Skip to main content

APEC Economic Committee Recommendations on Role of Specialized Financial Institutions (SFIs)

Bangkok, Thailand | 17 October 2003
The APEC Economic Committee (EC) has published a series of recommendations to guide government activity in supporting the growth and development of financial institutions in economic sectors that are often denied access to the formal banking sector.
The recommendations are featured in the "2003 APEC Economic Outlook" that will be presented to APEC Ministers on October 18 in Bangkok.
The APEC EC noted that central to these recommendations is that, "government intervention should be undertaken only to address market distortions that the private sector cannot address."
However the report also warns that there are cases in which government intervention may not be sufficient to rectify problems.
The report notes: "If the establishment of SFIs leads to an uncompetitive financial market, then such intervention does not correct the problem, rather creating market fragmentation and credit segmentation."
The economic sectors that are most likely to benefit from SFI activities include small and medium enterprises (SMEs), small agricultural projects, real estate and housing and a number of micro sectors that empower women and other often disadvantaged social groups.
The recommendations are include in the chapter on "The Role and Development of Specialized Financial Institutions" which has been derived from a study that included the participating economies of: Australia, Canada, Indonesia, Hong Kong, China, Japan, Mexico, the Philippines, Chinese Taipei, and Thailand.
Chair of the APEC EC, Dr. Choong Yong Ahn, said the recommendations are intended to ensure that government intervention in the SFI sector does not create inefficiencies but opens up previously closed sectors.
"Since government intervention in the financial sector has a direct impact on the establishment of SFIs, the degree and form of this intervention is critical to the success of SFIs and the benefits they can deliver to the community.
"The SFIs usually work in markets that have not been adequately served by traditional financial institutions and have a clear social as well as economic role to play.
"The aim of the APEC EC in preparing these recommendations is to provide greater clarity of the current state of specialized financial institutions (SFIs) in the Asia Pacific region"
One of a series of recommendations provided by the APEC EC is that an effective role for government, based on the analysis of given information and cases, can be achieved by:
  • The government intervention should be undertaken only to address market distortions that the private sector cannot address.
  • If the establishment of SFIs leads to an uncompetitive financial market, then such intervention does not correct the problem, rather creating a market fragmentation and credit segmentation.
  • Government may need to adjust the original measure or undertake a new initiative in order to get favourable impacts. This may result in intervention activities not expected at the outset of the process.
  • Government interventions should be carried out carefully and only in cases where private markets clearly are incapable of achieving competitive interactions and a competitive allocation of resources.
  • Government interventions should be well constructed focused on achieving specific objectives and include an appropriate exit strategy.
  • All SFIs are encouraged to pursue good governance practices in order to increase their operational efficiency and an accomplishment of statutory goals and objectives.
The study investigates differences and similarities among 42 specialized financial institutions in 8 economies divided into categories such as the reasons and objectives of establishment, the legal status of SFIs, the scope of services SFIs offer, target market sectors, regulatory and supervisory regimes and involvement in social issues.
The "2003 APEC Economic Outlook" report will be posted on the APEC Secretariat Website after it has been officially presented to APEC Ministers on October 18.