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Fiji Development Bank CEO, Deve Toganivalu at the 2011 Fiji Economic Update USP Marine Campus
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16 September 2011

Thank you Professor Biman for those very warm words of welcome.

I must admit, when I first received the invitation to deliver the keynote address to this forum, I was a little apprehensive at first especially when I looked at programme and saw the list of illustrious speakers to follow. The titles of Doctor and Professor is enough to cause even the most seasoned and experienced banker such as myself to pause before accepting, then I took comfort in the thought that, “those who can do and those who can’t – teach”. And so here we are.
Let me begin by first thanking the Faculty of Business and Economics for this opportunity to deliver the keynote address. I promise that my few words this morning will deliberate more on the realities of development banking rather than the armchair perceptions of what development banking should be.
The Fiji Development Bank I have come to understand; is a bit of a mystery to some people. I will share with you a bit about our genesis, a historical perspective of our business over the years, the challenges we face in development banking and what we see as the future of development for Fiji and her people. By the time I’m done – you will either be asleep or asking me for a loan for a project that you have in mind – hopefully it will be the latter!
 
In the beginning
Before the FDB became the FDB, it was known as the Agricultural and Industrial Loans Board. The Board was formed in 1952 by the Legislative Council under Ordinance no.27 of 1951 with a £150,000 grant from the Colony’s Development Fund.
At the end of the Board’s life, the number of accounts on the books was 1,802 valued at $915,551.  These accounts were transferred to its successor entity – the Fiji Development Bank – set up under the Fiji Development Bank Act (Cap 214) on 1 July, 1967.
The FDB is an autonomous statutory body, the operations of which are managed by an executive team of three general managers and me, as the CEO. Management is overseen by a Board appointed by the Minister of Finance. As at 31 August 2011, the FDB had 5,120 accounts and a portfolio valued at $353.60MM. This of course does not include the thousands of loans that have been approved and accounts settled over the last 44 years.
FDB’s Role in Development
Since its inception, FDB has always maintained a clear strategic focus for its business and that has always been to assist Government in its development goals particularly, those related to rural development.
As stated clearly in our Charter, the function of the Bank is and I quote: to facilitate and stimulate the promotion and development of natural resources, transportation and other industries and enterprises in Fiji and, in the discharge of these functions, the Bank shall give special consideration and priority to the economic development of the rural and agricultural sectors of the economy of Fijiunquote.
Unlike commercial banks, FDB while carrying the word Bank in its title, is in reality, a non-bank financial institution that does not take deposits or conduct over the counter banking transactions like commercial banks, although this is an area that we are seriously considering given that cost of funds has meant that our lending rates to the non-subsidized sectors are over and above the going market rate for the same elsewhere.
The Bank operates in part on Government subsidies for specific sectors. The other part of the Bank’s financing is derived from the floating of Bonds and Promissory Notes.
The key word to focus on when thinking of FDB is: Development. As academics, business people and advocates for grassroots people, you will appreciate that development is invariably tied to risk – the bigger the development, the bigger the risk and the higher the return. And, when you are charged under law with the responsibility of: “giving special consideration and priority to the economic development of the rural and agricultural sectors” the focus of your business changes.
One aspect of our business remains unchanged – we continue to lend at normal rates to those with less collateral in sectors that are considered extremely risky by commercial standards.
Like any financial entity, at FDB we try to ensure that we maintain a balanced portfolio; offer products that are relevant and tailor made to meet the specific needs of our target market, often referred to in financial circles in dehumanized terms as “the unbankable”. We also go a step further than most by ensuring that projects funded by FDB achieve three key goals namely:
·        Developing the resource sector;
·        Creating long term employment; and
·        Helping enhance a better standard of living for all. 
It is important also, that people understand that as a state-owned enterprise our lending policies are attuned to development policies and lending guidelines set by the Government of the day.
Conducting our day-to-day business is a delicate balancing act of driving the commercial, managing the political and at the same time, ensuring that the social demand of development financing is met. These are not easy things to do.
In March 2008, the Minister of Finance instructed FDB to re-focus its lending priority to ensure a Focused:non-Focused ratio of 60:40 in our portfolio by 2012. At the time, the Bank’s portfolio was 70% commercial and 30% agricultural.  We are currently at 40:60.  The FDB holds 59% market share of all agricultural loans in Fiji – up from 54% the previous year. Overall, in terms of financing, the Bank holds 12.1% market share.
The Focused sector includes small and medium enterprise loans to the following:
·        Agriculture which includes Forestry and Fisheries;
·        Mining and Quarrying;
·        Manufacturing;
·        Transport, Communication and Storage;
·        Wholesale, Retail, Hotels and Restaurants; and
·        Professional and Business Services.
The Bank’s non-Focused sector includes larger loans of over $500,000 to those sectors mentioned earlier, as well as:
·        Building and Construction;
·        Private Individuals; and
·        Real Estate.
Non-focused does not mean that the Bank has stopped lending to these sectors altogether - to the contrary. We continue to lend but at a lower level than previously.
Before micro-finance became a catch-cry and all the rage in the finance sector, FDB was well ahead of everyone in lending to this sector from day one. We currently have a social banking portfolio of 1,380 accounts valued at $5.11MM – this comprises 26% of our total portfolio by number but only 1.5% by value.
FDB recognizes that good profitable businesses are attractive to commercial banks and these businesses find the products and terms available, attractive to them so it is no surprise that there is a continuing migration from FDB to commercial banks.
While it is nice to have our share of profitable business, our major focus is on helping businesses develop into successful enterprises. The challenge for us then, is to find businesses to take their place and assist them to become sustainable and viable also. The fact that many of our customers are able to seek and attain good commercial terms is testimony to our success in helping them get to this position.
 
Historical Perspective – Successes & Failures
Over the last 44 years, FDB has pioneered and helped build some successful enterprises for Fiji. Along with that of course, has come some equally spectacular – well, disappointments.
In 1968, FDB made its first equity investment, acquiring 50,000 shares in Fiji Industries Ltd. This entity is now part of the Fijian Holdings Group, which the Bank has also had a hand in forming in 1984. The shareholders for FHL includes amongst others, the provincial councils as well as tikina and village groups.
The Suva Stock Exchange, now the South Pacific Stock Exchange and the Unit Trust of Fiji and Fiji Television Limited also got their start from FDB.  These entities are now operated independently and continue to make positive contributions to the commercial sector.
The Bank has also invested significant resources over the years into enterprises set up to develop and manages Fiji’s resource based sectors such as Fiji Dairy Limited (then known as Rewa Dairy Limited), Fiji Hardwood Corporation, Fiji Pine Limited and the Fiji Sugar Corporation to name a few.
On that same token, we have also had our fair share of disappointments. Those of you who can recall the Equity Investment and Management Company (EIMCOL) or the Fijian Store Scheme set up in 1989; was designed to be a spring board from which to launch young iTaukei couples into careers as supermarket operators and business people.
Critics over the years have been very vocal in their assessment on why and how FDB designed and managed these various schemes. I will just say here, that the Bank did the best it could in terms of implementing and making an effort to achieve a social goal based on commercial enterprise, which is more than any other financial institution has ever done.
At FDB, we have learnt that unless you educate people, change attitudes and provide them with the tools necessary to make that change, you will never solve the problem. Money or in this case, financing, only facilitates that change process – it is not a solution unto itself despite your best intentions.
Having had this epiphany, FDB then embarked on another ground breaking venture, that of teaching our children about financial management - how to identify their needs and wants, drawing up a simple weekly budget and maintaining a weekly savings plan.
Money $mart™is a financial literacy programme incorporated by the Bank and the Ministry of Education into the Form 3 Commercial Studies curriculum in all of the 163 secondary schools throughout Fiji. Since then close to 80,000 students have had the benefit of this programme with a resulting $822,000 in accumulated savings reported since the start of the programme. We envisage however, that the actual savings over this period to be somewhere in the vicinity of $1.68MM. FDB’s commercial brethren of course are the sole beneficiaries of this unexpected windfall – perhaps I should ask for a commission at this point for FDB.
This year, the Bank along with the Ministry of Education, have expanded this programme into the Form 4 Commercial Studies curriculum called Invest $mart™. The goal of Invest $mart™ is to expose students to the various investment opportunities that exist in the market and identify the best option available to them for investing their savings, which they have continued from Money $mart™.
During periodic reviews of Money $mart™ we found that an unexpected change taking place. Because students have to save with Money $mart™ as part of their assessment, students that do not have access to weekly pocket money become innovative and enterprising in the ways with which they earn money to bank. Simple things like making sasa brooms, making and selling sweets, washing cars, selling fruits and coconuts etc, are what students have started doing to earn their savings. This can only mean good things for the future.
In April this year, the Association of Development Financing Institutions in Asia and the Pacific (ADFIAP) recognized Money $mart™ as one of two winners of its Human Capital Development Category award at its 34th annual meeting in Cyprus. The recognition is part of ADFIAP’s annual Outstanding Development Project Awards which honours ADFIAP members who have undertaken and/or assisted projects that have created a development impact in their respective countries. Such recognition tells me that we are on the right track in terms of setting the foundations from which Fiji will see an emerging class of entrepreneurs and better business people.
 
Challenges in Development Banking
It is my firm belief that no one goes into business with the intention to fail. Having invested equity, time, effort, sweat and tears whether it’s developing a farm or starting a biscuit factory, people do so with the intention to succeed.
As the financier for these particular enterprises, we too would like to see them thrive and grow and when this expectation isn’t met, it is with a heavy heart that we proceed with recovery measures.
Then there is the issue of cost of funds. The Bank continues to explore ways through which we can source cheaper funds. The current political situation has had some impact in this regard as traditional off-shore funding agencies now prefer to directly fund small business projects on the ground rather than channel those funds through FDB.
On the other hand, we are also challenged by the lack of technical knowledge and expertise that many of our resource-based clients do not possess. Farming is a traditional occupation for many of our clients. A good example is the sugar industry where generations of families have taken on the laborious and often non-profitable business of sugar cane farming. The knowledge these farmers have of cane farming is handed down over the generations and through small training programmes provided by FSC.
The financial returns from the agriculture sector can be phenomenal, provided those farming it have the technical knowledge and understand the ins and outs of farming in general such as the importance of using good planting material, how to propagate your own planting material and how to maximize on off season planting to mention a few. Sometimes experience just isn’t enough.
Downstream processing of resource-based goods is also another area where Fiji has failed to fully capitalize on. Value adding through processing allows Fiji to go around stringent quarantine regulations set by importing countries. Exports not only boost Fiji’s GDP and foreign reserves but also the lives of those directly linked to this sector of the economy.
 
FDB, Fiji and the Future
Fiji’s economic future lies in its people. It is hoped that our financial literacy initiatives will give rise to a generation of entrepreneurs that will take Fiji forward.
If Fiji is to improve economically, we also need people who are unafraid to take risks and willing to work hard to make their enterprises a success. Through Money and Invest $mart™ we continue to impress upon our young charges to look at themselves as future employers and not employees.
The heart of agriculture is in the rural areas. Provided the essentials of business – roads, electricity, telecommunications, transportation links, tenure of land and market are in place – poverty can be a thing of the past.
The Fijian Grown and Fijian Made initiatives of Government are commendable. This is an aspect that requires and attitude change on the part of the consumer and the provider of goods. The challenge for the farmer or processor lies in ensuring that quality of goods produced is good; and for the consumer, it’s about giving preference to local products over imports.
Import substitution financing initiatives by Government under the RBF managed Import Substitution and Export Financing Facility, is also an avenue that can be explored by commercial farm operators.
Additionally, we are also advocating the utilization of renewable energy sources in business to help bring down the cost of operations particularly in the semi-rural and rural areas where the cost of diesel and super is quite high. The Sustainable Energy Financing Programme is a World Bank guaranteed initiative available through FDB which allows businesses to borrow up to a million dollars at 6% per annum, to switch or install energy source requirements that are either solar, bio-fuel or pico-hydro based.
Another area that we see as having enormous potential for growth is the professional & business services sector. As many large corporations downsize and outsource services, the opportunity to start new businesses and take on these contracts is immediate and profitable if structured and managed properly.
Ladies and gentlemen, I could go on and on but unfortunately time does not allow me to waffle on.
In conclusion, let me just say that maintaining a profitable business is a challenge given our mandate. I have to acknowledge at this stage the prudent financial management and supervisory role that of my staff on the ground have had in ensuring that we continue to maintain a positive balance sheet despite the many challenges that we have had to overcome.
Thank you for your time and I would be most happy to talk more on the work of FDB later, one on one.
 
Vinaka.

 

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