Question 3 (Total: 30 marks)

In a laissez-faire economy, an efficient financial intermediation system mobilises and allocates scarce resources towards activities that would optimise the rates of return. On this basis, the commercially-driven and profit-maximising banking institutions would often tend to take a short-term view and consider solely the private benefit of a project, at the expense of the potential long-term social benefit that could be derived from financing a particular project.

a) Analyse the role of development financial institutions (DFIs) in Malaysia to address the gap that is evident in the marketplace, specifically in certain segments of the economy that have been underserved by the banking system. (22 marks)

b) Examine the two major DFIs that are instrumental towards the development and growth of the Small Medium Enterprises (SMEs) in Malaysia. (8 marks)