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Difficulty: MediumMerchant, Development, and Specialized Banks

An agro-industrial cooperative in Nigeria seeks long-term capital financing to build an ultra-modern grain storage facility with a 10-year repayment structure. Which category of banking institution is primarily mandated to provide this type of specialized long-term development financing?

  1. Development bankAnswer
  2. B
    Commercial bank
  3. C
    Merchant bank
  4. D
    Central bank

Answer

Development bank
Development banks are purpose-built financial institutions established to foster socio-economic expansion by supplying long-term funding and concessionary credit facilities to crucial sectors like agriculture, housing, and manufacturing.

Step-by-Step Solution

1
Identify the financing requirement described in the scenario
The scenario highlights a need for long-term capital with a 10-year repayment structure dedicated to agricultural industrialization.
Different banking institutions cater to specific funding maturities and sector needs.
2
Evaluate the functional mandates of financial institutions in Nigeria
Development financial institutions (like the Bank of Industry and Bank of Agriculture) are funded and mandated specifically to absorb long-term risks and provide patient capital for infrastructural and industrial development.
Commercial and merchant banks maintain shorter liability profiles and cannot easily lock funds into decade-long fixed asset projects.

Key Concept

Distinction between financial functions of specialized development banks, commercial banks, and merchant banks
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Topics

Merchant, Development, and Specialized Banks

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