Abstract:
Development finance institutions have dual mandates, where they must contribute to
development in the economy in which they serve, and simultaneously must maintain
financial sustainability. The research explores the dichotomy; studies whether a tradeoff
in the dual mandate exists, and goes beyond the traditional accounting approaches
to appraising financial performance. The soundness of financial independence of
development finance institutions in South Africa has been emphasised by both the
national government, through the National Treasury department, and the capital
markets from which these institutions borrow. Thus, their ability to create value for their
stakeholders is one important aspect to their continued existence. In South Africa,
value creation in development finance institutions has not been studied and serves as
the primary motivation for this research study.
The research has applied a value-based system, McKinsey s discounted economic
profit model, to measure value creation or destruction of a development finance
institution in its use of scarce capital resources. In addition to this, a theoretical
framework has been applied to measure development impact, using the social output
index model. The research design followed the holistic case study method, with a
sample of one, employing the purposive technique.
The findings of this research revealed that value is being destroyed in the deployment
of capital resources by the development finance institution, with recommendations
thereof proposed. Secondly, the findings revealed that development impact is not
maximised, and the results provide insight to decision-makers regarding informed
allocation of resources. In exploring the dichotomy between financial performance and
development impact, the findings lastly indicated the trade-off relationship can neither
be confirmed or refuted, as the results are inconclusive in this regard.
