Datuk Vincent Pung, Sabah Credit Corporation Your Philosophy of Development Finance
There is definitely no possibility of one size fits all in development finance. The variation of cultural, resources, geographical and political landscapes require development financiers to be highly adaptive and innovative at the same time.
Unfortunately, because of the social element, development finance not only carries a much higher risk and longer gestations but more often then not, results are highly subjective. Often Development bankers are placed in a defensive position to justified why success rates are small when in many instances, they are actually acting as a political delivery system for the government.
For better management of development finance, the ideal would be to weight the risk appetite for each financing portfolios and provide for the potential Non Performing Loans (NPLs) accordingly, from the onset, with the concurrence of the Government. Then the performance of the institution will then be reflective of the situation it is placed in.
The Current Role of Development Finance in Sustainable Development
Development finance can be classified under three levels – Micro, Small and Medium Enterprises and the larger multi-million projects. Our organization is geared towards the lower two levels. From past experiences, the failures that often occur in these levels are not from the lack of funding but from the lack of ready infrastructure to support the output of these ventures. So the role of development finance can only assist sustainable development if due consideration have given for the transportation and market for the produce. In other words, financing, even through crucial, forms only part of the sustainability.
In a developing country like Malaysia, providing easy accessibility to micro credit is still considered as an important strategy to bring people out of the poverty trap. Often in the haste to speed up the process, the Government over stimulates the sectors and cottage industries sprung up overnight with little hope of success due to over supply and lack of market accessibility. Many good intentions created a demoralizing backlash of failed entrepreneurs. The delivering institutions do need to go the extra yards by ensuring that enthusiasm must be tapered with logic and the need to let the supply mature with the demand.
The Future Role of Development Finance in Sustainable Development
The recent failures in the financing sector highlighted the need for better and more transparent disclosures on both commercial and development financial institutions alike. With the encouragement for the adoption of Basel II disclosures, development financial institution’s will increasingly be more risk averse and turn to more viable ventures then on risky developing ventures.
One way to avoid this dilemma is to let the commercial arm support the social arm of the portfolios. In other words generate the profits from the commercial arm and either, to use these profits to finance the social sectors or to use them to cover the margins of the expected losses in this high risk development loans.
Going forward, Government should empower development financial institutions with sufficient funding and lee-ways to have a large enough commercial arm that can generate good income to sustain a viable and sustainable development financing program. This is my institution’s strategic direction in ensure a sustainable development program.