UUM economist calls for resilient governance across Malaysian DFIs

Malaysia’s development financial institutions (DFIs) must urgently modernise their operational and technological safeguards to prevent external shocks from compromising their developmental mandates, an economic expert said.

Highlighting Bank Negara Malaysia’s (BNM) revised Performance Measurement Framework (PMF) and enhanced corporate governance rules, Dr. Hanis Adiela Ibrahim from Universiti Utara Malaysia’s (UUM) School of Economics, Finance & Banking stressed that governance can no longer be treated as a detached boardroom formality.

“For the public, governance may sound like a technical issue confined to boardrooms. In reality, it determines how institutions protect financial resources, manage risks, make accountable decisions and remain capable of fulfilling their mandates over the long term,” Dr. Hanis said.

The call for institutional resilience follows an online fraud incident at Agrobank, which led to losses of RM203.8 million. While authorities confirmed customer accounts were unaffected and 47 individuals were arrested, Dr. Hanis noted that the scale of the loss serves as a sober reminder for institutional oversight.

“The incident should not be interpreted as evidence of governance failure while investigations remain ongoing,” she cautioned. “Nevertheless, losses of this magnitude highlight the importance of robust operational controls, technology risk management, transaction monitoring and effective oversight.”

The high-wire balancing act

DFIs play a vital socio-economic role that conventional commercial banks often bypass. In 2025, outstanding DFI financing grew 5.8% to RM193.9 billion, supporting over 21,000 growing businesses and sustaining more than 150,000 jobs nationwide.

However, Dr. Hanis warned that DFIs face a unique paradox: they operate in naturally high-risk sectors—such as agriculture and early-stage small and medium enterprises (SMEs)—yet must remain financially sustainable.

“A strong DFI therefore cannot simply avoid risk. Its purpose is to manage risk responsibly while continuing to serve areas where financing gaps exist,” she explained.

“Excessive risk-taking can threaten financial sustainability. However, excessive focus on safer and more profitable customers may gradually move a DFI away from its developmental mandate.”

BNM’s framework demands real outcomes

Dr. Hanis commended BNM’s revised PMF, noting it marks a decisive paradigm shift from simple loan volume targets toward measurable developmental outcomes such as additionality, social impact, and systemic resilience.

To navigate increasingly complex economic and technological headwinds, Dr. Hanis argued that Malaysia’s next phase of development finance must anchor itself on three interconnected pillars: measurable impact, financial viability, and institutional integrity.

First, DFIs must look beyond headline numbers and prove measurable development impact by ensuring capital actively flows to underserved sectors that advance critical national priorities, such as food security. At the same time, institutions must maintain long-term financial sustainability without compromising their mandate by retreating into safe, low-risk commercial lending.

Underpinning both objectives is institutional integrity. According to Dr. Hanis, boards and executive leadership must proactively modernise technology risk management, sharpen internal controls, and uphold strict accountability to safeguard the public resources entrusted to them.

“Financing creates opportunities, but strong governance ensures that those opportunities and the institutions behind them can endure,” Dr. Hanis concluded.