Page 31 - IB AUG 2019

Business

get rid of that, or its growing smaller in size, the world starts in the first place, expanding plantations, getting into value-
to look like quite a different place, the intractable suddenly added activities if the finance is there.
becomes tractable … because you’ve allowed those financers “These are people who don’t have high incomes and ag-
to get in there and do stuff. “ riculture is the way they are going to sustain themselves,
The ADB report cites three core challenges to reforming but the bank wants to charge a very high interest rate. My
Pacific banks; clarifying their role, providing the structural answer to that is, that is a whole lot better than no finance
and financial foundations to allow banks to play that role, at all. And we’re not talking extortionate rates. Yes, a lot of
and improving their operational performance. these interest rates are high relative to what you would pay
“The big one is role clarification,” says Dirou. “What do we in the big city, but it is scaled, the bank is taking on a risk.
want these banks to do? Is there a case for the bank in the Its far better for the bank to do that and over time as the
first place and to revalidate that case periodically. Because scale builds, those rates will become much more competitive
you need new entrants. That’s job number one. And then it as other lenders [get involved].”
was in clarifying that role, that’s when we start to emphasise Dirou say while the Fiji Development Bank is expanding
the importance of understanding risk, the types of risks its lending in this sector, “If I’m looking at Samoa, Tonga, so
to be financed. You run this bank then on the principles of much more can be done. What’s happened is that invariably
good finance. The rest of the story then is the traditional it has been the government owned banks that have stepped
SEO [state owned enterprises] reform story. So that’s about, up. And what we’re trying to do with this report is help them
okay, we’ve got to structure these things, we’ve got to give make that case.”
them the capital strength, give them the balance strength to Finding Balance suggests that if state-owned banks can
be able to do the job. And then there’s the performance part show a class of risk (for example agriculture) can be profit-
of it. These are government owned banks; we have a right ably financed, other banks can be expected to compete for
as the owners of these banks to push them. So if we can get this business, and borrowers will eventually move to banks
more out of that resource, then everyone is a beneficiary. where they can get cheaper finance.
And if they are a drain obviously it is a drain on the rest of But it says this isn’t necessarily a bad thing, as it means
the community. state-owned banks can also change direction and potentially
“The simple message here is that by applying the prin- take on new classes of risk such as equity, hybrid credit-
ciples of good finance you are more likely to achieve those equity instruments and venture capital finance. Finding
objectives in the first place and what’s more, it’s going to be Balance states that in some cases, this evolution “could be
a sustainable way of doing it. And in doing that you reduce supported through the introduction of private shareholders,
the reliance on government. It doesn’t have to be there to such as pension funds and other financial institutions.”
prop up the capital of the bank every three to five years.” r consultant@islandsbusiness.com
Finding Balance recognises that several of the banks sur-
veyed are critical to underpinning competition in the domestic
market, and that the six commercial banks surveyed have
“been willing to introduce new products, provide credit,
where other lenders have been unwilling to do so, or expand Seed reefs
their geographical footprint to underserviced areas.”
The report seeks to shift understanding around develop-
ment banks, stating that all financial institutions contribute with “farmed” Tridacna gigas giant clams
to economic development through their financing activities,
“so it is not helpful to foster the illusion that development
banks are essential to economic development…The key
point is that DFIs [Development Financial Institutions] are
willing to finance activities that have important economic
impacts, but which other financial institutions are reluctant,
or perhaps even unwilling, to finance.”
For Dirou, there is great potential in better financing the
region’s agricultural sectors (and in the case of the north Pa-
cific, aquaculture.) The report says international commercial
banks are “generally absent from this market”, and that in
countries with supportive laws and registries, development
banks are the most active users of movable property as
collateral and this has created new financing products for
agribusiness.
Yet Dirou says more can be done.
“A lot of work is being done to improve horticultural stan-
dards, for example access to markets, but [in] the financing
part of this exercise invariably, there’s not enough effort.
People pretend the donors are working on this agricultural Atoll Beauties
development program, ‘we’re working hard at the front end’, PO Box 384,
‘we’re working hard at the back end’, meanwhile stuff isn’t
getting financed and they can’t expand. So the exporter can’t Bikenibeu, Tarawa, Kiribati
get the finance it needs in order to buy more of whatever the atoll.beauties@gmail.com
country can grow or so many more people could be growing

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