The Bank is refining its methodology for DFIs to support greater differentiation at the individual institution level based on the nature, size, complexity and most importantly, the unique roles and mandates of each DFI. Prudential and conduct standards applicable to DFIs will also continue to be renewed and adapted where relevant. The balance that we aim to strike can only be achieved if DFIs also lift their game to ensure strong internal controls and risk and performance management. In addition to proportionality, a related issue is the need to review the overall DFI landscape in a holistic manner. An important step towards steering the DFIs forward will be to conduct a review on the mandates of the DFIs. Since the establishment of the DFIs in Malaysia more than four decades ago, their mandates have remained largely unchanged. Periodic mandate reviews are important especially in a country like Malaysia where there is rapid economic growth and structural change as the country moves from one stage of growth to another. Mandate reviews will not only identify gaps within the economy that DFIs can play a meaningful role, but to reduce areas which overlap with each other and other players in the financial sector. For the immediate future, there are pockets of financing gaps particularly in the new and emerging sectors that the DFIs could support. Examples of these areas are: the high4/5  BIS central bankers' speeches  end services and advanced manufacturing sectors, as well as knowledge or technology-based sectors including green-tech and biotech industries.

While this is definitely a concern for every country, we open-economy EMs are especially concerned about how SMEs—particularly medium-size firms—would cope with the trade and supply chain disruptions. Medium-size manufacturing firms are the backbone of EM economies. Prior to the onset of the trade tension, the new global environment has already brought upon these firms considerable pressure. Technological disruption tends to favor large corporations who better understand the technology and have the resources needed for the adaptation. Low interest rate environment also allows large firms to access bond financing at very low  1  funding costs. These factors have increased market power of large firms and forced smaller firms to quickly redefine their business model in order to stay afloat. Amidst these structural changes, the ongoing trade tension becomes an additional burden to medium-size firms’ survival both directly and through the disruption of the supply chains. Moreover, the increased uncertainty that forces firms to diversify their production locations and hedge against the growing risks together with the ongoing economic downturn have squeezed the profit margins. In such a circumstance, mediumsize firms are in a much more difficult position than large firms that have deeper pockets and larger buffers. Trade tension might be comparatively short-lived when compared to other structural changes like demographic shift and technological disruptions, but these short-term factors could result in a long-term impact to medium-size firms and the structure of the economy through channels such as changes in competition landscape, market dominance power, and investment and employment patterns.