It is not very easy to make generally valid statements about the functions of a development bank and its place in the financial sector because such functions are performed by a wide variety of institutions. The following features however could be mentioned as essential.

The activities of a development bank are geared towards development. That is its basic objective is to promote socio-economic development of the nation by taking over services whose non-existence or shortage are severe obstacles to development such as education, water, transport and communication.

A development bank does not therefore only provide above average support measures for commercial purposes of the individual enterprises or nation but also assists in improving and expanding the financial infrastructure in a developing nation.

Its decisions are based on overall priorities (economic and social) of the country or region to the partial neglect, if need be, of the aim of profitability.

It is personally and organisationally in its business policy autonomous in relation to the state apparatus. Its actions are in line with development plans.

The Development bank is in principal self-supporting and therefore, enjoys a wide range of freedom in its decision on management and disposal of funds.

The bank offers financial aid in suitable forms, long term credit, shares, debentures, and unsecured loans, to borrowers whose credit standing or credit worthiness does not meet the conventional banking criteria or who lack adequate access to institutionalized credit for other reasons.

The development bank does not perform the credit creation function of commercial banks but shares some of the services like acceptance and disposal of funds and has a complete monopoly over others. In extreme cases it combines the functions of the central bank and those of commercial banks. Its radius of action therefore extends beyond the performance of traditional banking services.

This functional diversity is met in agricultural credit, industrial advances and investment projects, research studies, feasibility studies, issue of technical advice and training facilities.

Development banks replace unorganised markets, i.e. money lenders, big landlords, traders, etc. by institutionalized and supervised credit sectors. By so doing development banks attempt to eliminate forms of effective credit rationing which hamper development.

Related to this is the making or keeping of the cost of credit at a tolerable level and refraining from excessive demand for security. This is very important in developing economies where mortgage security is an illusion.

The banks also fill the gap left by other financial institutions like development corporations which emphasise equity holdings by placing their emphasis on lending for long-term purposes with out security and with new forms of security. Their emphasis is further placed on influence on the management of the entity, borrowing from the banks. Example of development banks:-