Adnan Zaylani Mohamad Zahid: Address on sustainable finance Address by Mr Adnan Zaylani Mohamad Zahid, Assistant Governor of the Central Bank of Malaysia (Bank Negara Malaysia), at the ADFIM Webinar on Sustainable Financing, 04 August 2021. * * * Thank you to the Association of Developmental Financial Institutions of Malaysia for organising this webinar. I am honoured to be invited to deliver this keynote address. Certainly, the theme of this webinar is highly current and crucially important. And it looks to grow even more so as we weather through this unprecedented health crisis and economic downturn. Acknowledging the diverse audience and role of DFIs in advancing the sustainability agenda The economic challenges are many and the economic fallout of the crisis are deep and in some cases worsening. At the global level, some of the forecasted statistics are staggering. The global economy is projected to suffer losses up to $ trillion1; As many as 150 million will be pushed into extreme poverty by 20212; Global unemployment would exceed 200 million in 20223; Women make up 39% of global employment but account for 54% of overall job losses4; and More than 50 million people were doubly hit in 2020 by climate-related disasters in addition to the threats due to COVID5. Most of these indicate an expected regress in our sustainability agenda. On the other hand, there are claims that the climate has benefitted during this crisis but it has come about in a far than ideal situation with such high human and social costs.
On the other hand, the private sector may have larger financial capacity but is traditionally more inclined to support low-risk and well-served customers, whilst high risk customers are either left out or are charged quite expensively to buffer for uncertainties. In overcoming these challenges, DFIs ought to collaborate with other entities in mobilising capital and diversifying risk across different institutions, thus providing an opportunity for the private sector to participate in these segments within the comfort of their risk tolerance. In parallel, DFIs need to continuously build their internal expertise and deepen their understanding of the sectors or segments through regular engagement with the industry, as well as enhance industry analysis, leveraging on access to data within the government. This would augment DFIs’ credibility to lead and crowd-in the private sector towards participating in innovative funding structures. There are two noteworthy solutions that DFIs may wish to find ways to adapt to the local context: Firstly, a risk-sharing facility that can catalyse private capital. This entails offering instruments that enhance the private sector’s willingness to finance high-risk segments. For example, USAID partnered with the Medical Credit Fund (MCF) in Africa in providing USD 1 million catalytic first-loss capital which successfully drew in USD 17 million debt financing from impact investors. MCF, in turn, worked with African financial institutions to provide loans and technical assistance to healthcare SMEs in providing quality healthcare services as well as ensuring business sustainability. Secondly, the use of blended finance while offering financing instruments that promote customer resilience.