Development financial institutions can be an agent of change, says BNM Governor

KUALA LUMPUR: "Properly structured development institutions can be a potent agent of change for private sector investment, drive growth, and forge inclusive societies," said Tan Sri Muhammad bin Ibrahim, Governor of Bank Negara Malaysia.

Speaking at a global symposium on development financial institutions, the governor highlighted that development financial institutions need to perform a broader role in stimulating economic activity. 

"They can provide unique value propositions in terms of advisory and nurturing new growth sectors to become profitable and thus, attractive for private investors," he said.

Drawing examples from the success of the Korean cultral industry dubbed the "Korean Wave" and Uganda's first private bond issuance by a multinational mobile telecommunications company, Muhammad said there were ways in which development financial institutions can be steered to contribute more broadly and strategically to economic development.

Muhammad also highlighted the need to strengthen accountability frameworks through performance standards that emphasise development additionalities.

"Performance measurement systems that accord greater quantification of development impacts will strengthen accountability frameworks, with many attendant benefits. It will further reinforce the Government’s developmental agenda. It will provide a mechanism to address market failures. It will ensure that funds are allocated to the right sectors within the economy. 

"Effectively done, it will increase the development financial institution’s credibility, reputation and potential as key players in advancing socio-economic development," he added.

Muhammad also said development institutions should take the lead in providing solutions to stimulate investment and entrepreneurship.

"In my view, a key part of their contribution to development has to be in evolving non-traditional approaches to encourage investments in targeted sectors, precisely because conventional approaches have not responded adequately," he said.

Finally, Muhammad said institutions can significantly increase their impact through resolving issues of corporate governance. 

"The critical appraisal and monitoring functions are largely shaped by the strength of its corporate governance. These require competent and professional boards to be installed, clear rules of engagement with their stakeholders, and stronger performance management standards that are aligned with development outcomes."