Development banks are unique financial institutions in developing
countries, specializing in the provision of high-risk, long-term financing
for the purpose of industrialization. There were only about a dozen viable
development banks before 1946; but after the Second World War, the growth of
this type of financial institution has been significant. At present, there
are about 400 such institutions, of which more than 45 owe their existence
and strength to the World Bank.1
These banks were expected to provide not only long-term finance
but also play a catalytic promotional role -- a development role -- in setting
in motion a viable widely diffused process of industrialization. However,
experience so far indicates that they have functioned, with few notable
exceptions2 as passive conservative bankers, supporting'financially well-known
and well-entrenched business houses rather than as development banks.
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Doubtless they have built up specialized skills and techniques in the field
of project appraisal and selection. But even in this field, their criteria
for project selection have been more or less the conventional banker's
criteria --
financial soundness and repaying ability of the project as well as
the promoter. In brief, though they have functioned as sound bankers, they
have failed as development bankers.4
The major reason for this failure seems to be the lack of appreciation
by their top managements of their specific tasks in the development context.,
It is the purpose of this paper to indicate the nature and structure of the
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top management tasks if these banks are to perform their expected development role. Top management tasks and structure as they relate to development
banking are indicated in Section I. Communication and information systems
are vital to the top management task of effective decision making,and this
relationship is discussed in Section II.
I. Development Banking:
Top Management Tasks
One cannot tinderstand the tasks of management without first analyzing
the social function which the institution is supposed to perform. Management
and the institution managed can be judged only on the basis of their performance
with regard to the social need and function, from which the institution derives
its social justification. Thus the management problem cannot be understood
without the perception of the tasks and functions of management in a social
context; for without this context, no institution can survive. So the central
focus in any study of management has to be on the tasks of management. It is
from these tasks that objectives, strategy and structure are derived; it is
not possible to discuss meaningfully the problems related to strategy and
structure without first posing the question relating to the social function
and tasks of management.
Now this social function can never be defined once and for all. The
search for the nature and structure of this function has to be a continuing
one in a dynamic and inter-dependent setting of socio-economic change. It is
the performance of this evolving social function that determines the survival
and growth of an institution; if it fails in this endeavor, its fate is
sealed even if it is managed efficiently. For business institutions like
development banks, their continuing ability to plough back profits is
merely one of the indices of their success in performance; the basic index
of their success is the vitality with which they survive and grow.
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Both economists and management scientists have not perceived the
central function and role of top management as their setting for analysis is
essentially a static setting -- a setting where things change in systematic
known ways or where there is need for mere passive adaptation to exogenous
events. The real management problem arises only in a dynamic setting --
in a setting where decisions have to be taken for the future which is unknowable and where information even about the present or the past is, in the
nature of things, incomplete and imperfect. If the past, present and future
were known, there would be no management problem. 7
In the context of development banking, the question to be raised is:
What is the emerging social function of a development bank in a given dynamic
social setting? The charter of a development bank can never define the social
function once and for all; it is the task of top management to find out the
specific implications of this function in the light of the .dynamic changing
socio-economic reality.
The broad purpose and mission can be easily stated:
to serve as a catalyst for generating a viable yet widely diffused process of
industrial development in a given country. But the precise social function
would depend upon the initial stage of development, the development strategy
adopted, the available composition of resources, skills, and manpower, the
efficiency with which other institutions are performing functions related to
development banking and so on. Top management, thus, needs to have a precise
knowledge of all these elements of the socio-economic structure in its dynamic
setting. Mere knowledge cannot suffice; it has to evolve organic links with
the decision making process in the institutions, which have an impact on its
work, so that its functioning is integrated with that of the related institutions. In this process of interactions, a development bank adapts itself to
the other institutions as much as it enforces adaption by the others to its
functioning.
