Development Banks - A sine qua non for growth and prosperity

Banks have been in existence for over a century in the Gambia. They have acted as a store of wealth for individuals in the form of deposits and merchant houses mostly importers used them for the facilitation of their trading activities. Letters of credits and guarantees are issued on behalf of traders to comfort their foreign suppliers.

An import based economy has proven not to be a growth driver and the productive sectors of the economy have to take a lead for any meaningful growth to take effect. This premise can only be supported by the emergence of development banks. The current financial dispensation is not ideal for entrepreneurial growth in the sense that there is a mismatch between tenure of funds available and profile of projects being implemented.  Most locally funded development projects tend to run aground because the debt structuring is not only unsustainable but also the cost of capital is exorbitantly high.

Borrowing is linked to the risk free cost of capital which is indexed to the Treasury Bill and the longest available tenure is 365 days (12 month yield). This is a major inhibitor of organic growth within the economy and the way forward is for the Central Bank to restructure their debt profile by introducing other monetary instruments such as bonds and development stock to mitigate the issue of tenure. Debt restructuring starts with the conversion of the bulk of the public debt stock into medium to long term bonds. These bonds will have longer maturity (5-15 years) and also an over the counter discount window that allow holders of these government securities to off load on demand. Once this is achieved, banks can now lend at lower interest rates and longer tenure thereby making local development financing sustainable. The Gambia is in a dire need of a development bank to help accelerate growth and development of the real sectors of the economy without which our development aspirations will not register positive dividends.