Given the digitalisation of finance and proliferation of technology in financial services, DFIs need to remain at the frontier of these developments. This could include leveraging on big data and forging partnerships with technology firms to develop digital solutions at lower cost and increased efficiency. At the broader level, the development finance architecture should also shift to be more effective in channelling resources and catalysing private investment to developmental oriented projects and initiatives. Whilst most DFIs have been self-sustainable for the past few years, DFIs will need to diversify their sources of funding and ensure that the structure of liabilities is appropriate for the assets that they hold to be sustainable in the long run. DFIs cannot be dependent on fiscal support to carry out their mandates. DFIs should aim to have strong competitive position on new growth sectors supported by a sustainable strategy and management execution capabilities. Last but not least, DFIs are required to continuously review their institutional fit and business models to increase their development impact while remaining financially sustainable. Effective DFIs should also be able to act as catalysts to promote private sector investments and support economic growth. One example of a financially sustainable business model is demonstrated by the experience of Nacional Financiera (NAFIN) as an enabler to Mexico’s aspiration to combat climate change through the Renewable Energy Financing Facility, or REFF.

Key Message 3 – Enabling regulatory and policy environment to support DFIs in realising their full potential My third and last point relates to the regulatory framework to support DFIs in realising their full potential. An appropriate regulatory and policy ecosystem is crucial to nurture a culture of innovation that will support the achievement of development impact within the DFIs. Bank Negara Malaysia is committed to cultivate this through the application of proportionality in our regulations. The concept of proportionality is related to the application of differentiated prudential requirements for institutions of varying sizes, systemic impact and complexity in order to avoid excessive compliance costs. These costs may be burdensome and disproportionately high to smaller institutions. The application of proportionality can take the form of reduced reporting burdens or simplified rules for some institutions. Proportionality however, does not necessarily mean less stringent regulations. For some institutions, it may mean lower leverage, additional safeguards and prudential measures. Thus, proportionality entails an adjustment to the complexity of the rules taking into account the risks and externalities posed by financial institutions. It is important to understand that this does not necessarily result in a lower degree of stringency. This practice is not entirely new as we have been practising proportionality in regulating DFIs. This is reflected in prudential regulations on capital and liquidity which are applied to DFIs as well as corporate governance and financial reporting requirements. Moving forward, this application of proportionality will be further enhanced to reflect developmental outcomes.