Progress funds

22 June 2023

Salikhov Marcel R. President, Principal Director on Economic Studies, Head of the Economic Department

The Izvestia newspaper published a column Progress Funds by Marcel Salikhov, president of the Institute for Energy and Finance.

In emerging economies, domestic financial markets may not function optimally, limiting borrowers' access to finance and thus negatively impacting economic growth. Development institutions, among which the state singles out VEB as the key one, on the one hand, have access to state financing and state guarantees, on the other hand, operate in a competitive environment. This factor can help correct market distortions and improve resource allocation. With limited access to foreign markets, many corporate borrowers need financing on favorable terms. At the same time, it is important that development institutions and their instruments do not replace market instruments, but function where the market is lacking.

The functionality of development institutions and their size are determined by the national characteristics of individual countries and their financial capabilities. The assets of BNDES (Development Bank of Brazil) account for about 9% of the country's GDP, CDB (China Development Bank) - about 14%. Thus, there is further room for growth in Russia. Of course, the very size of the assets of development institutions should not be an end in itself. First of all, we are talking about the tools and opportunities that development institutions can provide to the economy.

Direct participation in the share capital of non-financial organizations is usually unprofitable for banks, as it means pressure on capital adequacy standards. For borrowers, the benefit is that equity raising is secured. For the development institution, the benefit lies in the distribution of risks with banks, as well as the opportunity to conduct more effective due diligence of projects.


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