Supporting the Policy Environment for Economic Development
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Finance & Accounting

Mozambique is entertaining a proposal to establish a development finance institution (DFI), a public sector second-tier lender that could work with a number of lending agencies. What must policy makers keep in mind in evaluating the risks and benefits of a DFI? An overview of the purpose of DFIs and experience with them in developing countries can help answer this question.

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International Accounting Standards (IASs) are a set of accounting standards that were issued between 1973 and 2001. In April 2001 the International Accounting Standards Board (IASB) adopted all IASs and continued the development, calling new the standards International Financial Reporting Standards (IFRSs).

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Foreign banks, especially Portuguese, and South African banks, dominate Mozambique’s financial system. Credit is limited, primarily because of limits on debt collection, the range of collateral, and credit information, but also because of underdeveloped financial institutions. Though bankable enterprises are underserved, the banking system is making progress in serving them and does not lack loanable funds.

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Bankruptcy Law for Mozambique

An effective bankruptcy system (including the judicial infrastructure) increases incentives to lend and invest in a country’s economy. And when things go wrong, it provides a template of principles and procedures for allocating scarce resources and making rational economic decisions as to the fate of a troubled company.

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Mobilizing Access to Finance

The principal function of a financial system is to mobilize savings and allocate funds efficiently to businesses, households, and governments. The market for finance is unique in that the transactions involve an exchange between a payment today and a pledge to repay later. As a market in promises, the financial system relies heavily on information about the reliability and solvency of the party promising repayment. In addition, strong legal and judicial foundations are needed to ensure contract enforcement and property rights, and establish the rules and regulations governing financial institutions.

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