Your Excellency Governor Nor Shamsiah Yunos,
Governor of Bank Negara Malaysia,
Distinguished guests and speakers,
Ladies and Gentlemen
Thank you very much for your warm welcome, Governor Nor Shamsiah. I would like to take this opportunity to express again our heartfelt congratulations on your recent appointment, and appreciation for the continued and even stronger partnership of Bank Negara Malaysia and the World Bank Group.
This Forum is a great testament of that partnership. This is the fourth time that we have jointly organized a major forum on financial sector development issues, with the first one in 2016, focused on Financial Technology or FINTECH, followed by the topic “Microfinance and Financial Inclusion” in the following year. In September 2017, we held the third Symposium, which brought together Development Financial Institutions or DFIs from around the world to discuss their role and the challenges they face in the new Millennium.
I am delighted to know that this Forum builds on the success of the previous years, and our focus is on a critical topic for DFIs - performance measurement and maximizing developmental impact.
Equally delightful is to have more than 500 participants today clearly showing the enormous relevance of this topic. I am also pleased to note that representatives from all the six DFIs under the supervision of Bank Negara Malaysia are attending this event, namely Agrobank, Eximbank, Malaysia Development Bank, SME Bank, National Savings Bank, and Bank Rakyat. We hope to benefit from our resource persons from the Business Development Bank of Canada, the Agriculture Development Bank of Mexico, and from the Banco Estado of Chile.
In the next two days, we will be discussing the importance of DFIs in promoting economic growth and alleviating poverty. We will discuss challenges and practical solutions to fulfill these goals. We will review an effective performance measurement framework that can better assess the impact and effectiveness of DFIs’ business operations.
I encourage all of you to actively participate in the discussions, raise questions, and share your valuable insights with all participants in this Forum. This is one of the unique advantages of bringing experts and professionals in one big meeting like this. The World Bank’s Global Knowledge and Research Hub in Malaysia has been helping to foster policy dialogue among policy-makers, practitioners, and international experts, to build capacity in DFIs not only in Malaysia but all over the world. We hope that by bringing you all together, we can all learn together.
DFIs and the World Bank Group
Let me share with you some of the World Bank’s perspectives about DFIs.
First, the World Bank Group is convinced that promoting sound and inclusive financial institutions that serve the people and the private sector, in particular, micro, small and medium enterprises, is crucial to achieving our twin goals of reducing poverty and promoting shared prosperity. For decades, the World Bank Group has worked with DFIs in many countries. We have provided lines of credit, guarantees, and technical assistance programs.
Looking forward, we continue to see DFIs as an important instrument in the global effort to reduce poverty and support economic growth. As the international community struggles to mobilize additional funds to meet the Sustainable Development Goals by year 2030, DFIs can be instrumental in narrowing that gap. DFIs not only finance projects that the private sector is unwilling or unable to finance, they also help to create and develop new market niches, develop innovative schemes to attract and channel private sector resources to large infrastructure projects, build capacity in public and private sector institutions, conceive and structure new investment projects, and facilitate the execution of public-private partnerships.
Second, while some DFIs have been successful in the past, others continue to face challenges to fulfil their goals. There are multiple examples of poor performing DFIs that have become a heavy fiscal burden. Moreover, poor performance of DFIs has led to credit market distortions that displace and crowd out private financial institutions instead of crowding them in. Often, weak DFIs have also become vulnerable to political interests in various parts of the world.
Third, to avoid these potential pitfalls, DFIs need a well-defined mandate; they need to operate free of undue political influence, focus on addressing significant market failures, concentrate on areas where the private sector is not present, and monitor and evaluate interventions and adjust as necessary to ensure impact. DFIs must operate with high transparency and accountability standards.
Fourth, and this is the focus of the Forum, to be able to deliver good results, it is important that DFIs have in place an effective performance measurement framework. Without the tools and systems to monitor progress to make timely course corrections, to test and assess necessary innovations, and to evaluate results, it will be hard for DFIs to achieve their goals.
Moreover, without a proper evaluation system, DFIs will not be able to understand which policies and programs work, in which context and why. As a consequence, DFIs could be spending a lot of time and resources just to find out later that there was a better way to meet their goals.
DFIs exist to address specific market gaps where private banks don't deliver services. The market, therefore, will not signal to them success or failure. Instead, evaluation systems need to do so to ensure DFIs fulfil their mandate. Knowing which programs and financial instruments produce results and which do not is essential to ensure DFIs are efficient and effective.
It is not as easy as it sounds. The use of robust and effective tools to monitor and evaluate DFI’s activities is still at an infancy stage, in part due to the lack of international benchmarks. Practitioners recognize the importance of developing and adopting such frameworks, but little practical guidance is available to guide efforts at existing DFIs.
Through the years, the World Bank has tried to assess the effectiveness of its own programs and activities and to learn from its own successes and failures. Our Independent Evaluation Group, which is an independent unit within the World Bank Group, regularly assesses our business activities and tries to examine what works and what does not and why.
At the World Bank Group, performance measurement has been an important area of focus over the past years and we continue to invest a lot of resources in building systems and improving our own indicators to measure our developmental impact. My colleagues will be sharing with you the efforts we have made to improve the way we measure our results, as well as systems and indicators. I hope you will find them useful.
Final Remarks
The timing of this Forum could not be better. More than ever, we need to think of innovative instruments to attract and channel new resources to finance our developmental aspirations. In the next 15 years, Malaysia will need to mobilize billions of dollars to achieve the 2030 Sustainable Development Goals, fulfill the commitments of the Paris Agreement, modernize and expand existing infrastructure, and continue to improve the living standards of its population. Existing sources of finance are insufficient to meet Malaysia’s development aspirations, thus more effective instruments are needed to mobilize private sector capital.
In closing, let me emphasize again that our experience shows that for DFIs to remain relevant, it is important that their developmental mandates be reviewed periodically and adjusted, if needed. We live in a world in which technology is rapidly changing our lives and the ways we do business. Moreover, thanks to rapid economic growth during the past three decades in Asia, the financing gaps that many DFIs were supposed to fill have been narrowing.
Therefore, this is a good time for Malaysia’s DFIs to think about the future and how you can reinvigorate yourselves to support Malaysia’s future economic development.
The challenges that DFIs of Malaysia face are not unique to Malaysia. During the past years, the World Bank itself has undergone various changes to remain relevant and better able to serve our client countries. And in this Forum we will be learning about the evolution of DFIs in Chile, Canada and Mexico.
I encourage you to actively engage in the discussions – share your insights, knowledge, and solutions, which are vital for reaching our shared goal of poverty alleviation and shared prosperity. I wish you a productive Forum and I look forward to the discussions and outcomes from this important event. Thank you!
