# **Introduction**

In spite of the wave of privatizations of state-owned financial institutions (SFIs) that has taken place over the past 30 years, SFIs still constitute an important part in the financial system. On average, they account for 25% of total assets in banking systems around the world. In the European Union, for example, SFIs represent 30% of the total financial system (Schmit, 2011). In the so-called BRIC countries alone – Brazil, Russia, India, and China – the market share of SFIs is substantially higher.

SFIs include a wide variety of institutions, such as commercial banks, development banks, postal banks, insurance companies, credit guarantee funds, leasing firms, etc. Development banks (DBs), also called development financial institutions or policy banks, are typically the largest type of SFI. Historically, governments established DBs to provide credit and other financial services to individuals, firms and strategic sectors of the economy that private financial institutions were unable or unwilling to serve to the extent desired by policy-makers.

During the global financial crisis of 2008-2010, most DBs played a countercyclical role by providing credit to private firms that were temporarily unable to access funding from private commercial banks or capital markets. This has renewed the interest of policy-makers in various jurisdictions on the role of DBs during periods of economic distress. Moreover, the financial crisis triggered new debates on the role of the state in the economy and, in particular, the financial sector.

Despite their size and importance, little is known about DBs. Past research on DBs has focused on examining their performance and comparing them to private financial institutions (Hanson 2003, Laporta 2000). Other studies have examined the reasons for the failure of select DBs (Viral, 2011). But apart from few case studies of a small number of individual institutions or specific regions (Rudolph 2009; Schmit, 2011), little is known about how DBs operate, what their policy mandates are, what financial services they offer, which type of clients they target, how they are regulated and supervised, what business models they have adopted, what governance framework they have, and what challenges they face.

The World Bank has received an increasing number of requests for data and new studies about DBs. These requests are motivated by ongoing efforts in various countries to strengthen their own DBs by insulating them from undue political interference, transforming them into more profitable and financially self-sustainable organizations, and adopting innovative governance arrangements.

In response to this demand, the World Bank and the World Federation of Development Financial Institutions (WFDFI) launched a survey to analyze the features and challenges faced by existing DBs, particularly those in low- and middle-income countries. The survey contained 72 questions (see Annex for the full list of questions) grouped into seven specific areas: size, funding, business models and products, profitability and asset quality, corporate governance, regulation and supervision, and challenges. The survey was conducted between January and June 2011 with the members of the WFDFI and the regional associations of development banks in Africa, Asia, Europe, and Latin America.

This report summarizes the key findings of the survey. Although the survey answers some questions and provides new data of DBs, it also raises new questions and concerns. We expect that the findings of the 2