The DFI Restructuring Framework for Pakistan

The international DFI experiences suggested that DFIs could be run successfully and make a positive contribution to the countrys economic development, provided they were soundly conceived and professionally managed. Based on this generalization and the experience of DFIs in Pakistan the following guiding principles were considered to form the basis of restructuring the framework for DFIs in Pakistan:

(a) Consolidation and streamlining

As discussed above there were a number of DFIs with overlapping functions. If the purpose of government intervention was to fill the market gap then there was little justification for government DFIs to compete with each other or have duplicating or overlapping roles

Autonomy and professionalism

The international experience suggested that successful DFIs had professional management, and enjoyed significant autonomy. Their boards of directors comprised persons of proven competence and integrity drawn mainly from the private sector and academia. The CEOs were appointed on merit and once appointed had full freedom to manage the institution based on business considerations

A catalysts role
The DFIs should play a complementary role in the financial sector such that over time the private financial sector would be encouraged through demonstration of the success of DFI operations to start undertaking such hitherto neglected business

Commercial orientation
Successful DFIs around the world had always protected their financial interest. The prime function of DFIs was to provide financial services to sectors and enterprises, which despite being inherently viable and bankable were not served by the financial sector. Thus DFIs should be able to pursue their mandate and at the same time be financially prudent.

Partnership with private sector

DFIs should work, as far as possible, in partnership with the private sector to minimize their credit risks and achieve a higher level of private sector involvement with their clients.

Independent resource mobilization

Once DFIs are placed on sound financial foundations and they start developing a sound portfolio and financial performance, they should be able to mobilize a substantial portion of their resources on their own without government support.

Minimize subsidies
Subsidies can be a very effective vehicle to achieve certain socioeconomic and development objectives provided they are thoughtfully targeted where they are needed and provided only in as much quantum as needed. Many financing programmes currently managed by DFIs carry subsidized interest rates, but due to the inefficiencies in the system the effective cost to the intended beneficiaries is much higherthan the nominal interest/mark up rates.