Thursday, October 22, 2020

WFDFI meeting unpacks financing tools

The Forum of the World Federation of Development Finance Institutions (WFDFI) to which Botswana, through the Citizen Entrepreneurial Development Agency (CEDA), was host last week between unbundled the crux of development financing as not merely alternative but a tool through which lives could be transformed.

Generally, as asubject matter development financing covers an extensive ground.  However, the discussions of the third installment of WFDFI tackled the themeof “DFIs sustaining relevance in the age of disruption”.The discussionsdivided into different sessions related to the theme, aptly unpacked the new role that DFIs must assume in responding to the new age of technological disruptions characterised by a fast-changing environment.

Manoj Mittal, Deputy Managing Director, Small Industries Development Bank of India,eloquently described the fluidity of money in eitherupwards-flowing or opposite directions.

The financial inclusivity of such enterprises into the DFI’s market was from the experience of West Africa mentioned giving an example of an innovative product that was introduced to the market in the formof guarantee of portfolio.

A significant share of the bank financing, he said, was ordinarily taken up by multinationals which excluded micro and small enterprises which are typically very small and less structured from the equation. The benefit of attending to the needs of such enterprises, as he indicated, wasthat society becomes stabilised.

“Financing these enterprises equates to fighting against poverty,” he said. In fact, the Chairman of WFDFI Arjun Rishya Fernando said went as far as indicating that an individual loan was defined as development financing as it helped people to develop. 

Specific on expanding possibilities on DFIs’ agenda of development, Kishor Piraji Kharat, Managing Director/Chief Executive Officer, IDBI Bank Ltd in India,shared the observation that DFIs had shifted their roles from “development financing to financing development”.

The opportunities availed by such a re-direction, he expounded, included revising DFIs’ business strategy as to respond to digital disruptions, establishing an enabling entrepreneurial development to which he gave an example such as “Make in India” through which a set-up of a local manufacturing base was encouraged and included historically disadvantaged people in terms of access to finance.

Kharat, however, observed the encroachment of commercial banks into DFIs’ limited market, a move which identifies them as threat. Closely related to that is the issue of regulations extended to DFIs and commercial banks, which Datuk Mohd Radzif bin Mohd Yunus, Group Managing Director, SME Bank in Malaysia, proposed should be differentiated given their respective roles.

Currently similar regulation applies to DFIs as it does to commercial banks. DFIs typically offer long-term financing at a low cost in comparison to commercial banks’ short- term financing. 

DFIs in Botswana such as CEDA, Botswana Development Corporation (BDC) and National Development Bank (NDB), as it emerged from Non-Bank Financial Institutions Regulatory Authority (NBFIRA)’s Chief Executive Officer Oaitse Ramasedi, are not covered under the authority’s regulation. This means that they remain unregulated.

He said: “We don’t regulate any of the government-owned DFIs.” He then called on the attention of local DFIs to observe how the Authority conducts its activities from which they can learn.

Addressing the issue of state ownership of DFIs against realising self-sustainability in carrying out their role,CEDA CEO Thabo Thamane, expressed the viewthat the industry was “far from seeing DFIs that are privately owned,” adding “I don’t think there’s appetite on private sector to own DFIs. Private sector is not willing to risk their money.”

He emphasised that the issue was not on ownership but on how to drive the role of DFIs.

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