BNM seeks more focused delivery of mandates under Malaysian development financial institutions

Governor Tan Sri Muhammad Ibrahim said improving performance measurement frameworks and increasing transparency in the operations would be an important areas of focus.

"We need to measure the right things, measure outcomes that matter and measure that is relevant.

"This needs to be driven by a clear vision and strong leadership that is uncompromising," he said at the Global Symposium on Development of Financial Institutions here today.

Muhammad said the central bank expects local financial institutions to operate with the highest level of professionalism and integrity at all levels.

"Indeed, we expect that given their mandates, they would lead in demonstrating how commercial principles can be fully reconciled with responsible finance and public interest," he added.

Muhammad also said key traits that would allow development financial institutions to promote and champion new growth areas, include a broader focus on socio-developmental goals for risk-return trade-offs to take into account positive externalities for the economy.

He called on financial institutions to have specific mandates to develop and prioritise niche segments identified to be of strategic and economic importance, which would give them legitimacy with funders and partners.

"These financial institutions also need to affiliate with the government, ministries and agencies to facilitate the design of appropriate government support, which enables them to take a higher risk.

"Leaders must recognise and align priorities to steer their respective institutions to contribute more broadly and strategically to economic development.

"This includes playing a more active role in technical assistance, and serving as key repositories of specialist knowledge, resource aggregators for strategic development projects and credible advisers to the government," he said.

Despite development institutions around the world, including Malaysia, facing unique challenges currently, Muhammad said these financial institutions still had to manage and balance responsibilities that were substantially more complex than those with narrower profit-making mandates.

"These institutions have embarked on initiatives over the last decade and a half to build greater financial resilience and stronger foundations for sound management, enabling them to play an important counter-cyclical role during downturns, and to support economic activity in targeted segments.

"However, more effort is required on critical appraisal of their development impact. It is much needed to sharpen the development focus, redirect and amplify the impact of financing activities.