Public Development Banks and Credit Market Imperfections

This paper examines details surrounding public development bank (PDB) intervention. PDB intervention is an alternative to credit allocation when the screening process for domestic banks is costly, however there are other alternatives. PDB lending is only superior to other alternatives when corporate governance of the PDB is strong enough to forego political considerations in favor of seeking out efficient projects and firms. In these circumstances, PDBs may alleviate problems and inefficiencies associated with a firm's moral hazards, or insufficient access to collateral.