Multi-stakeholder Consultation on Financing for Development in the Asia-Pacific Region.

Organised byThe United Nations - Department of Economic and Social Affair

in collaboration withAssociation of Development Financing Institutions in Asia & the Pacific

“Development Financial Institutions at Cross-roadsRethinking their Role & Systemic Reforms”

Presented by

Dr. Sailendra NarainChairman

Centre for SME Growth & Development Finance (CESMED)( E:mail - snpn@vsnl.net )

CESMED

DFIs and Economic Development

* DFIs: Systemic and institutional importance

* DFIs’ contributions in the last 5 decades

* Millennium Goals :

- Financing for Development (FfD)and role of DFIs

DFIs at Cross- Roads

Development Financial System going out of focus

DFIs’ sagging financial health made them uncompetitive

DFIs: Obstacles & Limitations

Resources Cost Legal Restrictions Rigid EnvironmentBanks’ Competition

Development Financing : An Overview

• Regional Economic Contributions by DFIs

• Asia - Africa - Latin America

• Greater Mekong Sub-region (GMS) – Economic Corridors

• India- DFIs Performance & FICCI Survey results

GMS – Economic Corridors

Indian DFIs Performance

Performance of DFIS - India

0

2000

4000

6000

8000

10000

12000

14000

1998-99 1999-00 2000-01 2001-02 2002-03

Sanctioned

Disbursed

(Rs. Million)

Year Sanctioned Disbursed

1998-99 8103 5905

1999-00 10197 7097

2000-01 11908 7650

2001-02 7969 6389

2002-03 3629 3072

Indian DFIs - FICCI Survey Results

RESPONDANTS’ REPLIES- GRAPHIC PRESENTATION( Source : FICCI Research Paper )

PLANS FOR FRESH INVESTMENTS IN NEAR FUTURE

Yes89%

No11%

Yes

No

PROPORTION OF PROJECT COST TO BE MET FROM DEBT FINANCE

1

10

7

20

22

24

7

9

0

5

10

15

20

25

30

Less than 20 20-40 40-50 50-60 60-70 70-80 80-90 90-100

PROPORTION OF DEBT FINANCE

PR

OP

OR

TIO

N O

F R

ES

PO

ND

EN

T

DFIs NOT ACTIVE IN THE LAST FIVE YEARS

Yes73%

No8%

Can's say19%

Yes

No

Can's say

ARE DFIs USEFUL FOR RAISING LOW COST LONG TERM DEBT FUNDS

Yes31%

No44%

Can's say25%

Yes

No

Can's say

EMERGENCE OF ALTERNATE FUNDING STRUCTURES IN THE LAST FIVE YEARS

Yes52%

No48%

Yes

No

SIZE DISTRIBUTION OF RESPONDENTS WHO FEEL THAT ALTERNATE FUNDING STRUCTURES FOR RAISING

DEBT FINANCE HAVE NOT EMERGED IN THE LAST FIVE YEARS

Less than 1000 million50%

1000-2000 million14%

2000-3000 million10%

3000-4000 million7%

4000-5000 millon5%

5000 million & above14%

SIZE DISTRIBUTION OF RESPONDENTS WHO FEEL THAT ALTERNATE FUNDING STRUCTURES FOR RAISING

DEBT FINANCE HAVE EMERGED IN THE LAST FIVE YEARS

Less than 1000 million25%

1000-2000 million13%

2000-3000 million6%3000-4000 million

8%4000-5000 millon

2%

5000 million & above46%

ARE UNIVERSAL BANKS OF ADEQUATE HELP IN RASING

LONG-TERM PROJECT FINANCE?

Yes20%

No40%

Cannot Evaluate 40%

Yes

No

Cannot Evaluate

SHOULD DFIs BE REVIVED

Yes

80%

No

10%

Can't say

10%

Yes

No

Can't say

Whether Development Finance Still Relevant ?

• The Premise:

- Development financing as a system and DFIs as an

institution are central & essential for development

- DFIs & commercial banks should co-exist rather than

compete

- Given this premise:

= DFIs need to be made competitive & viable

= DFIs’ traditional role must change with systemic reforms

Suggested Road-Map

• DFIs to be brought back in sharp focus• Policies of Governments’ & Central Banks’ to be re-oriented• Friendly enabling environment, level-playing field, restructuring

and setting up special fund for resource support• Linking Micro Finance Institutions (MFIs) with formal DFIs

Issues for Discussion

• Are DFIs still relevant? Whether they should perish or survive ?

• If DFIs are central to the development process, how can they be made viable, relevant and competitive?

• If a three-tier development financial system is suggested:

(i) Apex DFI (ii) Regional DFIs and (iii) Local DFIs (MFIs) will the system be viable and effective?

• To tackle “Cost of Resources” problem,,how about creating “DFIs Development Fund” at Regional levels by federating DFIs of a few countries (such as all DFIs of Mekong Region six countries) with sovereign guarantee, political risk cover from MIGA / World Bank, and better rating.This Regional Fund with strong rating and can attract resources at affordable rates and on-lend to member DFIs for operations.

• Perhaps ADFIAP can take a lead in setting up a DFIs Development Fund for the Greater Mekong Region as a pilot project, in which Governments, financial institutions, multilateral institutions and private sector could become stakeholders.

THANK YOU