Degree

Master of Business Administration Executive

Faculty / School

Faculty of Business Administration (FBA)

Year of Award

2017

Project Type

MBA Executive Research Project

Access Type

Restricted Access

Executive Summary

A report by working group on NBFCs and DFIs in India stated the raison d'etre of the DFls in following manner;

In a developing country, financial sectors are usually incomplete in as much as they lack a full of markets and institutions that meet all the financing needs of the economy. For mple, there is generally a lack of availability of long-term finance for infrastructure and industry, finance for agriculture and small and medium enterprises (SME) development and financial products for certain sections of the people. The role of development finance is to identify the gaps in institutions and markets in a country's financial sector and act as a 'gap filler'. The principal motivation for developmental finance is, therefore, to make up for the failure of financial markets and institutions to provide certain kinds of finance to certain kinds of economic agents. The failure may arise because the expected return to the provider of finance is lower than the market-related return (notwithstanding the higher social return) or the credit risk involved cannot be covered by high risk premium as economic activity to be financed becomes unavialble at such risk-based price. Development finance is, thus, targeted at economic activities or agents, which are rationed out of market. The vehicle for extending development finance is called development financial institution (DFI) or development bank. A DFI is defined as 'an institution promoted or assisted, by Government mainly to provide development finance to one or more sectors or sub-sectors of the economy.

The Pakistan's context for establishment of DFIs was quite similar to India. Pakistan established its earliest DFI with technical and financial collaboration from multilateral agencies in 1952 and followed by establishment of further DFIs. However, since late 1970's Government of Pakistan (GoP) has exclusively established DFIs by entering into bilateral or joint venture agreement with other countries. This might not necessary be policy of the federal government, but the trend shows that all the DFIs established from 1978 onwards were in form of JV entities. The government has tried to use this method to attract FDI, while simultaneously establishing entities that could provide impetus to various economic activities. Whether this strategy has paid off and the DFIs have been able to accomplish their objective is a subject for debate.

Pages

37

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