.d those specialized by sector; the establishment in a few countries
of systens of development credit; the rise of privately or quasi-privately
12
owned institutions for development credit; and the entrance into develop-
ment finance of older public finance institutions which traditionally
served general credit needs.
These patterns are too diffuse to provide a basis for global analysis
of the evolution of development banking within countries. The next two
sections suggest an analytic frame founded on certain basic characteris-
tics shared b all development finance institutions. The characteristics
are: location, geographical scope of operations, age^ and time of estab-
lishment and ownership. Before setting out the framework, the basic facts
concerning these characteristics are summarized here.
2. 3 Location
The 326 national development finance institutions included in both the
basic study and the traditional list are located in 92 developing countries
or dependent areas.
The distribution by continent is as follows:
Africa 58
Asia 73
Central-South America and
Caribbean 141^
Europe 21
Middle East (Turkey to Iraq) 33
326
The frequency of the institutions among the countries is shown in Tables
Outside the sphere of national institutions, note should be made of
the rise of several regional institutions, including first the tnter-Ameri-
can Development Bank and later the African and Asian Development Banks, plus
those cited in footnote 2 above.
See Section 1 for basis for including countries in the Directory.
13
2.2 and 2.3.
Table 2. 2 Frequency Distribution of Institutions by Country
No. of institutions in country 123456789 10 or more
No. of Countries 35 24 12 8 I 2 1 3 0 6
TOTAL 92
Table 2. 3 Frequency Distribution Summarized in Major Groupings
Number /Country No. of Countries % No. of Institutions %
1 35 40.4 35 10.7
2-4 44 46.8 116 35.6
5-9 7 6.4 48 14.7
10 and over 6 6.4 127 39.0
92 100.0 326 100.0
The most nearly typical country is one with between two and four deve-
lopment finance institutions. Such countries account for nearly 47 percent
of the 92 and over 36 percent of the institutions. The 35 countries which
have only one institution form a distinct second grouping. The largest group,
accounting for 39 percent, are tightly clustered in six countries, each
having ten or more institutions. These countries - Brazil, Colombia, India,
Mejcico, Philippines, and Spain - account for 127 of the institutions, a sig-
nificant proportion in terms of number.
2. 4 Geographical Scope of Operations
Forty-two of the 209 basic study institutions operating within national
borders actually are sub-national in scope (e.g. regional, provincial, or
state) rather than national. These institutions, comprising 20.9 percent
of those in the basic study, are located in ten countries - Argentina, Bra-
zil, ColotTibia, India, Malaysia, Nigeria, Pakistan, Philippines, Spain and
Venezuela. A large number of institutions on the "additional list" are also
14
sub-national.
2. 5 Age and Time of Establishment
The youthful character of the field is highlighted by the fact that 62
percent of the basic institutions had nr.t been in operation more than ten
years by the tiaie they submitted data for the Directory. The age distribu-
tion that follows is given to two points in time: to 1968, and to the date
for which data in each bank's listing were provided^ usually 1965, but in
some cases 1964 or 1966.
Table 2.4 Age Distribution of 208 Development
Finance Institutions
To 1968 To Date of Data
Years
Number
1
0-4
21
10.2
5-9
83
39.8
10-19
56
26.9
20-29
21
10.2
30-49
19
9. 1
50
and over
8
208
3.8
100.0
Number
%
77
Zl.l
52
25.1
37
17.8
21
10.3
12
6.3
7
208
3. 3
100.0
Another indicator of youth is reflected in the evident recent shift of
many institutions from the junior-most bracket, 0-4 years, to the next se-
nior 5-9, in the period between the point of submission of data and the
time of writing, 1968.
2. 6 Size
Balance sheets were obtained for 202 basic study institutions. The
assets in these institutions ranged from the local currency equivalent of U. S.
$2.7 billion to U. S. $126,000 as follows:
Date of establishment was unavailable for one basic study institution.
1.0
$4,022,856
2.0
2,308,873
14.0
6,342,315
6.5
883,345
32.8
1,523,205
19.4
288,475
17.4
92,489
6.9
8.757
26.
0
14.
9
41.
0
5.
7
9.
8
1.
9
0.
6
0.
1
15
Table 2. 5 Size of Assets
Assets Number of Institutions Total Amount Recorded in Category
US $-000 % 1
Over 1 billion 2
500 m. - 999 m. 4
100 m. - 499 m. 28
50 m. - 99 m. 13
10 m. - 49 m. 66
5m.- 9m. 39
1 m. - 4. 9 m. 35
under 1 million 14
20l 100.0 $15,470,315 100.0
It is feasible to extrapolate from these figures to the 326 institutional
total which includes the additional list banks. Considering that many of the
additional list banks are sub-national and probably smaller than average, the
total assets in the 326 institutions is conservatively estimated at somewhere
between U. S. $16 and $19 billion.
The two institutions with assets over U. S. $1 billion are the Invest-
ment Bank of Yugoslavia and the Nacional Financiera in Mexico. The assets
of these institutions, together Wxth those of the next four - Corporacion
de Fomento de la Produccion of Chile, Banco de la Nacion Argentina, Agri-
cultural Bank of Greece, and Corporaci6n Venezolana de Guayana - comprise
U. S. $6.3 billion, or 41 percent of the known assets in the basic study
institutions. The largest 34, or 17 percent of the basic study institu-
tions, account for 82 percent of the known assets, an enormously top-heavy
Only an unknown fraction of Banco de la Nacion Argentina's assets
are committed to medium and long-term development finance. It is estimated
that the r.aiority of its funds are devoted to short-term loans to agricul-
ture, commerce, and industry. The same condition holds for the provincial
banks in Argentina and a number of other general credit institutions.
16
picture. With 167 institutions sharing the remaining 18 percent, which
amounts to U. S. $2.8 billion, the median size of all basic study institu-
tions is U. S. $13 million equivalent. Thus, as in so many organizational
groupings, development finance institutions on a global basis can be divi-
ded into the few big and the many small.
The largest institutions are predominantly public. Of the 34 insti-
tutions with assets greater than U. S. $100 million, only four are private
institutions. Three of these are f inancieras in Mexico and the fourth is
the Industrial Credit and Investment Corporation of India. Two sub-national
institutions - one in Brazil and another in Argentina - fall also into the
over U. S. $100 million category. By contrast, the smallest 34 include
seven national private and eight sub-national institutions.
The institutions at the large end of the size spectrum geographically
favor the Latin American and Caribbean area while those at the small end
are heavily weighted toward the continent of Africa, with its many new
states. Nineteen of the 34 institutions with assets of over $100 million
are in Central or South America and the Caribbean, while eight of the 14
under U. S. $1 million (and 22 of the 49 under U. S. $5 million) are in
Africa.
The Directory provided information regarding professional staff for
84 of the 209 basic study institutions. The size of the staffs in those
institutions for which data were obtained is normally very small. Thirty-
one percent or 26 banks, have ten professionals or less. Seventy-three
have 30 or less. At the other end of the scale, only ten of the 84 have
staffs of over 90 professionals.
Table 2. 6
17
DFI Distribution According to Size 6f Professional Staff
Number of Professional Staff
10 or less
11 - 20
21-30
31 - 40
41 - 50
51-60
61 - 89
90 and over
Number of DFl's
26
21
14
4
6
3
0
TOTAL 84
2. 7 Ownership
The ownership of 121, or 57.9 percent, of the 209 basic study institu-
tions is wholly in public hands. Here, "public" includes the government of
the country or state concerned, governmental organs, and international fi-
nance or bilateral aid agencies. Thirty-one, or 14.8 percent, are wholly
privately-owned. The remainder, 57 institutions, accounting for 27.3 percent,
are mixed. Of these 57 institutions, the capital of 32 is controlled or domi-
nated by public interests, while 17 are privately dominated. The breakdown of
eight of the mixed institutions is unknown. These figures are summarized in
the following table:
Table :
I. 7
Ownership
No.
%
Public
Private
Mixed
121
31
57
57.9
14.8
27.3
TOTAL 209
100.0
Of the Mixed:
Pub 1 ic -dominated
Private -dominated
Unknown
32
56.1
17
29.8
8
14. 1
TOTAL, Mixed 57
100.0
18
The public banks account for a proportionately larger share of the
assets of the basic study institutions. U. S. $11.57 billion, or 74.8 per-
cent, of the known assets are held in wholly public banks. By contrast, the
wholly private banks account for only 6.79 percent of the known assets,
barely one billion dollars. Mixed banks account for 18.5 percent, or U. S.
$2.87 billion. The contrast between number and size among the three differ-
ent types of banks is shown in Table 2.8.
Much controversy has existed over the relative role and merit of public
versus private development finance institutions. Perhaps an outstanding
example has been the policy until recently of the World Bank Group to sup-
9
port only private development finance companies. In many countries, public
and private institutions exist side-by-side. For example, in the Philippines,
the Development Bank of the Philippines has branch offices scattered through-
out the country, but also has played a most important role in the establish-
ment of small local, private development banks. In Brazil, two groups of
institutions are developing, one in the public sector operating at the state
level, and the other a group of private investment banks.
2. 8 Summary
Every developing country except Burundi, Malij and Rwanda has at least
one development finance institution. The largest group of countries have
between two and four. More than one third are found in only six of the 92
9
See Private Development Finance Companies, International Finance Corpo-
rations, Washington D. C. , 1964. This policy reportedly was reversed, at least
in principle, in July, 1968.
Included as "developing" are all countries eligible for inclusion in the
Directory. See Section 1 for basis of inclusion.
Table 2. 8
DFI DISTRIBUTION BY NUMBER
Mixed =57
21. ru
DFI DISTRIBUTION BY ASSETS
19
countries and territories represented by institutions in the Directory. A
polarization of activity exists, then, first in the countries with only one
or two-to-four institutions, and second, in those fewer countries with a
comparatively large number of instituti '~>ns.
The global picture of development finance institutions in the developing
countries is dominated by institutions that have been established, at a ra-
pidly increasing rate, in the post-war period beginning in 1947. The large
majority of these institutions are national in scope, with only a few being
multi-national, i.e. regional, but with a significant number operating at
sub-national levels.
Approximately one-third of the basic study institutions record assets
of between $10 and $50 million, while roughly 45 percent are under $10 mil-
lion. The remainder, less than a quarter, have assets greater than $50
million, but account for 88 percent of the knowi assets. The top six hold
41 percent.
Public ownership typifies the development finance institutional struc-
ture today, both in terms of numbers of institutions and in terms of the
assets represented. An interestingly large segment of the basic study in-
stitutions are mixed in ownership.
This brief characterization of the basic study institutions as to time
of establishment, size, ownership, and geographical scope suggests relational
patterns identifying all development finance institutions. As will be seen
in the succeeding section, these four basic characteristics can be used to
categorize development finance institutions.
3. PRIMARY, NATIONAL PRIVATE, AND SUB -NATIONAL
DEVELOPMENT FINANCE INSTITUTIONS
3. I Introduction
Development finance institutions fall into three characteristic clus-
ters, described by the following statements:
1. The first development finance institution or institutions es-
tablished in a country are government-owned or government-domi-
nated (if of mixed ownership), national in scope, and large in
asset size when compared to those established subsequently. These
are primary inst itut ions.
2. Where privately owned or privately dominated development finance
institutions are established at the national level, they are
created after those described above and are smaller in asset size.
These are national private institutions.
3. Institutions operating at a sub-national level within a country
(e.g. regional, provincial or state) may be publicly or privately
owned, or mixed. They are established after primary institutions,
but frequently precede national private institutions; they are
; smaller in asset size than those operating on the national level,
except for some general credit institutions operating at the sub-
\ national level, which may be larger in total assets but not in
\ development finance facility assets. These are sub-national insti-
tutions.
Ninety-three percent of the 209 basic study institutions are believed
to be encompassed within one of these groupings. The relationships of the
21
three clusters as to the order of establishment and size are;
Primaries
National Private
Institutions
Sub-National
Institutions
Exceed in Assets
This section defines the rules comprising this classifying scheme,
applies them, lists the clusters of institutions that result from their
application and notes the exceptions. First, several reasons for trying
to classify development finance institutions are discussed.
3. 2 The Rationale, of Classification
Ordering mechanisms such as the one suggested here are helpful in
understanding, in comparing and evaluating, and in predicting. The field
of modern development finance has grown extremely rapidly - witness the
fact that half of the more than 200 basic study institutions are ten years
or less of age. But the field has now passed through its institutional
childhood. Development bankers, and those in the developed countries who
backed the creation of these institutions, are increasingly asking some
basic questions: what have the over 300 institutions really done; what
might be expected of them; and what might be done to assist them in
22
achieving their goals?
Answers to such questions cannot be found unless the diversity that
exists among these institutions is more fully understood - the diversity
of background, of capability, and most importantly, of function. A means
of comparison is an implicit requirement and requires two workable devices:
an ordering mechanism and a measurement scheme. This section and the next
suggest one scheme to meet the first requirement.
The fundamental extra-market, gap-filling nature of development fi-
nance institutions helps considerably to determine the criteria for an
appropriate ordering mechanism. Gaps such as the absence of medium-term
credit or equity financing for new businesses exist where normal market
considerations have failed to lead traditional finance. When governments
commit public funds to use through development finance institutions, they
do so to reduce specific gaps in the institutional structure of finance.
The inadequacies of the market-oriented traditional structure may be varied
and extend beyond the mere need for different forms of credit. Certain
sectors - among them agriculture, small business, or mining - may require
extra-market attention. Or borrowers may require special assistance or
supervision. Thus the diversity in development finance institut ions ' roles
arises largely from the multiple nature of the gaps they are created to fill.
These inadequacies have given rise to six broad functions filled by
the development finance field: 1) financing, 2) promotion, 3) education,
4) entrepreneurship (owning and managing), 5) capital mobilization, and
6) institution building. (A study of the way development finance institu-
tions have fulfilled these roles is in preparation). Few development fi-
23
nance institutions are active in all these functions, and the extent to
which they are varies with the surrounding institutional environment.
That is, the roles played by existing market and extra-market financial
and other institutions define the gaps In any particular case.
Further, these functions change over time. What is a gap in one
decade may become a solid rock of institutionalism in the next, as
traditional market-oriented financial institutions undertake the tasks
earlier performed by the extra-market development institutions. Term-
lending is a good example. New gaps and new priorities continue to be
identified. In some cases, the corresponding functions will be added to
existing institutions; in other cases, they will form the core purpose
of a new institution.
Hence, an ordering mechanism should allow for diversity and for
change of functions over time. Function should be a variable, not a cons-
tant. It should, therefore, not comprise a basis of categorization.
Finally, an ordering mechanism ought to be useful both for descriptive
and normative purposes. It must be useful in describing what has already
taken place, and for speculating about what ought to - or could - happen.
Past classification schemes have not met these criteria. One early
division by the United Nations termed those institutions concentrating on
lending as development banks and those concentrating on equity investment
as development corporations.
"See Diamond, op. cit. Chapter 2, p. 2, for reference.
24
This distinction was fairly quickly realized to be unworkable because
2
many institutions performed both functions. Hansen's distinction be-
tween general development agencies having the very broadest powers, indus-
trial finance and development agencies, and agricultural agencies conti-
3
nues to hold considerable validity. However, the distinction between
finance and development agencies, similar to the U.N. 's distinction .be-
tween development banks and development corporations, breaks down in
4
practice.
Other categorizations are oriented toward sectors served, such as
that by Houk, which separates "industrial development banking, agricul-
tural development banking, small industry development corporations, develop-
ment banks for cooperatives and the like." Similarly, the OECD's Develop-
ment Assistance Committee distinguishes among industrial development banks,
housing finance institutions and agricultural credit banks.
2
The Uganda Development Corporation, Brazil's Banco Nacional do Desen-
volvimento Economico, and Chile's CORFO are good examples.
3
"...in the present context 'development ' means the promotion and ope-
ration of new enterprises, while 'finance' means the provision of capital
and other forms of financial assistance to privately owned undertakings."
Hansen, A. H. Public Enterprise and Economic Development. Routledge and Ke-
gan Paul, Ltd., London, 1959. p. 230. c. f. p. 254.
4
108 of 209 basic study institutions reported they were engaged in
some form of promotion. 84 bs'^i'c study institutions indicated that they
both provided finance and owned and managed enterprises.
Houk. J. T. Dock. Financing and Problems of Development Banking.
Praeger, New York, 1967. p. 11.
6
Development Assistance Committee of the Organization for Economic
Cooperation and Development, "Intermediate Financial Institutions", paper
64/10, Xarch 19, 1964, mimeo.
25
These diminish the fact that a great number of development finance in. -
7
jtitutions serve a variety of sectors.
Diamond's distinction between finance institutions concerned with
the private sector and those concerned with government investment is
weakened by a number of institutions which straddle the public and pri-
8
vate sectors. Schatz s distinction between straight development banking
and augmented development banking (when technical services are provided)
emphasizes the importance of technical services but in the process tends
9
to place less emphasis on other important functions.
The ordering into three clusters suggested here is based on four com-
ponents which are normally stable, at least relative to the other insti-
tutions within the same country: 1) the order in which institutions are
established within the country; 2) the geographic scope of their operat-
ions, e.g. national or sub-national; 3) their ownership; and 4) their re-
lative size. No functional character is ascribed. Rather, the functional
tasks actually performed by different banks are treated as independent
variables and are left for later analysis, as are other characteristics
such as growth and performance. An examination of both the diversity of
roles and their change over time is facilitated by this mechanism. In
addition to functional diversity, there is also great disparity of size
among the development finance institutions in the world; just as there is
among nations. The categorization approach suggested here builds first
'Forty-six basic study institutions indicated they served both in-
dustrial and agricultural sectors. 12 served both industry and mining,
and 55 others indicated some type of multi-sectoral involvement,
g
Diamond, ££ cit. note 1, p. 3.
g
Savre P. Schatz. Development Banking in Nigeria, Oxford University
Press, Ibdabn, Nigeria, 1964, p. 107.
26
on internal relationships among the institutions within one country. It
is thus a prerequisite to the consideration of the way the development fi-
nance institutional structure evolves in a country, which is discussed in
Section 4.
The identification of a basic study institution as a member of one
of the three clusters is made by applying the decision rules set out in
the paragraphs that follow. Assumptions as to the relative size and order
of establishment are made for additional list institutions where the facts
were not available in the Directory. The results of applying the decision
rules and the assumptions made are summarized for each country in Appen-
dix 2,
10
The presence of 117 institutions on the additional list confronts
the analyst with the possibility that any one of them might have been
created earlier or be larger than the basic study institutions in the same
country for which data are available, thus throwing the relative posi-
tions askew for the institutions in that country.
Fortunately, the 117 do not pose as great a problem as they at first
seemed to. Thirteen are located in 11 countries which are not represented
among the basic study institutions, so that they present no threat to the
classification effort aimed at the basic study institutions. But it is of
interest to knowwhether or not they re-enforce the three basic cluster pro-
positions. They appear to. Nine are the only institutions in the particu-
lar country in either the basic study institution list or the additional
list. A survey of these nine countries - Algeria, Congo (Kinshasha), Guinea,
Indonesia, Iraq, Malawi, Portugual, Saudi Arabia, Uruguay - suggests that
the only development finance institutions in any of these is almost certainly
going to follow the normal pattern of being government -owned, and as the
only institution, national in scope. Two institutions in Burma and one in
Kuwait might reasonably be judged public and national, fitting the Cluster
One definition of primary institutions.
Sixty-eight of the 117 institutions on the additional list are located
in four countries - Brazil, Mexico, Philippines, and Spain - where they
appear to be parts of systems about which a good deal is known. In Brazil,
the additional list institutions are known to be public, state-level, or
regional institutions, and were assumed to be smaller than the one national
27
3. 3 Cluster One - The Primary Institutions
The first development finance institution or institutions established
in a country are government -owned or dominated (if of mixed ownership),
national in scope, and large in asset size when compared to those esta-
blished subsequently. An institution was assigned to Cluster One if it
met one of the following decision rules:
Rule 1-1: If national in scope, the only institution
in the country, and publicly-owned or publicly
dominated, if mixed in ownership.
These are the easiest cases of Cluster One institutions to identify.
They include 33 of the 35 institutions in those countries which have only
one development finance facility, the two exceptions being private insti-
tutions. They form 21.5 percent of all primary institutions.
10
(cont . )
institution. Some predate Banco Nacional do Desenvolvimento Economico
(BNDE), but not in regard to their medium-term development finance faci-
lities. In Mexico, the 19 institutions not on the basic study list are
likely to be private, national-scope "f inancieras" and were so assumed
to be. To the extent any pre-date the Nacional Financiera, the country's
primary national institution, or exceed it in size, an exception exists.
Since Nafin was established before any of the known national private insti-
tutions, and is larger, the likelihood is believed to be small. In the
Philippines, the missing institutions are members of the private develop-
ment banking system, and the assumptions that were made for them conform
to what held true for the known members of the system. The same holds
for Spain.
There remain 37 additional list institutions in 26 countries. In
each of these, the most likely assumptions were made, based on available
knowledge of the country. Each assumption in every case is stated in
Appendix 2. In total, the impact of these "unknowns is, therefore,
believed not to substantially alter the classification effort.
Rule 1-2: If national in scope, publicly-owned or publicly-
dominated, if mixed in ownership, the first of a
number of institutions to be established and the
largest in asset size.
As seen in Section 2, 62 percent of the 92 countries in the study
have more than one development finance institution. This rule covers
the first institution to be established in such countries, if it meets
the general proposition as to scope, ownership, and size.
Cluster One is not restricted to the first institution among many
in a country. Different governments reacted in different ways to their
initial perception of needs for specialized development finance institu-
tions. Some, such as Uganda, Costa Rica, and Bolivia established multi-
functional institutions in the expectation that they would serve both the
financing and the entrepreneurial (owner-manager) functions. Typically,
such institutions were expected to serve many client sectors: major
industry, small industries, agriculture, mining, cooperative, and public
enterprise.
Other countries split up the functions, creating both a finance
institution intended to concentrate on lending and an owner-manager in ^
Stitution, frequently called a development corporation or fomento. For
example, in each of Nigeria's three regions, there originally was a develop-
ment corporation and a finance corporation. In some countries, finance
institutions were sometimes sub-divided as to sectors, such as an indus-
trial finance institution and an agricultural finance institution. Fre-
quently, the agricultural institution preceded the industrial facility.
For example, in Ceylon, Egypt, Iran, and Sudan.
29
Infrequently, as in Peru and Bolivia, a three-way split emerged - industry,
agriculture, and mining.
Generally, the institutions of such a set were established close to-
gether, or at least before the introduction of private institutions. Hence,
all such articles are included in Cluster One as primary institutions.
In terms of falling within the general proposition for this group,
then, institutions must be national in scope and publicly-owned or publi-
cly-dominated, if mixed in ownership. But they do not have to be either
the first established or largest in size (or either), provided that the
institutions preceding them in order of establishment or size also fit the
proposition. These conditions are met by the following decision rules:
Rule 1-3: If national in scope, publicly-owned or publicly-
dominated, the first established, but not the largest,
then if preceded in asset size only by institutions
falling under a Cluster One rule.
Rule 1-4: If national in scope, publicly-owned or publicly-
dominated, largest in asset size, second or subse-
quently established, but preceded in order of esta-
blishment only by institutions falling under a
Cluster One rule.
Rule 1-5: If national in scope, publicly-owned or publicly-
dominated, if mixed in ownership, second or subsequently
established, or second, or smaller, in asset size,
only by institutions falling under Cluster One rule.
In summary, these rules define a group of institutions begun and con-
trolled by national governments, some with many functional roles, some
with their assignments more narrowly defined, but all preceding the estab-
lishment in their countries of private institutions or state-level institution
30
and outranking such institutions in asset size.
Two Acceptable Aberrations. Two types of aberrations of Cluster One
situations must be noted.
AA 1-1: Mergers and second-generation institutions. The analysis
of the basic study institutions has indicated 42 institu-
tions which have either succeeded to ear.Vier institutions,
or have been formed as a result of the merger of two or
more development finance institutions. When such institu-
tions would qualify under one of the Cluster One decision
rules, but for time of establishment, the predecessor's
date of establishment, where known, has been used for
analysis.
AA 1-2: 50-50 mixed institutions. The capital stock of one insti-
tution, the Industrial Finance Corporation of India (IFC/I),
is evenly split between the Industrial Development Bank of
India (IDBI), which is owned by the government, and private
interests such as commercial banks, insurance companies, in-
vestment trusts and other financial institutions. For pur-
poses of this analysis, IFC/I has been called an institution
of mixed ownership with public dominance, on the basis that
1) the Government appointed Chairman apparently has the de-
ciding vote on the Board, and 2) the nationalized insurance
companies of India may legitimately be counted as public
entities.
Exceptions to these cluster rules and the others are discussed together
later in this section.
153 Primary Institutions. The 153 entit.es classified as primary in-
stitutions comprise the most important group of development finance insti-
tutions in terms of number, assets, length of service, and relative posi-
tion in most countries concerned. Table 3.1 summarizes the position of the
primary institutions as classified here. Seven exceptions are also inclu-
ded in the table for analysis purposes.
In the list that follows, additional list institutions are marked
with an asterisk. The exceptions are listed at the end.
Table 3. 1
Summary Data for Primary Institutions
1. Number of basic study institutions classified as primary institutions 117
2. Number of additional list institutions so classified 36
3. Total number of primary institutions. (1 + 2) 153
4. Number of national, publicly owned or dominated institutions
classed as exceptions because of order of establishment or size 7
5. Total number of national, publicly owned or dominated
institutions (3+4) 160
6. Number of countries with primary institutions = 89 out of 92.
7. Primary institutions in these countries distributed as follows:
Number in country
12 3 4 or more
Number of Countries 49 23 10 7
8. Balance sheets obtained for 115 primary institutions and six ex-
ceptions comprising 60% of all balance sheets obtained. The assets
in those 121 amounted to 847o of assets recorded in all balance sheets.
Median assets size of the 121 was $15. 7 million.
9. Ownership:
Public 97
Mixed with
public domi-
, nance 20
117
31
The Primary Institutions are:
Country
AFGHANISTAN
ALGERIA
ARGENTINA
BRITISH WEST INDIES
BOLIVIA
BRAZIL
BURMA
CAMBODIA
CAMEROON
CENTRAL AFRICAN REPUBLIC
CE'/LOX
CHAD
CHILE
COLOMBIA
CONGO (Brazzaville)
CONGO (Kinshasa)
COSTA RICA
Institution
Agriculture and Cottage Industries Bank
-'Caisse Algerienne de Developpement
Banco de la Nacion Argentina
Banco Industrial de la Repiiblica Argentina
Barbados Development Board
Banco Minero de Bolivia
Banco Agricola de Bolivia
Corporacion Boliviana de Fcmento
Banco de Fomento
Banco Nacional do Desenvolvimento Economico
"Industrial Development Bank, Ltd.
"Industrial Development Corporation
Caisse Nationale d'Equipement du Cambodge
Banque Camerounaise de Developpement
West Cameroon Development Agency
" Societe Nationale d ' Investissement
Banque Nationale de Developpement de la
Republique Centraf ricaine
Agricultural and Industrial Credit
Corporation of Ceylon
Banque de Developpement du Tchad
Banco del Estado de Chile
Corporacion de Fomento de la Producion
-'Corporacion de la Reforma Agraria
Caja de Credito Agrario, Industrial y Minero
-'•'Banque Nationale de Developpement du Congo
Banque Congolaise de Developpement
Banco Anglo-Costarricense
Banco de Costa Rica
Banco Nacional de Costa Rica
Banco de Credito Agricola de Cartago
CYPRUS
Cyprus Development Corporation Limited
32
DAHOME Y
DOMINICAN REPUBLIC
Banque Dahomeenne de Developpement
ECUADOR
EL SALVADOR
ETHIOPIA
GABON
GHANA
GREECE
GUATEMALA
GUINEA
GUYANA
HAITI
HONDURAS
ICELAND
INDIA
IXDONTSIA
IRAX
IRAQ
IRELAND
Banco Agricola de ia Republica Dominicana
Corporacion de Fomento Industrial de la
Re.publica Dominicana
^Agricultural and Industrial Credit Bank
^Institute de Desarrollo y Credito Cooperativo
de la Republica Dominicana
Corporacion Financiera Nacional
Banco Nacii^nal de Fomento
*Sistema de Credito de Fomento
Instituto Salvadoreno de Fomento Industrial
Development Bank of Ethiopia
Investment Bank of Ethiopia
Banque Gabonaise de Developpement
National Investment Bank
"'Agricultural and Cooperative Credit Bank
Agriculture Bank of Greece
Hellenic Industrial Development Bank
Instituto de Fomento de la Producion
Banco Nacional Agrario
*Financiera Industrial y Agropecuaria S.A.
"Banque Nationale de Developpement Agricole
Guyana Credit Corporation
-'•'Industrial Development Corporation
Institut de Developpement Agricole et
Industriel
Banco Nacional de Fomento
Iceland Bank of Development
Industrial Finance Corporation of India
'"Bank Pembaguan Indonesia
Agricultural Credits and Rural Development
Bank of Iran
Industrial Credit Bank
"•'•Industrial Bank of Iraq
Industrial Credit Company, Ltd.
33
ISRAEL
IVORY COAST
JAMAICA
JORDAN
KENYA
KOREA
KUWAIT
LAOS
LEBANON
LIBERIA
LIBYA
MALAGASY REPUBLIC
i-IALAWI
MALAYSIA
MALHITANIA
MAURITIUS
MEXICO
MOROCCO
::epal
::!:.■: calldonia
Industrial Development Bank of Israel, Ltd.
Credit de la C'&te d ' Ivoire
Industrial Development Corporation
Agricultural Development Corporation
Small Business Loan Board
Development Finance Corporation
Development Bank, of Jordan, Ltd.
Agricultural Credit Corporation
■-'■Industrial Development Board Fund of Jordan
Land and Agricultural Bank of Kenya
Industrial and Commercial Development
Corporation
Agricultural Finance Corporation
Development Finance Company of Kenya, Ltd.
The Korean Reconstruction Bank
Medium Industry Bank
"'Kuwait Trade, Contracting and Investment
Company
Credit National Lao
"Societe de Credit Agricole, Industriel du
Liban
Liberian Development Corporation
Agricultural Credit Corporation
Libyan Industrial and Real Estate Bank
"Libyan-American Reconstruction Commission
''National Agriculture Bank
Banque Nationale Malgache de Developpement
"Malawi Development Corporation
"Industrial Promotion Board
Banque Mauritienne de Developpement
Development Bank of Mauritius
Nacional Financiera S. A.
Caisse Nationale de Credit Agricole
Nepal Industrial Development Corporation
Societe Immobiliere et de Credit de la
Nouvelle-Caledonie
"'Agricultural Credit Board
34
NICARAGUA
NIGER
Banco Nacional de Nicaragua
Institute de Fomento Nacional
NIGERIA
PAKISTAN
PANAMA
PARAGUAY
PERU
PHILIPPINES
PORTUGAL
PUERTO RICO
SAUDI ARABIA
SENEGAL
SIERRA LEONE
SINGAPORE
SOMALI REPUBLIC
SPAIN
SUDAN
SURINAM
SYRIAN ARAB REPL^BLIC
Credit du Niger
Banque de Developpement de la Repiiblique
du Niger
Union Nigerienne de Credit et de Cooperation
•'•'Federal Loans Board
Industrial Development Bank of Pakistan
"National Small Industries Corporation
Institute de Fomento Economico
Banco Nacional de Fomento
Banco de Fomento Agropecuario del Peru
Banco Industrial del Peru
Banco Minero del Peru
"•'Agriculture Bank
"Institute of Agrarian Reform and Colonization
National Development Company
Development Bank of the Philippines
National Investment and Development Corporation
^t Small Industries Loan Fund
* Banco de Fomento Nacional
Puerto Rico Industrial Development Company
Government Development Bank for Puerto Rico
'^Agricultural Development Bank
Banque Nationale de Developpement de Senegal
Sierre Leone Investments, Ltd.
Agricultural Loans Scheme
Singapore Factory Development, Ltd.
Economic Development Board
Credito Somalo
Banco de Credito Industrial
Agricultural Bank of Sudan
Industrial Bank of Sudan
National Development Bank, Ltd.
Industrial Bank, Damascus
TANZANIA
TOGO
TRINIDAD AND TOBAGO
TUNISIA
TURKEY
UGANDA
UNITED ARAB REPUBLIC
UPPER VOLTA
URUGUAY
VENEZUELA
VIETNAM
YUGOSLAVIA
ZAMBIA
35
Tanganyika Development Finance Company, Ltd.
National Development Corporation
Credit du Togo
Trinidad and Tobago Industrial Development
Corporation
Agricultural Credit Bank
Societe National d ' Investissement
Banque Natlonale Agricole
Societe Tunisienne de Banque
"'Agricultural Bank of the Turkish Republic
-■Industrial Credit and Investment Bank
Development Finance Company of Uganda, Ltd.
*Uganda Development Corporation, Ltd.
Agricultural Credit and Cooperative Bank
Industrial Bank
Banque Nationale de Developpetaent
*Banco de la Republic a Oriental del Uruguay
Banco Industrial de Venezuela
Banco Agricola y Pecuario
Corporaci6n Venezolana de Fomento
Industrial Development Center
*Societe Financj'ere pour le Developpement
de 1' Industrie au Viet Nam
Yugoslavian Investment Bank
Industrial Development Corporation of Zambia, Ltd.
African Loan and Finance Company, Ltd.
*Land and Agricultural Bank of Zambia
Primary Institutions: Exceptions
COLOMBIA
INDIA
IRAN
IVORY COAST
TURKEY
Instituto de Fomento Industrial
Institute Colombiano de Reforma Agraria
National Small Industries Corporation
Industrial Development Bank of India
Industrial Guarantee Bank
Caisse Nationale de Credit Agricole
State Investment Bank
36
3. 4 Cluster Two - The National Private Institutions
Where privately owned or privately dominated development finance insti-
tutions are established at the national level, they are created after those
described in Cluster One and are smaller in asset size.
The smallest cluster in both number and asset size, the private insti-
tutions operating at the national level by 1965 accounted for the largest
number of "new starts" in development finance institutions. At that point
in time they were to be found in 33 of the 92 countries in the study.
The Cluster Two proposition says that national private institutions are
created after primary institutions, and are smaller in asset size. This
relationship is summarized in the following decision rule, which identifies
an entity as a national private institution:
Rule 2-1: If privately owned, or privately dominated if mixed in
ownership; national in scope; established after all the
Cluster One institutions and smaller in asset size than
such institutions.
One acceptable aberration exists:
AA 2-1: Thailand's Industrial Finance Corporation is a national,
privately dominated entity. As the country's only deve-
lopment finance institution, it would be an exception
since it is not publicly owned. However, as it started
its existence as a primary, later being converted to a
national private institution, it is allowed as an accep-
table aberration.
Seventy-two National Private Institutions. Seventy-two national-
level, pr 1 vate ly- ovjned or dominated institutions, including 41 basic study
institutions, have been classified as belonging to the second cluster.
Five other national, privately-owned or dominated institutions stand as
exceptions to the decision rule, since they were either begun before
any national primary institutions (or in lieu of any) or are larger than
37
any in their country. These exceptions are discussed below.
Many of the 72 national private institutions and of the 5 exceptions
are members of another significant grouping, for they belong to the 17 pri-
vate development finance companies in which the International Finance Corp-
oration has invested equity. Also, national private institutions in three
countries - Colombia, Spain and Mexico - are members of national development
banking systems in those countries. This group of systems will be
examined more fully in a later study.
The accompanying Table 3.2 sets out basic facts for Cluster Two. In
the analysis the five exceptions are included to avoid distortion of the sig-
nificance of this cluster. The additional list institutions are marked with
an asterisk.
The National Private Institutions are:
Country Institution
ARGENTINA *Complnia General de Inversiones Sociedad
Anonima Financiera
* Argentaria, S. A. de Finanzas
BOLIVIA Banco Industrial, S. A.
"Banco de Desarrollo Industrial de Bolivia
CEYLON Development Finance Corporation of Ceylon
COLOMBIA Corporacion Financiera Nacional
Corporacion Financiera Colombiana
Corporacion Financiera del Norte
"Inversiones Esso de Colombia
COSTA RICA Corporacion Costarricense de Financiamento
Industrial S. A.
ECUADOR ■=^Compania Financiera Ecaatoriana de Desarrollo
Industrial^ S. A.
38
Country
EL SALVADOR
GREECE
HONDURAS
INDLA
IRAN
ISRAEL
IVORY COAST
KUWAIT
LEBANON
LIBERIA
MALAGASY REPUBLIC
MEXICO
Institution
Financiera de Desarrollo e Inversiones y
Financiera de la Pequefta Empresa
Investment Bank S. A.
National Investment Bank for Industrial
Development, S. A.
Financiera Hondurena, S. A.
Industrial Credit & Investment Corporation of
India, LTd.
Industrial and Mining Development Bank of Iran
Discount Bank Investment Corporation, Ltd.
Banque Ivoirienne de Developpement Industriel,
S. A.
"'Kuwait Investment Company
Banque de Credit Agricole Industriel et
Foncier S. A. L.
■'fLiberian Bank for Industrial Development and
Investment
Societe Nationale d' Investment
Credito Minero y Mercantil, S. A.
Compaftia General de Aceptaciones, S. A.
Credito Bursatil, S. A.
Impulsora Comercial e Industrial, S. A.
Financiera Cafetalera, S. A.
Financiera Mexico, S. A.
Financiera Bancomer, S. A.
Financiera Metropolitana, S. A.
"Bolsa de Valores de Mexico
*Carlos Trouyet, S. A.
*Casasus, Trigueros y Cia. , S. A.
"Corretajes e Inversiones Bursatiles, S. A.
*Credito Americano de Mexico, S. A.
*Credito Mexicano, S. A.
■^Financiera Colon, S. A.
*Financiera Comercial Mexicana, S. A.
*Financiera y Fiduciaria Mexicana, S. A.
*Gibbon Alonso y Cia. , S. A.
39
Country
MEXICO cont'd
NICARAGUA
NIGERIA
PAKISTAN
PANAMA
PERU
PHILIPPINES
SPAIN
TANZANIA
THAILAND
TURKEY
VENEZL"ELA
Institution
"Impulsora de Valores, S. A.
"Interamericana de Arrendamientos S. A.
'"Intercontinental, S. A.
*Lopez Velasco, Watson y Cia. , S. A.
*Pablo Scherer, S. A.
"Padua y Cia. , S. A.
"-Promociones y Corretajes, S. A.
•"Sociedad Financiera de Industria y
Descuento, S. A.
*Sociedad Mexicana de Credito Industrial,
S. A.
Corporacion Nicaraguense de Inversiones
Nigerian Industrial Development Bank, Ltd.
The Pakistan Industrial Credit and Investment
Corporation, Ltd.
*Desarrollo Industrial, S. A.
Financiera Peruana, S. A.
Inversiones Abancay, S. A.
Peruinvest Compania de Fomento e Inversiones,
S. A.
Private Development Corporation of the
Philippines
Banco de Financiacion Industrial
Banco del Desarrollo Economico Espaftol, S. A.
Banco de Fomento
Banco Europeo de Negocios
"-Banco Industrial de Bilbao
*Banco Urquijo
*Corporaci6n EspaTiol de Financiacion
Internacional, S. A.
Banco de Financiacion Industrial
Mwananchi Development Corporation, Ltd.
Industry Development Corporation of Thailand
Industrial Development Bank of Turkey
C. A. Venezolana de Desarrollo
*Compa?iia de Inversiones Creole
*Inversiones Shell de Venezuela
Table 3. 2
Summary Data for National Private Institutions
1. Number of basic study institutions classified as national private
institutions- 39
2. Number of additional list institutions so classified. 33
3. Total number of national private institutions (1 + 2). 72
4. Number of national, privately owned or dominated institutions
classed as exceptions because of order of establishment or size. 5
5. Total number of national, privately owned or dominated institu-
tions (3+4) 77
6. Number of countries with national, privately owned or dominated
institutions = 33 out of 92
7. These institutions are distributed as follows:
Number in Country
1 2 3 or more
Number of countries 24 4 5
8. Balance sheets obtained for 44 national, privately owned or dominated
institutions (exceptions, line 4 above, included to avoid distortion),
comprising 227o of all balance sheets obtained. Assets in those 44
equaled 8. 6% of assets recorded in all balance sheets. Median assets
size of the 44 was $13.9 million.
9. Ownership:
Private 28
Mixed with private
dominance 16
44
40
3. 5 Cluster Three - The Sub-National Institutions
Institutions operating at a sub-national level, e.g. regional, pro-
vincial, or state, are established after the primary institutions, but
frequently precede the national private institutions; they are smaller in
assets size than both primary and national private institutions.
Ten countries with federal political frameworks or other strong charac-
teristics of political or geographic regionalism have established develop-
ment finance institutions that serve a city, state or region rather than
the whole country. The following rule covers sub-national institutions:
£ule 3-1: If sub-national in scope, established after the
primary institutions, and smaller in assets size
than both primaries and the national private insti-
tutions.
Sub-national institutions may be public, private or mixed in ownership.
Although only 10 percent of the countries in the study have sub-national
institutions, they form 21 percent of the basic study institutions and 27
percent of all 326 institutions if the additional list is included. Thus,
there is a fairly high concentration of sub-nationals in a few countries:
Argentina, Brazil, Colombia, India, Malaysia, Nigeria, Pakistan, Phili-
ppines, Spain and Venezuela.
Two Acceptable Aberrations. The proposition for Cluster Three says
that its members are created after, and are smaller than, the national level
public institutions designated as primaries. There are two deviations from
this pattern:
AA 3-1: Prior existing general credit institutions. In Argentina
and Brazil, provincial and state governments have estab-
lished commercial or farmers' banks, which can broadly be
described as General Credit Institutions (GCl's). These
41
have traditionally dealt in short term credit or agri-
cultural crop financing. Some have been in existence
many years, predating the creation of any specialized
development finance institutions in the current sense
of the word. They have only recently established, or
are now establishing, development finance facilities
or windows as one part of their overall services.
(See Section 2). Although their early date would con-
stitute them exceptions to the rule, they are included
as acceptable aberrations in view of their recent en-
try into development finance.
AA 3-2: Subsequent federation. In Malaysia, development finance
institutions established in Sarawak and Borneo prior to
federation became sub-national institutions when these
states joined the federation. They may predate the na-
tional level institutions but were not established in
the present national context. Their early date has not
created an exception.
Eighty-six Sub-National Institutions. Eighty-six institutions are
counted as operating at a sub-national level. In addition, three excep-
tions belong to this group. Of the 43 basic study institutions included,
20 are public, four are private, 12 are mixed with public dominance, and
three are mixed but privately controlled. There is a higher proportion of
"additional list" or unknowns among this Cluster than exists in the others.
Summary Cluster Three data are set forth in accompanying Table 3.3. The
fact that in six of the ten nations exhibiting sub-national institutions,
there exists some sort of a system of development finance to which these
institutions belong, will be examined more fully in the future study re-
ferred to above. Additional list institutions are marked with an aster-
isk. The sub-national institutions are:
Country Institut i on
ARGENTINA Banco de la Provincia de Cordoba
Banco Provincial de Santa Fe
Banco de Entre Rios
42
Country
ARGENTINA cont'd
BRAZIL
COLOMBIA
INDIA
Institution
*Banco de la Provlncia de Buenos Aires
Banco Credito Agricola do Espirito Santo S. A.
Banco de Desenvolvimento do Estado de
Pernambuco
Banco de Credito da Amazonia S. A.
Banco do Nordeste do Brazil S. A.
Banco Regional de Desenvolvimento do
Extremo Sul
Companhia Progresso do Estado da Guanabara
Banco de Desenvolvimento de Minas Gerais
-'Banco do Estado da Bahia
*Banco de Desenvolvimento do Estado de
Santa Catarina S. A.
■-'•'Banco do Estado do Amazonas S. A.
^fBanco do Estado do Ceara S. A.
*Banco do Estado do Goias S. A.
"Banco do Estado da Guanabara S. A.
-'Banco do Estado do MaranhSo
"Banco do Estado do Mato Grosso S. A.
*Banco do Estado do Para S. A.
"'Banco do Estado da Paraiba S. A.
"'Banco do Estado do Parafta
■='Banco do Estado do Piaui S. A.
*Banco do Estado do Rio de Janeiro S. A.
*Banco do Estado de Rio Grande do Sul
"Banco do Estado de Sao Paulo S. A.
^^Banco de Fomento Economico de Sergipe S. A.
*Banco da Produc^o do Estado de Alagoas S. A.
"Banco do Rio Grande do Norte S. A.
•^'Companhia de Desenvolvimento de Alagoas
'^fCompanhia de Desenvolvimento Economico do Ceara
*Companhia de Desenvolvimento Economico do Estado
do Rio de Janeiro
^Companhia de Desenvolvimento de Pernambuco
Corporacion Financiera del Valle
Corporacion Financiera de Caldas
Fondo de Desarrollo y Diversif icacion de
Zonas Cafeteras
Madras Industrial Investment Corporation, Ltd.
Maharashtra State Financial Corporation
Punjab State Financial Corporation
Bihar State Financial Corporation
West Bengal Financial Corporation
Madlhya Pradesh Financial Corporation
43
Country
INDIA cont'd
MALAYS lA
NIGERIA
PAKISTAN
PHILIPPINES
SPAIN
Institution
Rajasthan Financial Corporation
Andhra Pradesh State Financial Corporation
Jammu and Kashmir State Financial Corporation
Mysore State Financial Corporation
Gujarat State Financial Corporation
Kerala State Industrial Development Corporation, Ltd
Borneo Development Corporation, Ltd.
Sarawak Development Finance Corporation
*Northern Nigeria Development Corporation
Development Finance Company (Eastern Nigeria), Ltd.
Northern Nigeria Investments. Ltd.
Fund for Agricultural and Industrial Development
The East Pakistan Small Industries Corporation
East Pakistan Industrial Development Corporation
*West Pakistan Industrial Development Corporation
Pasay City Development Bank
Quezon Development Bank
Second Rizal Development Bank
Second Cebu City Development Bank
*Agro-Industrial Development Bank (Pampanga)
"'Bacolod City Development Bank
"Bulacan Development Bank
■"'fCabanatuan City Development Bank
*Cavite City Development Bank
*Cebu City Development Bank
*Davao City Development Bank
"Iliolo City Development Bank
*Laguna Development Bank
*La Union Development Bank i
*Lipa City Development Bank ;
*Quezon City Development Bank
"Rizal Development Bank
"'San Pablo City Development Bank
"'Second Bulacan Development Bank
"Second Quezon City Development Bank
"Second Laguna Development Bank
""Second Pampanga Development Bank
-"Surigao Development Bank
"Tar lac Development Bank
"Third Rizal Development Bank and Tropical
Homes, Inc.
Banco de Granada
44
Country Institution
SPAIN cont'd Banco Industrial de Leon
Banco del Noroeste S. A.
Sub-National Institutions: Exceptions
VENEZUELA Corporacion Venezolana de Guayana
NIGERIA Western Nigeria Finance Corporation
Western Nigeria Development Corporation
Table 3.3
Summary Data for Sub-National Institutions
1. Number of basic study institutions classified as sub-national
institutions. 40
2. Number of additional list institutions so classified. 46
3. Total number of sub-national institutions (1 + 2). 86
4. Number of institutions operating at a sub-national level
classed as exceptions because of order of establishment or
size. 3
5. Total number of institutions operating at a sub-national
level (3 + 4). 89
6. Number of countries with institutions operating at sub-national
level = 10 out of 92.
7. These institutions are distributed as follows:
Number in Country
1 2 3 4 5 or more
Number countries 113 14
8. Balance sheets obtained for 36 sub-national institutions (exceptions,
line 4 above, included to avoid distortion), comprising 187= of all
balance sheets obtained. Assets in those 36 equaled 1 .TL of assets
recorded in all balance sheets. Median asset size of the 36 was
$9.4 million.
9. Ownership:
Public 20
Private 4
Mixed
public dominance 12
private " 3
Unknowns 4
43
45
3. 6 Exceptions
Ninety-three percent of the basic study institutions follow the pat-
terns set out above or understandable deviations from them. Fifteen insti-
tutions do not, since they vary in regard to when they were formed or how
large they are. They were listed at the end of the cluster to which they
most closely conform. In a diagram similar to that found at the opening
of this section, the exceptions are seen to take the following forms.
Primary Institutions
National Private Institutions Sub-National Institutions
A
Exceed in Size
The 15 exceptions fall into five identifiable groups:
1. Two national public institutions following the normal pattern of
early time of creation but being surpassed in size by at least
one Cluster Two and/or Cluster Three institution. (These are de-
signated E 1-1) .
2. Five national public institutions established after Cluster Two
or Cluster Three institutions. (These are designated E 1-2).
3. Three national private institutions in two countries with no na-
tional or sub-national public institutions. (These are designa-
ted E 2-1).
4. Two national private institutions which started according to the
pattern, after the primaries, but which are now larger than any
of the national public institutions. (These are designated E 2-2)
46
5. Three sub-national institutions which are larger in size than the
national private institution(s) in the country. (These are desig-
nated E 3-1).
Two groups of these exceptions are significant to the hypothesis that
the national public institutions precede private institutions. First, in
Taiwan and (Rhodesia, privately owned or dominated, rather than publicly
owned or dominated, institutions have been established. Rhodesia's two,
the Anglo-American Rhodesian Development Corporation, Ltd. and the African
Loan and Development Company, appear to be the only basic study institutions
among 202 for which balance sheets were obtained, which do not have public
financial backing - local or international, debt or equity. Taiwan's China
Development Corporation also stands alone. It, however, has backing from
the World Bank Group and other sources as well as local government financing.
In four countries with a regular grouping of initial primary institu-
tions, other national level, publicly-owned or dominated institutions have
been created later in tiir.e, after intervening national private and sub-
national institutions. In India, the National Small Industries Corporation
was formed in 1955 after five State Financial Corporations and in the same
year as the ICICI. In 1964, that country created the Industrial Development
Bank (IDB/I), a subsidiary of the Reserve Bank of India, to finance other
development institutions, as well as to provide direct credit to especially
large industrial projects. Both cases were a response to a need for contin-
uing evolution of the development finance structure.
A similar instance occurred in Colombia, where the Instituto Colombi-
ano de Reforma Agraria was established to combine credit with a wide pro-
gram of agrarian reform. In Iran, the Industrial Guarantee Fund was
47
established as a new approach to industrial credit. Finally, in Turkey,
the State Investment Bank was established as an entity to finance state
owned projects, many years after the creation of the private Industrial
Development Bank.
In each of these cases, with the exception of IDB/I, foreign public
finance comprises a significant amount of the resources of the institu-
tions. It may be that, at least in part, these institutions were created
later than the initial group to facilitate the acquisition and use of ex-
ternal public funds.
The remaining three types of exceptions turn on relationships of
size. In Colombia, at least one otherwise primary institution, Colom-
bia's Institute de Fomento Industrial, has been passed in size-order
by two national private and two sub-national institutions. The Ivory
Coast's Caisse Nationale de Credit Agricole - similarly otherwise a pri-
mary institution - has been passed in size by a national private insti-
tution. Closely related are the cases of Malaysia and Morocco where the
national private institutions - the Malaysian Industrial Development Fi-
nance, Ltd. and the Banque Nationale pour le Developpement Economique -
have surpassed all the primary institutions in size. It is worth noting
that in all four countries the "surpassing" national private or the sub-
national institutions have had financial support from the World Bank
Group and have enjoyed considerable access to other external public
bilateral or private sources, illustrating the role these sources can
play in adding to an institution's resources.
Finally, sub-nationals have surpassed all the national level
48
institutions in the cases of Venezuela's Corporacion Venezolana de Guaya-
na, aimed at the development of the Guayana River area and the Development
Corporation and Finance Corporation in Western Nigeria.
For purposes of the analysis that follows, the exceptions join the
cluster to which they most closely conform. The national, publicly-owned
or dominated institutions are included as primary institutions for statis-
tical purposes, and so on.
3. 7 Change of Cluster Characteristics and Membership
An examination of the four characteristics which define membership
in the clusters - time of establishment, scope, ownership, and size -
show them to be relatively stable.
In three cases, an institution's ownership has changed so as to
change it from a primary to a national private institution. The Malaysia
Industrial Development Finance, Ltd., Morocco's Banque Nationale pour le
Developpement Economique and Thailand's Industrial Finance Corporation
all started their existence as publicly-owned or dominated entities.
During 1963, a capital reconstruction took place in each, which reduced
the public holding to a minority share and converted the institution to
a national private one. By these reorganizations, these institutions were
able to fit within the World Bank Group's policy favoring private and local
ownership of development finance companies and each institution has since
received substantial financial support from that international source.
Generally, such transformations of ownership have been infrequent excep-
tions.
As to scope, it is possible for sub-national institutions to become
49
operative on a truly national scale, as in the case of Colombia's corpora-
tiones financieras. Most of these were originally conceived of as sub-
national institutions, but some have shown a tendency to expand to a na-
tional scale as their resources permit. Again, sub-nationals in general
have not appeared to become national institutions.
It is possible that the size of a national private or sub-national
institution may, in the future, surpass that of the primary institutions
in the country (or in the case of sub-nationals, surpass the national
privates), thus widening the exceptions and corroding the patterns des-
cribed here. An examination of the seven exceptions turning on size
sheds some light on this question. Because the Directory information pro-
vides only recent balance sheet figures and only occasional indications
of original capitalization or size, it is difficult to ascertain whether
the exceptions resulted from large scale size at time of creation or from
subsequent growth relative to other institutions in the country. In Co-
lombia, the capitalization of three of the four "surpassing" institutions
- two national private and two sub-national - is larger than the "sur-
passed" primary, suggesting they may have been originally created larger.
But the real leverage for each has come from access to central govern-
ment credit, external public credit and foreign private credit as supple-
ments to the institutions' own funds. This situation suggests a govern-
ment policy to turn to those institutions rather than the existing govern-
mental institutions^ combined with complementary support by external aid
resources. In the Ivory Coast, Malaysia and Morocco, the "surpassing"
institution has grown dramatically through the influx of World Bank Group
50
and bilateral aid agency funds.
Venezuela's large regional development corporation, centering on the
Guayana River area, was evidently intended from the outset as a massive en-
tity. Nigeria's strong regionalism probably explains the predominance of
sub-national entities over national ones in that country.
Dominance in size by national private or sub-national institutions,
thus, appears so far to be largely a product of heavy foreign financial sup-
port and/or of government policy. The instances have been limited. Al-
though the national private and sub-national clusters are relatively young
in relation to primary institutions, there is no evidence yet to suggest
that as a group their relational size to primary institutions, or to each
other, will change in the foreseeable future.
Order of establishment is set, of course, for the existing institutions
and the exceptions have already been noted. Whether new institutions will
upset the patterns described is open to question. The maintenance of the
patterns would imply a period of continued establishment of primaries fol-
lov;ed by proportionally more national private and/or sub-national institu-
tions. The meaning of this question for individual countries forms the sub-
ject rr.atter of the next section. it is appropriate now to note the gradual
move tOT^rard a proportional increase in non-primaries over recent years, as
illustrated in Table 3.4.
3. 8 Surrrr.ary
In summary, the overwhelming number of development finance institutions
in developing countries can be grouped in a system that relates not only
to their ownership and their geographical scope of operations, but also
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51
to their relative order of establishment and relative size. Classifica-
tion along these lines can be helpful in understanding the present struc-
ture of development finance and hopefully inforecasting the future.
This section has identified three basic groupings. The largest of
these are the 153 primary institutions, characterized as being government
owned or dominated, among the first and largest institutions, and national
in scope. The second cluster is the 72 national private institutions. These
are also national in scope, but are privately-owned or dominated. They are
established in a country after that country's primaries and are smaller in
asset size. Finally, there are the 86 sub-national institutions, so called
because they operate at a sub-national level - being regional, provincial,
or state-based within a country. These institutions are found in countries
with a federal framework or with strong political or geographic regionalism.
They may be publicly or privately owned, or mixed. They amy pre-date na-
tional institutions, although they are smaller (unless they are general
credit institutions with a development finance facility or window). They
usually belong to a system, receiving financial assistance from a central
government source.
A small proportion - 15 organizations, or 7 percent of the basic
study institutions, stand as exceptions to the picture portrayed above,
either because they were established at a time other than described for
their basic type of institution or vary trom the pattern in terms of size.
Where exceptions do occur, it generally ,has been because a private in-
stitution has, frequently with the aid of external aid resources, be-
come the dominant institution in the field, or because a government
has created a new institution comparatively late in its country's evo-
52
lution of development finance institutions, presumably in response to
continually evolving needs.
The characteristics defining the groupings suggested in this section
appear . relatively stable, adding to their usefulness as a framework. The
relative size of the clusters, however, may well be changing. This topic
is the concern of the following section.
4. THE EVOLUTION OF DEVELOPMENT FINANCE STRUCTURES
WITHIN COUNTRIES
4. 1 Introduction
Four stages of evolution characterize the present development finance
structures in developing countries. The first stage is marked by the cre-
ation of one or more primary institutions, as defined in the prior section.
Following this primary stage, three patterns can emerge. A country may re-
main in the primary stage. A country may establish one or more national
private institutions and thereby enter into a dualist ic stage. Alterna-
tively, some countries have established sub-national institutions, and there-
by entered another form of dualistic stage. So far, all the countries which
have entered this form of structural dualism have gone on to establish na-
tional private institutions, thus coming into a polydynamic stage. A dia-
grammatic representation of these stages is found in Table 4.1.
4. 2 The Primary Stage
For most developing countries, their development banking structure re-
mains today a simple one. Nearly two-thirds, or 58, of the 92 countries
represented in the study have only primary institutions in the sense set forth
in the preceding section. These 58 countries are, therefore, in the primary
stage. Their development finance institutions account for 36.4 percent of
the known assets held by all basic study institutions, a considerably smal-
ler proportion of resources when compared to the number of countries involved.
The median GNP of those primary stage countries where data was available was
U. S. $0. 8 billion.
Thirty-three of these countries, nearly half of which are in Africa,
53
have only one development finance institution identified in the Directory.
Fifteen others recorded two institutions^ while 11 had three or four. No
primary stage country had more than four primary institutions. Thus pri-
mary stage countries are nearly evenly split between those having only one
development finance institution, and those having from two to four.
It was noted in the prior section that in China (Taiwan), Rhodesia,
and Thailand, national, privately-owned institutions exist in the absence
of primary institutions. China and Rhodesia evidently began development fi-
nance with private national institutions (if China's Small Industry Fund,
which apparently operated through regular commercial banks, is discounted).
Thailand's sole entity began as a primary, but was later converted to a na-
tional private institution. These countries are anomalies in the system
suggested here, fitting none of the patterns. In the analysis throughout
this study, they are grouped with the primary countries, whom they most
closely resemble in terms of their centralization of development finance
decision-making power, and the dominant character of one large institution.
Fifty-eight Primary Countries. The countries in the primary stage are:
AFGHANISTAN
ALGERIA
BARBADOS
BURMA
CAMBODIA
CAMEROON
CENTRAL AFRICA REPUBLIC
CHAD
CHILE
CONGO (BRAZZAVILLE)
CONGO (KINSHASA)
GUYANA
HAITI
ICELAND
INDONESIA
IRAQ
IRELAND
JAMAICA
JORDAN
KENYA
KOREA
LAOS
PUERTO RICO
SAUDI ARABIA
SENEGAL
SIERRA LEONE
SINGAPORE
SOMALIA
SUDAN
SURINAM
SYRIA
TOGO
TRINIDAD & TOBAGO
See Appendix 2 for a country-by-country list of all institutions in
the SLudy.
54
CYPRUS
DAHOMEY
DOMINICAN REPUBLIC
ETHIOPIA
GABON
GHANA
GUATEMALA
GUINEA
LIBYA
MALAWI
MAURITANIA
MAURITIUS
NEPAL
NEW CALEDONIA
NIGER
PARAGUAY
PORTUGAL
TUNISIA
UGANDA
UNITED ARAB REPUBLIC
UPPER VOLTA
URUGUAY
VIETNAM
YUGOSLAVIA
ZAMBIA
Anomalies grouped with primary countries:
CHINA (TAIWAN)
RHODESIA
THAILAND
Rationale of the Primary Stage. While the 33 countries with one primary
institution form a distinct component, it is likely that a number will add
other institutions in the future. A higher than normal proportion of insti-
tutions in these countries are young. Eighty-one percent of the basic study
institutions among them are under ten years of age, as compared to 62 percent
of all basic study institutions. An examination of the other primary stage
countries^ e-g-j those having more than one primary institution, discloses
that in half the cases the second institution was added ten or more years
after the first. Thus, these countries still have considerable time in which
to add institutions.
Occasionally, governments have started two primary institutions simultane-
ously. In doing so, they have rejected the concept of the multi-functional in-
stitution expected to fulfill both financial and entrepreneurial roles as well
as to be active at the same time in primary industry, small business, agricul-
ture, the cooperative movement, and perhaps the public sector. Instead, these
governr;ents chose from the outset to split up such tasks. The establishment in
1952 of both Jamaica's Agricultural Development Corporation and Industrial
55
Development Corporation provides an example of a split along sectorial lines.
The regional Development Corporations and Finance Corporations created in
the different sections of Nigeria in the late 1940's illustrate a division a-
long functional lines. Most often a single primary institution came first.
Very frequently - in Egypt, Trinidad and Tobago, Sudan, Ghana, and other coun-
tries with Commonwealth ties - an agricultural finance institution came first,
followed some years later by organizations to finance, promote, or otherwise
to assist industry.
Other forms of specialization account also for the creation of new insti-
tutions. In 1954, after the Korean War, that nation opened the Korean Recon-
struction Bank, a successor to the Industrial Bank of Korea. Seven years
later, a bank specializing in credit to small and medium scale industry, the
Medium Industry Bank, began operations. The establishment of Jamaica's Small
Business Loan Board in 1956, four years after the two institutions noted above,
provides another example of specialization as a causal factor.
In a number of countries, the advent of subsequent institutions is plainly
a desire to get a fresh start. The need for new funds, new management, or new
directions has frequently led to the creation of second generation institutions.
Accounting for the birth of a number of national private institutions, the at-
traction of a new generation also has played a part in the appearance of subse-
quent primary institutions.
Sometimes, second generation institutions are created by those of the first
generation. In Uganda, the multi-functional Uganda Development Corporation be-
gan in 1952. Partially because of its public ownership and its commitment to
controlling and operating many industries in which it had an interest, the UDC
56
found it difficult to attract external aid commitments from the overseas
bilateral or multilateral financial agencies. In 1964, the UDC ioined with
Britain's Commonwealth Development Corporation to form the Development Fi-
nance Company of Uganda, Ltd. , thereby bringing in new foreign resources to
the country.
In other cases, the first generation institution has been terminated by
merger into, or transfer of assets to, its successor. An examination of the
Directory disclosed at least 42 basic study institutions which were succeed-
ing entities. Eleven of these were in francophone Africa, where the influ-
ence of France's Caisse Centrale de Cooperation Economique has been directed
toward revising the institutional structure to keep up with the expressed
2
needs of the people in those nations. The Banque de Developpement du Tchad,
for example, was entitled the Societe Tchadienne de Credit before 1959, and
the Credit du Tchad before that. Still earlier, the Credit de I'Afrique
2
Similarly, countries which were formerly British colonies act
for a large number of suceeding institutions.
57
Equatoriale Francaise had provided Chad with credit for production and wel-
fare. Institutions similar to Chad's in the Congo Republic (Brazzavi le) ,
Gabon, and other states also share the common parentage of Credit de A. E. F.
and the evolution into medium-term development finance institutions.
In summary, governments have regularly created more than one primary
institution. They have done so for reasons of original choice, subsequent
perception of nev; gaps to be filled or the desirability of a new start. Only
a third of the developing countries have remained with one development fi-
nance institution, and it is likely that a number of these will expand their
institutional structure. Most frequently, coimtries have sought to meet sub-
sequent needs by the addition of new institutions, although succeeding insti-
tutions have been common. In addition to creating primary institutions, go-
vernments have established institutions operating at the state, city, or re-
gional levels, and also private institutions operating at the national level,
or a combination of both. The advent of the first or second mark the transi-
tion to the dualistic stage, while with the third, a country enters the poly-
dynamic stage.
Significance of Transition to a Subsequent Stage. The significance of
such transitions generally is that they mark a move toward decentralization
of an important force for economic growth. Someone other than the central
governmenL is in charge of some, though not all, of the development finance
mechanism. In some cases the decentralized decision-making shifts to the
private sector, and in others, it moves to government sub-units. Bringing
either into the development finance process implies a sharing of power not
normally existing in the primary stage, even in primary institutions which
58
are mixed in ownership. Capability in the sub-level governments or in the
private sector is also implied in the transition toward decentralization.
The two more complex stages of development finance are considered below.
4. 3 The Dualistic Stage
Thirty-one countries, a third of those in the study, have moved out of
the primary stage and to a more elaborate structure of pluralism.
Of these countries, ten left the primary stage by creating, or endow-
ing existing, sub-national institutions with development finance capability
to operate on a regional, state, or local basis (designated "provincial" in
the Directory). These countries were then in the first mode of the dualistic
3
stage. In seven, the sub-national entities were publicly-owned, usually by
state governments, but in a few instances they were regional in character,
4 5
encompassing more than one state. In the remaining three, the institutions
were privately-owned, although receiving finance from the government. In each
of these ten countries, national private institutions have since been started,
moving the country from the dualistic to the polydynamic stage in which they
now are found. Further, national systems for development finance have been
formed in most. For these reasons, further discussion of these countries is
found in the section below on the polydynamic stage.
^In Argentina, Brazil, India, Malaysia, Nigeria, Pakistan, and Venezuela.
4
orazil's Banco do Nordeste and Banco de Credito da Amazonia.
Colombia, Philippines, and Spain.
Brazil's national private institutions came into being after the
Directory was edited, but the country is included in this group where it
be longs.
59
Twenty-one Dualistic Structure Countries. There are 21 countries which
are presently in the second mode of the dualistic stage, having both primary
and national private institutions. ihey are:
BOLIVIA
CEYLON
COSTA RICA
ECUADOR
EL SALVADOR
GREECE
HONDURAS
IRAN
ISRAEL
IVORY COAST
KUWAIT
LEBANON
LIBERIA
MALAGASY
MEXICO
MOROCCO
NICARAGUA
PANAMA
PERU
TANZANIA
TURKEY
The Rationale of the Dualistic Stage with National Private Institutions.
Dualism involving private development finance institutions operating on a
national level is a recent, and probably growing phenomenon. These 21 coun-
tries account for 28.9 percent of the known assets of all the basic study
institutions. This seems a smaller percentage than one might suspect of a
group that comprises a quarter of the countries in the study. Development
finance institutions are by definition specialized entities filling needs in
the institutional structure not filled by existing market-oriented institu-
tions. The arguments for creating national private institutions, presumably
with a greater interest in profit or market motives, have generally rested
on 1) the efficiency of private management, 2) the ability of private insti-
tutions to attract private domestic and foreign savings, thereby heightening
the mobilization function^ and 3) the general preference of U. S. and other
bilateral agencies, and the World Bank Group, for privately controlled agen-
cies. These reasons appear to have been more frequently voiced than the
China fTaiv;an), Rhodesia, and Thailand have national private institu-
tions but no primaries and have been grouped with primary stage countries.
60
fundamental argument for pluralism noted above.
Probably more significant as an argument for dualism is the force tliat
moves today's rarities toward becoming tomorrow's commonplaces. In many
countries, the absence of market institutions servicing medium and long-term
needs is a matter not only of the absence of supporting capital markets but
a question of habit and experience as well. These conditions may be expected
to change in time. Public institutions may be required to close the initial
gaps, to show the way, and to do the hard pioneering work. But, over time,
the work v;ill become less unusual, less pioneering. The private institutions
can move into the role of finance supplier. The market place can take over,
leaving the public institutions free to move into the more recently identi-
fied gaps. Private development finance institutions may go through a stage
of preparing for the day when they will no longer be extra-market, but rather
marketplace, institutions. Today's private development finance institutions
could be tomorrow's investment banks.
These considerations are undoubtedly among those that led governments
to initiate or support the national private institutions. The countries
that have done so do not appear to have significantly more economic activity
than those in the primary stage. The median GNP for the group is U. S. $0. 9
billion.
It may be that few countries can support more than one private develop-
ment finance institution. Seventeen of the 21 countries in the dualistic
stage have only one national private institution. In nearly half of these,
the governn^ent has an interest in the share capital. It may be in the in-
terest of both the public and private shareholders for such institutions to
61
remain the sole private institution, if the number of first class projects
is limited.
But there clearly is no steadfast limit of one-to-a-country for this
type of institution. Mexico's nearly 30 f inancieras are basically wholly
market oriented operations, but nevertheless, they carry on some develop-
ment finance activities through their credit relationship with the Nacional
Financiera. Two major private banking groups in Greece have recently estab-
lished development finance institutions. Peru has three, although some may
argue that they, like many of Mexico's f inancieras, are really market, not
extra-market, institutions. And among the ten polydynamic stage countries
discussed below - with both national private and sub-national institutions
- five have hurdled the single-entry barrier and have more than one private
national institution.
Thus a division might be made between those countries with one national
private institution and those with a number. In most of the latter, sub-
national institutions also exist, and the country has the pluralistic struc-
ture that is here identified with the polydynamic stage.
The Timing of Dualism. Many countries have entered the dualistic stage
only after long periods in primary status. The median time in the primary
stage prior to transition to the dualistic stage is 14 years. Their times
8
in the primary stage range as follows:
Table 4. 2 Years in Primary Stage Prior to Entering Dualistic Stage
Years 0-5 10-14 20-26 34-101
Number of Countries 5 4 4 3
'Data not clear for five countries.
62
The transitions are on the whole very recent. Thirteen of the 21 countries
entered dualism during the years 1961 to 1966. Only Mexico and Turkey were
in the dualistic stage by the end of 1950. The concentration of transitions
in the very recent past suggests that countries may have been more responsive
to global trends than to internal logic of evolution.
4. 4 The Polydynamic Stage
The polydynamic stage is the most complex form of development finance
structure. It characteristically offers a great diversity of institutions,
with decentralization of power both downward through state and local govern-
ment-sponsored institutions, and latterly through national private institu-
tions. In at least three cases, decentralization has incorporated both char-
9
acteristics in private sub-national institutions. The similarity of tradi-
tional marketplace financial institutions and some development finance organi-
zations in some polydynamic stage countries has already been noted - notably
in Mexico, but in Colombia, Peru, Spain, Brazil and the Philippines as well.
Thus, in some countries the development finance institutions and traditional
financial structure are either interlocked through ownership or the former
offer a potential, but partial, alternative to the expansion of the tradi-
tional structure.
Ten Polydynamic Structure Countries. Ten countries are now in the poly-
dynamic stage.
ARGENTINA INDIA SPAIN
BRAZIL MALAYSIA PHILIPPINES
COLOMBIA NIGERIA VENEZUELA
PAKISTAN
Colombia, Philippines, and Spain.
63
One characteristic of the polydynamic stage is the existence of a large
number of development finance institutions. Thus, the polydynamic countries,
excepting Malaysia, are among the 13 countries containing five or more insti-
tutions. These countries together account for over half of the development
finance institutions in the basic study and additional lists. The Philippines
has 30 and Brazil 31. Although a proportionally high number of institutions
in these countries are among those for which data are unavailable, the known
assets of the development finance institutions in these countries account for
34.4 percent of all known assets in the study. Sixty percent of the 20 largest
banks among the basic study institutions are found in these ten countries.
Another significant characteristic of this group of countries is their volume
of economic activity. The median GNP for the group is U. S. $8.6 billion, or
nine times that of the dualistic stage countries and ten times that of primary
stage countries.
Rationale of Polydynamism. Countries in the polydynamic stage share an
additional characteristic in that they have some type of strong regional
tradition, based either on geography or political history of both. The
sub-national institutions of Malaysia and Nigeria are built wholly on their
federal natures. The Borneo Development Corporation and the Sarawak Develop-
ment Finance Company were brought into the Malaysian Federation at the time
it was created. Nigeria's three regions started their own institutions in
the late 1940's. Pakistan's sub-national institutions reflect the geogra-
See Section 2, p. 8.
Venezuela's Corporacion Venezolana de Guayana, the country's only
sub-national institution is devoted to the development of the Guayana River
basin area.
64
phical split of that country. In 1957, the East Pakistan Small Industries
Corporation began a trend which was continued five years later, when the
Pakistan Industrial Development Corporation split into two entities, one for
West and one for East Pakistan.
In all of the remaining polydynamic stage countries, the forces of re-
gionalism or decentralization have resulted in the establishment of some form
of national system of development finance institutions. These systems are
characterized by the extension of financial support and frequently technical
assistance by a primary institution to national private or sub-national in-
stitutions. The primary institution, or similar entity, either alone or in
conjunction with the country's central bank, exercises some type of super-
vision over those institutions in the system.
Countries have generally entered the polydynamic stage from dualism
created by sub-national institutions rather than national private institutions.
The latter typically have been the final ingredient into the mix. Spain
12
forms an exception. New legislation in 1962 set limits on the industrial
investment role of Spanish commercial and traditional mixed banks and estab-
lished a new category of industrial banks. A number of traditional institu-
tions operating nationally either converted to, or set up, associated indus-
trial banks. The operations of the Banco de Financlacion Industrial (Indu-
ban) for example, go back to 1920 as the Banco Hispano Suizo. Similar move-
ments in provincial banking followed, creating sub-national entities. Colombia
aariKing and Credit Ordinance of April 14, 1962; Decree Law 53/1962
of 29 November, and Order of May 21, 1963.
65
may also be another exception. Its structure of corporaciones f inancieras
was originally envisaged to be based on the several distinct geographical
and political areas of the country. The first two of its seven corporaciones
financieras had the resources to operate almost from the beginning on a na-
tional scale, and are so classified in the study.
Timing of Polydynamism. Countries now in the plydynamic stage spent
varying numbers of years in the primary stage prior to going to the dualis-
tic stage. Argentina's Banco de la Nacion Argentina began operations in
crop and cattle financing in 1891, while the extension of the Inter-Ameri-
can Development Bank's medium-term facilities to Argentina's provincial
banks occurred in 1961, 70 years later. Colombia, Philippines, and Vene-
zuela range between 27 and 41 years. In contrast, India stayed in the
primary stage one year, Brazil two, and Pakistan five. The times of this
first transition are clustered in the 1957 to 1961 period, during which five
of the ten moved into the dualistic stage. Two entered in 1949, and one
each in 1954 and 1963. Thus, generally the transition from primary to
dualistic stage for these countries as a whole occurred about five years
before it did for those countries which entered the dualistic stage with
national private institutions.
The time period in dualism prior to going to polydynamism was short
when compared to the time spent in the primary stage. The range is from
four months to thirteen years. The median period is four years. The move
to create national private institutions, marking entry into the polydynamic
stage, is fairly evenly spread from 1955 to 1967 with four grouped from
1955 to 1960.
66
In summary^ these ten countries have comparatively elaborate develop-
ment banking structures, containing some of the oldest and largest institu-
tions in the study. As the development banking explosion started in the
1950's and accelerated in the early 1960's, these countries generally had
their primary institutions already underway. They moved with the explo-
sion in that they diversified into sub-national institutions early, before
some primary countries had even come into existence. Somewhat later, these
ten countries further diversified their structures by creating national pri-
vate institutions. As a group, they did so slightly before the 1961-1964
movement into national private institutions by the other countries enter-
ing the dualistic stage.
4 . 5 The Dynamics of Transition from Stage to Stage
According to the above analysis, the development finance structures
in 35 countires. or 37 percent of those in the study, have changed from
their original stage of having only primary institutions to a stage with
a more complex structure. In addition, in 25 countries remaining in the
primary stage, more than one primary institution has been established.
The number of "new starts" of the different types of institutions was
represented earlier in Table 3.4. Clearly, for a large number of coun-
tries, development finance has been a dynamic, changing phonomenon.
But how dynamic? Or how stable? How much change from stage to stage
is there likely to be in the future? How much should be sought? The
answers to these questions are important to those who are responsible for
the institutional structure of development finance, whether they be ministers
67
of planning or of finance, central bankers, investment or commercial bankers,
or bilateral and multi-lateral aid administrators.
The answers fall into two basic categories. The first deals with the
feasibility of a country's further elaboration of its development finance
institutional structure. Determinants external to policy decisions, such as
size or level of economic activity, may effectively constrain a country's
actions. The remainder of this paper examines some of these possibilities.
The second basic category of answers needed concerns the desirability,
as opposed to feasibility, of such further elaboration. It has been suggested
in this section that pluralism is a healthy characteristic in development
finance. Why? The answers are dependent upon the advantages of having a
broad variety of development finance institutions in a country. These ad-
vantages (and also any disadvantages) may be expressed in terms of the
things the institutions do, the funds they mobilize, and the effectiveness
with which they perform their tasks. These questions of desirability are
being explored in studies currently in preparation.
4. 6 Stage and External Determinants
Are there external determinants of stage? The importance of regiona-
lism - geographic, political, historical - that characterizes the polydy-
namic stage countries has already been noted. The significance of other
influences requires examination.
The passage of time alone does not appear to be a constraint keeping
present primary stage countries from moving into another stage. That is,
most countries presently in the primary stage have not yet passed the point
in age when past experience suggests they either would have made the transition
68
or not. The ranges and mean time periods spent in prior stages by countries
which have gone through a transition can be compared to the comparable figures
for those countries presently in the primary stage. (Table 4.3).
Table 4. 3
Range and mean periods in different stages
Primary Stage Dualistic Stage Polydynamic Stage
Range of Time 4-37 years 0 - 101 years 0-44 years
Lengths in Stage 1
(Mean) (12) (23) (20)
Range of Time - 3-34 0-5
Lengths in Stage 2
(Mean) (9) (2)
Range of Time - - 5-13
Lengths in Stage 3
(Mean) (7)
The mean time of the primary-stage countries in the first stage is less
than the other two categories, indicating that there is still time remaining
in which past experience suggests a transition may be made to either mode of
the dualistic stage. The range of time is also less, indicating that at the
extreme, there is still time to go. No country is "over-the-hil" in terms of
what has transpired before, although it is less likely that those countries
exceeding the mean period of transition to other stages will now make the move.
But only 33 percent of countries presently in the primary stage are past the
nearest mean, 20 years.
Volume of economic activity, geographic area, and population size may
have played a conscious or unconscious part in the decisions to enter into
dualism or polydynamism. A large country, or a populous one, might be ex-
pected to have a more complex institutional structure, as evidenced by
69
dualism or polydynamism.
The difference in the apparent volume of economic activity in the three
groups was noted at appropriate places in the discussion above. The rele-
vant data is summarized in Table 4.4.
Table 4.4
Relationship of GNP and Stage of 85 Countries
Primary Stage Dualistic Stage Polydynamic Stage
GNP ($ billion) countries countries countries
Less than 0. 5 19 1 0
0.5 to 1 14 10 0
1 to 5 18 7 3
5 to 10 3 2 2
10 to 20 0 1 2 ■
20 to 50 0 0 3
More than 50 0 0 0
No. of countries - 85 (data unavailable for six)
Median $0.8 billion $0.9 billion $8.6 billion
Mean $1.4 billion $2.8 billion $14.0 billion
Source of GNP data: 1965 figures, U N monthly Bulletin of Statistics,
U N Yearbook of National Accounts Statistics,
Business International.
An analysis of variance does not indicate a significant statistical
difference at a 5 percent level of significance. Nevertheless, the dif-
ference in median of a factor of ten between the primary stage countries
and polydynamic stage suggests it may be more feasible for countries with
sizable QNP's to establish complex development finance structures. One
really would have to know the GNP for each country at the time of transition
to be more accurate, but given the short average period in the polydynamic
Data not clear for two countries.
70
I 4
stage (seven years), these figures are suggestive.
Population and geographic area also indicate a difference among the
groups, particularly as between polydynamic countries and the other two groups.
Table 4. 5
Relationship of Population and Stage of 92 Countries
Primary Stage Dualistic Stage Polydynamic Stage
Population (million) countries countries countries
Less than 1 10 1 0
1 to 5 27 10 0
5 to 10 10 3 2
10 to 20 8 4 1
20 to 50 - 5 3 3
Over 50 1 0 3 '
No. of countries - 92 ;
Median 3.7 million 4.0 million 32 million
Mean 8.4 million 8.9 million 84.7 million
I'
J
Source of Population: 1965 figures, U N Demographic Yearbook, Encyclo- \
pedia Britannica, Book of the Year, 1967. ,
Table 4. 6 i
Relationship of Area and Stage of 92 Countries
Primary Stage Dualistic Stage Polydynamic Stage
Area (OOP sq. mi. ) countries countries countries
Less than 10 8 4 0
10 to 50 13 5 0
50 to 100 14 2 0
1 4
The International Finance Corporation has suggested that the need for the
type of financial assistance provided by private development finance companies
"...implies that the country possesses already at least a nucleus of entrepre-
neurial and managerial talent, a reasonable broad market for the products of
new enterprises, some natural resources and basic services (power, transport,
and water), a surplus of trained or trainable labor, and a reasonably good
investment climate." IFC, "Private Development Finance Companies", Washington,
June 1964, p. U.
71
Table 4. 6 cont'd
Primary Stage Dualistic Stage Polydynamic Stage
Area (000 sq. mi. ) countries countries countries
100 to 200 8 3 3
200 to 500 12 5 4
500 to 1000 6 2 0
Over 1000 0 0 3
No. of countries - 92
Median 91,000 sq. mi. 51,000 sq. mi. 361,000 sq. mi.
Mean 194,000 sq. mi. 186,000 sq. mi. 757,000 sq. mi.
Source of Area data: 1965 figures, U N Demographic Yearbook, Encyclo-
pedia Britannica, Book of the Year, 1967.
Once again, analysis of variance failed to show significant difference
among the groups. And once again, the differences, nevertheless, appear
worth noting.
4. 7 Summary
In summary, while time has not yet indicated which way the countries pre-
sently in the primary stage will go, largeness and relative economic develop-
ment appear to be associated with poly dynamism. To a lesser degree, these
qualities appear to relate to the transition of the dualistic stage assisted
with the establishment of additional private institutions, but not sub-national
institutions. However, in both cases, the correlation is not statistically
significant.
Certainly a logical extrapolation from the past suggests certain changes
that will continue to be effected in different developing countries. For a
number of developing countries, the evolution of stages is complete. Some
primary stage countries are going to remain in the primary stage, although
they may add new primary institutions. The same statement applies to some
72
dualistic and polydynamic stage countries.
Some primary stage countries will start sub-national institutions,
development banks serving regions, cities or political sub-units within
the country. History suggests that those which do will also start na-
tional private institutions at the country-wide level soon after. All
ten countries with sub-national institutions have followed this pattern
so far. Thus these countries will enter the first mode of the dualistic
stage and pass through it to the polydynamic stage.
Other countries which now have primary institutions only, will start
national private institutions and thus enter the second mode of the dual-
istic stage. History suggests that most of the countries that do so will
start only one national private institution. Whether these countries will
expand their development banking system is an interesting question. Ex-
perience so far indicates that those countries which go directly to national
private institutions have not created sub-national institutions later.
The ten countries which presently have all three types of institutions
and so are in the polydynamic stage may either continue to expand or remain
at their present level. Those countries whose sub-national institutions
are based on political geography presumably reach a limit to the creation
of new institutions when each political unit has a development finance insti-
tution. For example, the last of India's 12 State Financial Corporations
was established in 1961. In other countries where access to the system is
not governed by political geography new institutions may still be in the
offing. This would appear to be the case in Mexico, with its corporaciones
f inancieras. Similarly, the Philippines' Private Development Banking system
73
or Spain's network of industrial banks appear to be open-ended. Later studies
will discuss the future of these systems in more detail.
Much change is both feasible and likely in the development finance struc-
tures of developing countries, in spit>_ of the fact they are no longer young.
The question of whether policy planners have free choice in deciding what
changes will be made is not wholly answered in a satisfactory manner. One
component, the effect of the influence of external aid sources, will be taken
up in later studies, dealing with how the institutions are founded.
There are many other parts not yet fitted in. Little has been yet said
about what these different institutions have done with the money once they
had it. now how well they have performed in doing it. Nor have the national
systems of development finance institutions been examined, although they
form one of the most significant phenomena of the field. These topics form
the subject matter of studies now in preparation.
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