Development Bank formation – Challenges faced abroad

The formation of a new development bank is faced with many difficulties particularly in those countries most in need of support from such a state institution. As a result of this, the demand for innovative solutions within this field is constantly growing, especially in emerging markets and developing countries. Solutions enabling these economies to establish a domestic development bank are particularly sought-after. However, the often poor rating poses an unsurmountable difficulty to the bank’s refinancing strategy, thus undermining the states’ abilities to establish a viable bank. Innovative strategies secure favourable refinancing conditions by collateralization for development banks.

The development bank’s rating can be disconnected from the country rating by collateralization using natural resources, more specifically the future cash flows from developed natural resources. Furthermore, by involving a trusted third party, through which cash flows will be redirected, the ownership of natural resources can be retained by the individual governments.

By initially supplying financing for the further development of industry, the domestic development of infrastructure and the state can be indirectly financed. This “circular flow” of funds helps create cash flows which in turn can be used for collateralization and thus secure the favourable provision of refinancing for the newly founded development bank.

Using specific projects, sustainable development structures can be achieved and expanded toward development structures independent of specific project causes. The long-term goal of improved infrastructure and economic growth can be achieved.

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