Define development financial institutions and justify their existence in the economy concerns.

CPA-Financial-Management-Section-3 Revision kit

(a) Development banks and specialized financial institutions:

– There are some sectors in the economy that may not secure adequate funds from commercial banks for various reasons.
(a) May take a long time to realize returns
(b) High risk associated with such sectors
(c) Unattractive/low returns
(d) Uncertainty or highly volatile returns
(e) Require heavy investment in infrastructure.

– These sectors include:
(a) Tourism
(b) Agriculture
(c) Rural housing
(d) Rural enterprises
(e) Small commercial businesses e.g jua kali etc.

– Such sectors e.g agriculture and tourism are essential for a balanced economic growth and development.
– The government has thus established financial institutions to cater specifically for these otherwise unattractive but essential sectors. They include:
(a) Industrial development bank (IDB) – give loans for industrial development in Kenya
(b) Development Finance Company of Kenya (DFCK) – to finance various projects which will spur economic development and create employment.
(c) Kenya Industrial Estate (KIE) – this is a branch of Industrial and Commercial Development Co-operation (ICDC) dealing with Industrial development.
(d) Agriculture Finance Co-operation (AFC)
(e) Post Bank – to mobilize rural savings
(f) National Housing Co-operation – for development of houses to ensure shelter for everyone.
(g) Kenya Tourism development co-operation (KTDC) for promotion of Tourism in Kenya.

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