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Question

Difficulty: MediumMerchant, Development, and Specialized Banks

Development financial institutions in Nigeria rely primarily on short-term retail demand deposits from individual savings accounts to provide long-term capital for industrial and agricultural infrastructure.

Answer: Answer

Answer

The statement is False. Development financial institutions do not accept short-term retail demand deposits; rather, they obtain long-term funding from government allocations, central bank interventions, and international development agencies.
The statement is false because development banks are structured specifically to provide long-term capital for strategic economic sectors without relying on short-term retail demand deposits from individual savers, thereby preventing financial instability caused by maturity mismatches.

Step-by-Step Solution

1
Analyze the financial liability structure and funding sources of development banks.
Development banks obtain funds through government subventions, equity capital, institutional grants, and long-term bonds rather than individual retail demand deposits.
Retail demand deposits represent short-term liabilities that are subject to immediate withdrawal by depositors.
2
Evaluate the principle of asset-liability maturity matching in specialized banking.
Financing long-term industrial and agricultural projects with short-term retail deposits causes an asset-liability maturity mismatch.
Development projects have long gestation periods and require patient capital rather than liquid short-term funds.
3
Determine the validity of the stem statement.
The claim that development banks rely primarily on short-term retail savings and demand deposits is incorrect.
Retail deposit mobilization is a key function of commercial banks, not specialized development financial institutions.

Key Concept

Funding Mechanics and Maturity Matching in Development Banking
Estimated Time:1m 0s
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Topics

Merchant, Development, and Specialized Banks

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