The Role Of Development Financial Institutions In The New Millennium

Paul Van Der Merwe is credited as being the first person that said: “money makes the world go round”. This is just as true today as it has ever been.

But, the good news is that approaches to money change, where it would be difficult to secure the funds you need, this is no longer always the case.

Development Financial Institutions (DFI).

Most DFIs have been created by governments allowing them to encourage money lending to the right causes and thereby boost economic growth, as well as supporting social development. The majority of the most well-known DFI’s were created decades ago, leading to the question of whether they are still relevant today. The answer is a resounding yes!

In fact, they have an even greater role to play in the new millennium than ever before.

The Role Of DFI’s.

Their basic goal is to provide economic stability and encourage growth, something that every economy needs if it is to be successful. In the past, the DFI’s were completely controlled by the government and were state-funded.

This did limit their lending abilities and the opportunities for the common person to reach them and tap into their resources.

However, with the introduction of development finance partners the DFI’s are able to reach a much greater audience, allowing them to invest n private and business sector ventures especially property-based activities.

By approaching the partners the average person can actually tap into these resources and use them to get their own business off the ground.

This isn’t just the view of local governments, global organizations, such as the World Bank, are now acknowledging the power of DFI’s when used in conjunction with private partners.

For example, when the economy starts to crash the central banks have to tighten monetary lending criteria. This results in a restriction on economic growth and the situation becomes worse, effectively creating a vicious circle.

But, private development financial institution partners can actually keep lending. The increase in their lending allows the market to continue developing and encourages recovery before the market actually crashes.

DFI’s are also a useful tool to cover shortfalls in funding on the riskier private sector projects. These are projects that the private sector can’t afford to finance as they are too risky. DFI’s can inject the cash these businesses need and encourage economic growth.

But the DFI’s and their partners must have long–term financial sustainability, alongside great risk-management tools. It’s difficult but possible and an essential part of their role in the new millennium.

Of course for DFI’s to be truly successful they must have the very highest standards and clear mandates showing their intentions and directives. They also need to be held accountable by the governments and the people, ensuring everything they do is beyond reproach.

Providing DFI’ are able to properly monitor their business activities and decide the right time to intervene they will have a place in today’s society and that of the future.

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