Development financial institution (DFI), also known as a Development bank, is a financial institution that provides risk capital for economic development projects on a non-commercial basis.
DFIs are often established and owned by governments or nonprofit organizations to finance projects that would otherwise not be able to get financing from commercial lenders.
They are often structured as a company that provides loans for projects that a government or nonprofit wants to encourage for non commercial reasons. They can be at a local, national or international level. DFIs include multilateral development banks, national development banks, bilateral development banks, microfinance institutions, community development financial institution and revolving loan funds.[1]
Mandate
DFIs can play a crucial role in financing private and public sector investments in developing countries, in the form of higher risk loans, equity positions, and guarantees.[2]
DFIs often provide finance to the private sector for investments that promote development and to help companies to invest, especially in countries with various restrictions on the market.[2]
Climate financing
As of November 2020[update], development banks and private finance had not reached the US$100 billion per year investment of climate financing stipulated in the UN climate negotiations for 2020.[3] However, in the face of the COVID-19 pandemic's economic downturn, 450 development banks pledged to fund a "Green recovery" in developing countries.[3]
Typology
Development banks include:
- Community development banks which fund low-income areas in the United States
- Land development banks which provide financing to develop agriculture in India
- National development banks are government-owned financial institution that provides financing for economic development.
- International financial institutions conducting development-oriented finance on a bilateral or multilateral basis
- Multilateral development bank are development banks set up by a group of countries and often operate under international laws.