Competition, Ethical Governance and Sustainable Finance: Evidence from Development Financial Institutions in Malaysia

Abstract

This study examines the competitive environment and market structure of Malaysian Development Financial Institutions (DFIs) and discusses their implications for ethical governance and sustainable finance. Using panel data from ten Malaysian DFIs covering 2009–2020, the study employs structural and non-structural measures of competition. Market concentration is assessed using the three-bank concentration ratio (CR3), five-bank concentration ratio (CR5), and Herfindahl-Hirschman Index (HHI), while competitive behaviour is evaluated using the Panzar-Rosse H-statistic. The findings indicate that Malaysian DFIs operate under monopolistic competition within a moderately to highly concentrated market dominated by several large institutions. Although such concentration may strengthen financial stability and institutional capacity to undertake large-scale development projects, it also raises concerns regarding governance, accountability, and equitable access to development finance. Furthermore, the financing portfolios of several dominant DFIs indicate increasing reliance on consumption-related financing, suggesting potential mission drift from their developmental mandate. The study argues that competition should be evaluated not solely in terms of market efficiency but also according to its contribution to responsible finance, ethical governance, and sustainable development. Strengthening governance mechanisms and mandate-based performance indicators would help ensure that Malaysian DFIs remain aligned with national development priorities while supporting long-term sustainable economic growth.