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Difficulty: MediumSpecialized and Development Banks

Which of the following primary functions distinguishes the Bank of Agriculture (BOA) from commercial banks in Nigeria?

  1. Providing long-term concessionary loans tailored specifically to farming and agricultural development projectsAnswer
  2. B
    Regulating the nationwide money supply and controlling inflation through open market operations
  3. C
    Issuing short-term money market instruments to generate demand deposits for daily commercial trade
  4. D
    Restructuring unprofitable state-owned enterprises to operate for profit while retaining state equity

Answer

Providing long-term concessionary loans tailored specifically to farming and agricultural development projects.
Specialized development banks such as the Bank of Agriculture (BOA) were established to channel long-term credit and technical assistance at concessionary (low) interest rates into critical sectors like agriculture, where commercial banks are traditionally reluctant to lend due to high risk and long gestation periods.

Step-by-Step Solution

1
Identify the primary role of specialized development banks like the Bank of Agriculture (BOA).
Development banks focus on key sectors of the economy by providing long-term loans at low (concessionary) interest rates.
Commercial banks prefer short- to medium-term lending at commercial interest rates, whereas sector development requires long-term capital financing.
2
Differentiate BOA's functions from Central Bank and Commercial Bank operations.
BOA does not issue monetary control policy (CBN role) nor does it rely on creating short-term demand deposits (commercial bank role).
Specialized development banks operate under specific statutory mandates to foster sector growth rather than retail deposit expansion or central regulatory control.

Key Concept

Role and Mandates of Specialized and Development Banks
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Topics

Specialized and Development Banks

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